AKRON (Aug. 2, 2004) — Little things such as adding odd change to the hourly labor rate will boost a tire dealership's bottom line as well as its professional image, an automotive service software specialist said.
In my last two columns, Jerry Noble cautioned tire dealers and service shop operators to focus much more intently on overall profitability. At the same time, they shouldn't allow themselves to become distracted or obsessed with single elements of the profitability equation such as labor rates.
Mr. Noble, a former technician, service writer and shop manager, worked as a tool dealer for nearly 20 years. Today he's president of Automotive Visions (www.auto-vis.com), developers of Take Charge Service Management Software.
Previously, Mr. Noble stated that multiple labor rates should be the norm rather than the exception in automotive repair. For example, labor rates should reflect factors such as the skill of the technician, the complexity of the task, etc. He also argues that labor rates should never be the nice, neat round numbers that are commonly used.
Bosses can immediately and painlessly improve their bottom line by increasing each labor rate by an odd amount of change. For instance, bump the labor rate at your business from $70 up to $70.63 per hour. Simply adding 63 cents would bring in an extra $25.20 per week per technician, he said. That also comes to $1,310.40 per year per tech—and an extra $1,300 in the boss's pocket.
This “found” money also could pay for such things as technical training, a new personal computer for each tech's work station, new software programs, spiffy new uniforms, a great annual staff picnic or dinner and so forth. (As an instructor, I love the concept because it ends the gripes about tire dealerships and service shops that supposedly can't afford training!)
Mr. Noble contends that the “odd-change” labor rate also provides several subtle but important benefits. First, it boosts a shop's professional image by making the labor rates look more like a carefully calculated value than a capricious, convenient or haphazardly guessed number.
“The implication is that this is a number an accountant calculated the shop must charge to break even,” he explained. In today's competitive markets, every little edge in professionalism helps.
If you've spent time behind the service desk, you realize that some people are born to argue and second-guess your fees. Neat, round numbers for labor charges can invite the wrong kind of scrutiny from the wrong kind of customer.
“There's something about seeing a round number like $60 that makes some people conclude they've been charged 60 bucks per hour. They don't look closer at the bill or consider that the figure really represents something like 1.8 or 2.4 hours of labor,” Mr. Noble observed.
However, experience shows that the odd-change labor charge thwarts a lot of second-guessing by making it difficult to impossible for someone to figure out the hourly labor charge in their head and then argue with the service writer or manager.
Another benefit of the odd-change labor rate amount is that it's painless to the customer. For example, you bump the labor rate by 63 cents per hour. That's an additional $1.26 on a two-hour repair job. How many motorists would notice and/or challenge that $1.26 on a two-hour repair job? If you're a conscientious business person providing high-quality work, I certainly think you're entitled to an “odd-change” raise.
Mr. Noble also encouraged bosses who menu-price certain services to keep profitability in mind. Understand what the task or job really costs before attempting to set a flat fee for it. For instance, a shop charges a flat fee of $5 plus a buck a bulb to replace brake light bulbs. But suppose that in reality it's taking 0.2 hours (12 minutes) per vehicle to replace brake light bulbs because the tech has to clean out the typical car trunk and remove an access panel before he can reach the bulb(s).
If the labor rate is $71.63 per hour, then the average bulb replacement is actually costing $14.32 (0.2 at $71.63 per hour) plus the bulb and the cost of the service writer who prepares the work order for this little job. Knowing this, the boss could menu-price the task at some profitable, professional-sounding fee. Or, Mr. Noble noted, the boss could also pay the tech and do this little job free to build goodwill with customers and the community.