In this archive CAT feature from 2012, motor industry consultant Mike Owen considers whether offering the perfect service to customers is an unobtainable dream
Once you have business volume and are efficient in turning that into completed jobs, you then need to focus your efforts on turning the work into wages and profits.
I’ve said that labour rate is individual to each company and that even if two companies have the same rate it will undoubtedly be for different reasons. In its simplest form, a labour rate is a fraction of the sum of annual bills and intended profits, the sum divided by the hours intended to be sold.
If you accept this principle, overall payment of bills and earning of profits are then dependent on two things â€“ the volume of hours against your target and the amount of money received for each hour versus the labour rate. It’s simple, but I’m always surprised how few businesses keep a close track of it.
I’m sorry, but at this point I must beg your pardon as I’m going to use some bad language. Ahem: Consarnit discounts! There, I’ve said it…
I’ve heard that people who swear cannot express themselves properly, and I maintain that those who discount also can’t communicate the real value of their product.
We have to accept that it’s a difficult world out there, however. Discounts will exist regardless of my opinion and will continue to do so, but think about the impact they have. Discount the value of your labour rate and you erode your profits and risk bankruptcy.
At our profit clinics we run exercises on variable labour rates. Provided the value recovered as an average is equal to your required labour rate, then you win. Flexibility is what we do, so if you feel the need to offer discounts on certain categories of work to attract business then go ahead, fill your boots. Just remember you will have to increase your labour rate elsewhere to come back to that all-important average we call recovery rate.
The problem is that common sense is often lost with certain bodies insisting that you publish your labour rate. I don’t think you should. Customers who compare prices take the franchised dealer’s times, which you can’t deliver, and your labour rate, that the dealers can’t deliver, and then beat you both up… oh brilliant.
Instead we must turn our attention to the ability to sell. In the imagination of an average customer, fitting a water pump on their vehicle is little more difficult than fitting a fan belt. Their neighbour did that on the drive last Sunday before going to the pub, so your quote for £120 labour, plus parts, seems awfully steep.
Value for money comes from understanding, so explain what has to be done. I don’t mean down to the spanner sizes, but a little loose description can do the trick. Dave, a great friend and mentor to me, used to go through the process; drain anti-freeze, remove hoses and radiator, fan belt off, install locking pins, remove cam-belt, take out water pump, clean mating faces, reassemble with new camshaft idler bearings (if needed), run-up to temperature and road test, so including parts and VAT. The better you can explain the job, the better the understanding of value.
I also now find myself asking again, why do we break the costs down? Can the customer have the parts only without the labour, or the labour without the parts? Come to think of it, can they have either without VAT?
I have had several garages tell me that they will fit customer-sourced parts, which is really putting your neck on the chopping block. Don’t be naive. You, as the professional, will be held responsible for the repair regardless of whether the subsequent fault rests with the part or the fitting. Just give them a complete price for the job and stick to it.
My first three business musts are ability, efficiency and recovery. While I have considered these individually, they are, of course, all components of the same item which is business.
You can’t afford to be like the printer who offered his customers any two of three items, good, cheap or quick.
You could have a good job quick, but it wouldn’t be cheap. You could have a cheap job quick, but it wouldn’t be good. Or you could have a good, cheap job that wouldn’t be quick.
In your business you have to deliver all three of these key components all of the time as failure will manifest itself in one place… namely your pocket.