By Sam Yelverton
One of the main rules of a successful business is that your price must be competitive. In the service business we sometimes are overpriced, or at least our customers think so. This results in many customers buying auto services at non-dealer facilities. Although overpricing is the perception in many markets, competitive surveys often reveal that dealers are actually underpriced, especially in the areas of heavy repairs and hard jobs.
Here is a definition to use in developing variable labor rates so that you can be competitive and profitable in customer labor sales.
Effective Labor Rate
Customer Definition - Labor dollars sold divided by labor flagged sold.
We use special prices in service promotions and this results in reducing our effective labor rate compared to our single posted rate. To confirm this, simply survey 25 to 100 recent customer repair orders. Add up total dollars sold and divide this figure by the total hours flagged.
How can you correct this normal condition? To establish variable labor rates, your first step is to set up the following sales categories.
Competitive. This is the area of labor operations that is highly visible and advertised in your market. Examples are lube-oil filter, alignments, balancing. These are some price leaders that attract customers.
Maintenance. These are services and/or repairs which are generally recommended by the manufacturer. Included in this category are mileage/time interval maintenance or service menus. Examples would be belts, hoses, filters, seals, brake linings, and spark plugs.
Repair. (Captive work) Repair operations that are routed back to the dealership by independent garages, specialty shops, and mass merchandisers. This hard work is referred to dealers because they have the special tools, technical expertise, and equipment required to handle this type of work. Your competitors may lack some or all of these. Some examples are driveability, computer repairs, internal engine, and transmission repairs.
Competitive and Maintenance are classed as easy jobs, those with few or no comebacks, those with which you are able to beat flat rate time allowance.
Repair is classed as hard jobs. These are jobs that have comeback potential and on these jobs it is difficult to beat time allowance.
In many service departments we use a single labor rate. The same rate is used to R&R a water pump that is used to diagnose and repair/overhaul an automatic transmission. Is it any wonder that dealers get the big jobs…the jobs where something is seriously wrong with a vehicle? That's all right, because we want all the service business we can get.
Let's establish a fair labor rate - fair to the customer, technician, and the dealership. The following steps are necessary to create a customer labor rate.
Plug these what if rates into your RO's surveyed. You will see an increase in dollars sold. Hours flagged remain the same and your gross increases. This happens if you are a single labor rate shop doing 60-65 percent of your work in the hard, or Repair category.
Help yourself and establish every day low prices on Competitive and Maintenance jobs. This will attract and retain more easy work for your shop.
Establish a repair rate (for hard jobs) that is in line with skill required, special equipment, and special tools required, and your investment in providing proper and total service.
You will not lose these hard jobs. They will continue to appear every day
"on the hook."
Sam Yelverton is a consultant with Automotive Service Consultants of Birmingham, Alabama.
