Notice the keyword in the title “When”. Too many businesses are slow to raise their labor rates. They put it off far too long and suffer the consequences of low profits. The consequences of low profits are low morale and high employee turnover, equipment failure, deferred maintenance of the facility, little to no income for the owner and so much more.
Don’t let fear of raising your labor rates stop you
Fear causes many shops to avoid raising their labor rates. Fear of losing customers, hearing customers complain about the costs and hearing the staff complain about customer complaints. If you have these fears (been there, done that), you should be more afraid of the results of not raising your labor rates and how it will affect your auto repair shop in the long term.
Almost everywhere you look, prices are increasing. How about all those notices you have been getting from your vendors, utility companies, insurance agents and more about their rates going up? How about the notifications of the various governmental groups looking for more money and raising taxes and fees? You need to increase your labor rate just to keep up.
How and when to raise your labor rates
Okay, you have decided to raise your rates. How and when are the best times to do so? I teach all my clients and workshop students to raise prices every quarter. Some businesses do it at the first of the year while others do so monthly. No matter which you choose, you need to be diligent to do it as planned because it gets costlier the longer you delay. Set a reminder on your calendar to make sure it happens. The amount to be raised should be at least based on the CPI (Consumer Price Index) or on the percentage of the increase in cost of running your business. One way to verify your increased costs, is to take the average cost of running your business for one quarter a year ago and divide the cost of the same quarter from this year (remove any large purchases (equipment, etc.)) to get the increase. Then use that number divided by the number of times you plan to raise your prices this year.
But what will the customer say?
I’m sure that is still a question in your mind. The answer is simple: in most cases, they will say nothing. I know this, because I have seen this in my own shops as well as my clients’ shops. Many will complain about prices in general, but few know or keep track of their labor rates. One way to avoid the question about your labor rate, is never talk about labor rates or how long it takes to complete a job. Talk only about the price of the job and when you can get it done. When someone asks, “How long will it take to get it done?” ask them, “How soon do you need it?”
A client reached out to me because he was struggling to pay for a building he bought 5 years earlier. After looking over everything, I noticed that his labor rate was way below the market. When asked when he last raised his rates, he told me “When I bought the building 5 years ago”! 5 years! And when asked why, he told me he was afraid of what the customers would say. Funny thing, this fellow was a 6’ x 250 lbs. lean mean, muscle machine who looked like he would not be afraid of anybody or anything! Long story short, we raised prices significantly to get caught up and save the business. Just think of all the lost money, and sleep, because he delayed the increases. Also, his customers never mentioned anything about the increases!
The ManagerSE warning
After you raise your rates (labor and/or taxes) you will get a warning when you go to open any Estimate, RO or Invoice about the increase and whether to accept it or not. If it is a tax increase, click “Yes” to accept, it as you must charge the new rate. If there is a labor rate increase, be sure to click “No”. To avoid the chance that you or your staff accidentally accept the new rate by accident, I suggest you print a copy of all ROs and Invoices in the Work In Progress, if you have not done so earlier. This way, you have all the information needed to correct the error.
I highly encourage you to be unlike the crowd and raise your rates on a regular basis. Life will be much better for your business and your life.
You can email me at [email protected] or give me a call at 408-221-1165 to schedule a call for an up to 30 minute no obligation session.
Author: 1 Week 1 Thing
Jeff is an automotive consultant with ESI Training who provided this shop tip. Reach out to your Local Mitchell1 Rep for Mitchell1 software.