What’s it worth to you?

Businesses live and die on what they charge their customers. When it is what you live on, why can it so often be such a controversial issue?

Published:  25 June, 2018

As you will have seen elsewhere in this month’s issue of Aftermarket, Automechanika Birmingham 2018 is upon us. Don’t worry, we haven’t found a way to talk about it here as well- although since we mention it, don’t forget it’s on 5-7 June at
the NEC.
    
Walking around the halls during the show, looking at all the shiny equipment on display that would look so at home in your workshop, and would make such a difference to your business, have you asked yourself how are you going to pay for it?
While some will answer by saying they will get a loan, in that you have to pay it back, ultimately your income will pay for it. For the most part, the income will arrive in the form of what customers are paying you for the work done, which will likely as not be calculated on a by-the-hour basis.

Hour by hour
Stating the blatantly obvious, from that hourly income you pay for the equipment, the training, relevant subscriptions, parts and consumables, staff wages and the roof over your head. On this basis the hourly rate is a pretty serious thing, and it is essential that it is calculated correctly to cover costs and maximise profitability. That’s sound reasoning.

Why then is it often such a source of discussion? How much any particular garage charges for its services can be as controversial for other garages as it is for customers. If you charge too little for the local area you may be seen as breaking ranks and dragging everyone else down. Then again if you charge more than average and get away with it, those who lack the nerve to go so high may still not like it. You can’t win.

Reframing the argument
What about when you take a different path – by reframing the argument?

Aftermarket’s Facebook page recently posted a story about Xpress Garage and Tyre, a garage based in Falmouth in Cornwall. The story came from the local Cornwall Live news site, and was promoting the garage’s services to potential customers in the area. The business was offering a ‘Ultimate car service package,’ which it sold for £60 a year. The package included an MOT test, a vehicle health check and a free puncture repair and home-start, if required. The package also covered £15 off a four-wheel alignment as well as 10% off servicing and repairs and 10% off tyres. The package was available to customers within a 10 mile radius of Falmouth.

The post received a range of comments from Aftermarket readers at the time. Some of these focused on the idea that the garage was pricing itself too low, and took a negative view of the offer. Another way of looking at it would be that the  package itself was actually a smart piece of marketing on the part of the business, as it guaranteed an income and tied in those customers that took it up. While some might be a little sceptical about the idea of a free MOT, you could argue that the customer was actually paying for the MOT at the statutory maximum for a car of £54.85, and then paying £5.15 for access to a range of discounts. No one mentioned the labour rate in the promotion. They haven’t even got to the point where anyone has been charged for time put into a job, and the business already has £60 in the cash register.  

Time in a bottle
Let’s take the discussion back a step. Why are we so focused on the hourly rate anyway? Sometimes we forget this. It has been said before, but like many truisms, it’s worth being reminded of the fact. What business are you in? You think you’re in the vehicle repair trade don’t you? If that’s how you see your business, and you approach each job with this in mind, you are making a mistake every single day.
Believe it or not you are actually in sales. Next question – what are you selling? No, it’s not car repairs, it’s not servicing, and it’s definitely not fault diagnosis. All the tooling and paraphernalia that goes along with a business, all the consumables that go in and out (in a legal and environmentally compliant manner), all the legislative hoopla you have to deal with, and all those staff if you have them, it’s all there to help you transact the essential commodity that you are marketing every morning when you open your doors.

Time. Your time, the time that you sub-contract out and pay wages to staff for, this is the essential stuff that your business runs on. It can run on, it can run short, if you don’t get the customers through the door it will build up and your business will sink under the weight of it. That’s time.

All the investment in equipment and everything else happens so you can sell that time. Your hourly rate needs to cover all your costs to enable this to happen. On that basis, if you would like to charge more but don’t feel you can, why is that?  

Tension
There is of course the tension between charging a realistic price for your time, and making it work in the more tangible context of your local geographical area. The example of the garage that attracted comment on Aftermarket’s Facebook page is a case in point. A recent survey into consumer attitudes to garages performed by Confused.com found that out of the 2,000 people spoken to as part of the survey, 30% believed they had been ripped off by a garage. Going into more detail, the survey found that on average, those motorists felt they had been overcharged by £205.

Part of this perception may depend on how much customers believe they should be charged. This changes from region to region. Of course, for some, it’s all ‘too much,’ and it comes back to trust.

Many of the issues around overcharging relate to the idea of ‘unnecessary work’ being performed by the highly unscrupulous dodgy garage that exists at the fringes of the industry, and often in the fevered imagination of a few ill-informed motorists. The labour part of the bill will have an impact here.

Unfortunately, these ill-informed motorists are often your customers, and you have to take on board that their perception of a garage will be coloured by all kinds of prejudice, hard-baked by a lack of knowledge about how things work. A customer who is immediately suspicious of a garage is not going to want to hear about all the elements that go into a realistic hourly rate. Equally, with these customers, it might be difficult to charge a higher rate, but they are the minority of customers.

Assuming you have the trust of the majority of your customers, you need to consider many factors when setting your labour rate. Many of these factors will be affected by where you are, including the cost of labour, and the rate your fellow garages are charging. Some of these rates in your area will be realistic and cover all the costs. Others will not.

Another survey, this one from Motoreasy in 2017, looked at labour rates across the country. 6,000 businesses were included, and it found that the hourly rates varied widely. No surprises there.  The cheapest found was a Manchester  independent  charging £34 per hour, and the most expensive was a Reading franchised dealer charging £234 for the same time period. Naturally, the consumer press focused on the highest in its headlines, leaving the national franchised average of £99 and the independent average of £56 to nestle half-buried in the body copy of the story. Journalists eh? Going back to our Cornwall garage, its £60 offer was not far above the national hourly average for an independent, and considering the general downward trend of labour rate as you move away from the capital and the major urban conurbations, would be about right for the area. As we said earlier, this was charged before anyone put any hours in. In the end, you need to charge what’s realistic for your business, and attract customers that suit your offering.

Complexity
It’s complex issue. We will not resolve it here,  and we will doubtlessly come back to it – There will always be more surveys to show us why some businesses are charging too much, or not enough, or both at the same time. It’s worth thinking about before that next survey drops though.

If you are attending Automechanika Birmingham with a view to checking out some new equipment, it might be worth checking out the seminars that focus on business too in order to see if you have considered all the variables and have priced yourself correctly. You can always learn a little more, and with that extra knowledge you might make more money. That’s a double win!

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