Greenwood On Management: Yes…. You Can Get Paid for Estimates….. Slow Down and Do the Math
Successful shop operators understand the importance of preparing detailed, professional estimates for their clientele. It can be time well spent in that it displays to your customer/client your knowle...
Successful shop operators understand the importance of preparing detailed, professional estimates for their clientele. It can be time well spent in that it displays to your customer/client your knowledge of the given subject, which can assist in building trust, coupled with ensuring the client is getting the best “value” for the money spent.
Over the course of a given month, substantial “time” can be spent with this process, and one may wonder how can the “time” be billed?
First, management must accept the fact that every customer/client is entitled to a proper written estimate before making their final decision as to whether to have the work performed.
Secondly, management must understand that the shop is in the “knowledge” business today, not just the repair business. The time to prepare a proper estimate is considered a real use of management’s, or staff members’, accumulated knowledge gathered from their training and experiences, over their lifetime within the industry. This knowledge must be billed, and the time it takes to share this knowledge, accounted for in the business. No one can afford to work for free in this industry today.
The following is a step by step process to ensure your time is being properly accounted for, and paid for, each month;
1. If you know how many hours you average each month in preparing estimates, you are already one step ahead. If you don’t, it is suggested that you start tracking the time spent to prepare estimates within the business. Keep it simple. Set up a binder, or computer spreadsheet, containing three columns on the page labelled “Start”, “Finish”, and “Total Time” which records your start time and finish time for preparing each written estimate. Calculate the difference from beginning to end and enter that total time spent in the third column.
2. Add up the total time spent for the month for a three-month period. Divide the total time spent number by three to obtain an average monthly number for the past three months. For example: total time over the past three months is 30 hours. 30 divided by 3 = 10 hours per month on average preparing written estimates.
3. Take the average time per month and multiply it by your shop’s diagnostic labour rate. If you don’t have a diagnostic rate, consider setting one as it is definitely required today, but at least use your regular maintenance door rate. For example: 10 hours per month times $100 per hour diagnostic labour rate = $1,000 in time spent preparing estimates. One of the main reasons to choose the diagnostic labour rate rather than the maintenance labour rate, is to build in a factor for the time spent to review and discuss the estimate with the customer/client. Realistically, you are not going to be jotting down time segments spent with the customer/client in front of the client so it is important, that all time is recouped in the business. Also, don’t sell yourself short. You have accumulated a great deal of information and knowledge over your lifetime in order to prepare a proper estimate for today’s vehicles, so that time should also see a return on investment.
4. Calculate the average total number of maintenance labour hours actually billed in the shop. To do that, take the average maintenance labour revenue per month for the past three months, and divide it by the shop’s maintenance labour rate. The reason we use the maintenance labour rate and revenue here is because, in a typical shop, 90 percent of all time billed is for maintenance work rather than diagnostic work, and remember, we said we wanted to keep this simple. For example: Average monthly labour revenue of $25,000 divided by $70 per hour = 357.14 average billed hours per month in the shop.
5. Take the total average dollar time to do the written estimates and divide it by the total average billed hours of the shop. For example: $1,000 divided by 357.14 = $2.80, or round up to $3.
The $3 is what you raise your shop labour rate by, so now instead of charging $70 per hour, you charge $73 per hour. “ALL” your time to prepare professional estimates is now being paid for in full, and you should feel great that you have the opportunity to prepare written estimates for your customer/clients. Review your time spent, preparing estimates, every quarter and, if you find your spending more time preparing estimates, adjust your labour rate upwards accordingly. You will find the dollar increase in your shop labour rate is insignificant, but as a competent manager, you are now ensuring the business is accountable.
Your time at the front counter must be accounted for, and preparing proper estimates is a professional service you are prepared to do for anyone, so the time spent must be built into the shops overall basic labour rate.
Consider that in today’s automotive maintenance/ repair world, vehicle technology has “overwhelmed” the average consumer. If there is something you cannot change, then you must change the way you react to it. To gain consumer trust, build client relationships, and display shop competency, written correspondence, such as written shop estimates, are becoming part of the everyday routine. All this effort does take a tremendous amount of “time”, and talent, and if management does not slow down and do the business math, thousands of dollars can be missed each year. Those are real dollars that could go a long way to enhancing the overall business, and securing its future.
Robert (Bob) Greenwood is President and CEO of E. K. Williams & Co. (Ontario) Ltd. and Automotive Aftermarket E-Learning Centre Ltd. Bob has over 27 years of Business Management experience within the automotive industry, counseling individual shops in Ontario. E. K. Williams & Co. (Ontario) Ltd. offices specialize in the independent sector of the automotive industry, preparing analytical operating statements for Management purposes, personal and corporate tax return completion, Business Management consultation and Business Management and Employee Development Courses. Visit E. K. Williams & Co. on the Internet at www.ekw.ca and sign up for their FREE monthly management letter sent to you by E-mail. Automotive Aftermarket E-Learning Centre Ltd. is a company devoted to developing Automotive Shop Business Management skills through the E-Learning environment over the inter-net. Students learn at their own speed, and at a time, and place, that best suits their needs; available 7 days a week 24 hours a day. Visit Automotive Aftermarket E-Learning Centre Ltd. on the Internet at www.aaec.ca Bob can be reached at (613) 836-5130, 1-800-267-5497, FAX (613) 836-4637 or by E-mail; firstname.lastname@example.org or email@example.com