Learn to Educate the Client: What the Labour Component Stands For

Successful Independent shops across Canada have become very focussed on their knowledge base within their operation. A shop’s skill level and knowledge base is expressed through its labour rate/door rate. No shop has the right to charge top rates to the public if they are incompetent in terms of automotive maintenance/repair knowledge; conversely, too many shops do not charge enough for the skill level they have acquired. Skilled shops must charge the “right” dollar for their skill level. Don’t sit there and look around the market at everyone’s pricing to determine the door rate because every shop is not the same in their depth of knowledge capabilities.

For three years now we have been talking about the necessity of two door rates. One is obvious; the basic mechanical rate used for mechanical work such as brakes and suspension and the second is a diagnostic rate representing the skill required to diagnose a driveability problem or interpretation of information. If your shop is still stuck on one “catch-all” rate, then I would recommend getting into a proper business class to learn how to and the benefit of implementing two door rates as a minimum requirement. Vehicle complexity requires a broader depth of knowledge and to maintain the right skill level in terms of technician capabilities to handle the technology; the right dollars must flow into a shop to support its capabilities. Driveability and analysis problems require a diagnostic rate. Those shop owners who ignore this business strategy and stick with one catchall rate will find each year getting more difficult. They are not changing their business model as required to stay up with the times in our industry. Inertia in this business is a road to bankruptcy.

The basic “mechanical” door rate is established for “remove, replace and repair”. The second door rate is established for “electrical diagnostics” and is usually referred to as the shop’s “diagnostic rate”. This labour rate is used for “interpretation of numbers, graphs, electrical, and codes”. This rate is critical in a shop today in order to bring in the right dollars if a shop wants to sustain the right skill level. In this category, more training, more equipment and more one-on-one time with the customer/client is required to sustain shop credibility, consequently, the lower “mechanical” door rate is not sufficient.

Introduce your clients to a third door rate

Our studies have shown that a third door rate is now required within the shop today. The importance of understanding the logic to this point is to realize that a shop must acquire specific skills over a period of time in order to complete the “loop of knowledge” to serve a client professionally. The critical business philosophy to understand is that a client is not paying a shop “to fix a problem now”. The client is paying the shop for “the knowledge obtained to this point in time”. To gain this knowledge a shop has and does incur costs, and future knowledge will incur additional costs if the shop wants to remain “on top of their game”. Rates will be adjusted as these future costs are continually evaluated.

The client today requires the “right service” backed up with the business philosophy of “I will not let you down”. Free service is not the right service; yet, many shops still run their business model this way. The right service simply means applying the right skill level in the shop to deal with the task that is required to be solved. Obviously, skill levels vary dramatically within a shop and it is important for management to deploy the right skill level on a job with the end result being a totally satisfied client leaving the building.

This new third door rate represents a skill level that is often over looked. Our studies have shown that it can represent in the range of an additional $25,000 to $43,000 per year in a 4 to 6-bay operation when implemented properly. With this much money involved, it is definitely worth consideration. This third door rate is called the “mechanical diagnostic rate”. It represents the “see, feel, hear, touch, and smell” skills the technician has obtained over time. Many shop owners continuously give this knowledge away seemingly thinking they are providing “good service” to the client, and it goes with the territory of running a shop today if the shop wants to sustain its clientele. Nothing could be further from the truth. This rate level adds, on average, only seven to twelve dollars to the grand total amount of an invoice. On a typical invoice ranging from $150.00 to 250.00, the additional seven to twelve dollars will not lose the business, and if it does, then management must seriously consider that it has not delivered perceived value to the client. Do the math. If a shop averages 300 invoices a month then an additional $7 for this skill level represents $2,100 per month or an additional $25,200 per year. An additional $12 brings that number to $43,200 per year.

There are mathematical formulas and procedures to establish and implement all the various labour rate levels and that can be learned in a business class. The important point, however is to now acknowledge that the consumer has not been properly educated as to what the labour rate in a shop stands for. The door rate established in a shop should not say “this is what we fix it for”, it should represent “the depth of skill level achieved so far”. When a shop does not have a good, or right, skill level, the rate is, or should be very low but, conversely, when the skill level is above normal in the marketplace the door rate must reflect that level also. The labour rate in a shop represents the “knowledge base sustained in the shop”. Consider that once a customer/client understands this message, then arguing about the labour factor doesn’t make sense any more. The important point for management to understand here is to ensure the implementation and execution of the philosophy to the customer/client will be “we will never let you down” by the business.

Consider that our industry is moving forward at a rapid pace and shop management must get their head around professional business strategies that will maintain the right skill level within the shop, coupled with the implementation of a business process that creates total client satisfaction. When you start to ignore this type of independent shop strategy and business knowledge, the shop debt level continues to soar, cash is always tight to non-existent, management wages are at a level of buying a job, stress levels are far from normal, family life is seemingly always on the back burner, and the business really is no fun anymore. Under these criteria, management should make the decision to learn now and get on with it, or do themselves and the industry a favour and get out of business before it is too late. A tough message … yes … but it is the right message.

Slow down and consider how the shop is educating the marketplace about the labour component on the invoice. Don’t keep management’s head in the sand thinking that discussing the knowledge base of the shop is not worthwhile to the shop’s clientele. By discussing the skill level required today could be the best thing that ever happened to the relationship with the clientele, but ignoring this discussion could be the biggest management mistake ever made in the business. We are the independent sector. We are in the service and quality business. We are in the knowledge business. Who out there wants our knowledge? We won’t let you down.

Consider your marketplace statement.

Robert (Bob) Greenwood is President & CEO of E. K. Williams & Co. (Ontario) Ltd. and Automotive Aftermarket E-Learning Centre Ltd. Bob has 29 years of industry-specific business management experience. He has developed shop business management courses for independent Service Providers recognized as being the most comprehensive courses of their kind available in Canada. Bob is the first Canadian Business Management Consultant and Trainer to be recognized for his industry contributions when he received the prestigious Northwood University Automotive Aftermarket Management Education Award in November 2003. E. K Williams & Co. (Ontario) Ltd. offices specialize in the independent sector of the automotive aftermarket industry preparing analytical operating statements for management purposes, personal and corporate tax returns and business management consultation. Visit them at www.ekw.ca and sign up for their free monthly management e-newsletter. Automotive Aftermarket E-Learning Centre Ltd. is a leading edge company devoted to developing comprehensive shop management skills through the e-learning environment. Visit www.aaec.ca and take the free overview. Bob can be reached at (613) 836-5130, 1-800-267-5497, FAX (613) 836-4637 and by E-Mail: greenwood@ekw.ca or greenwood@aaec.ca