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Why labor profit matters to everyone

Tuesday, November 1, 2016 - 06:00
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This month’s article was written with the help of head coach George Zeeks.

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Over the last 40-plus years helping shop owners grow, the biggest challenge I see is consistently holding labor profit. Trying to make your customers, technicians and service advisor happy while remaining the best shop in your market can be extremely difficult. I was sitting in one of our classes listening to head coach George Zeeks explain how to do it, and I want to share his suggestions with you.

George began by saying: “I understand that everyone wants to make their dollars go farther — I do, too. The problem is when skilled professionals misunderstand that concept. Imagine that you have a brain tumor. Imagine that you went to get second, third, and fourth opinions on your medical condition and made your final decision based solely on price. It may very well be your final decision! The same applies to auto repair and any other skilled labor situation. I get that medical choices and auto repair are not the same thing, but understanding what factors your customers are basing their buying choices on is fundamental to your success. The decision is and should be based on where they will get the best service at a fair price. If you are basing your business model on cheap prices then you will have to have lower wages to stay open. Then, it follows that you cannot have great technicians with a low pay scale. Poorly skilled techs make poor decisions and cars don’t get fixed. Customers share this information with other potential customers and now you’re in trouble. The question is “How do I pay my staff a great wage, with great benefits and still stay profitable?” The answer is much easier than you may think.

Charging the customer

The age-old debate between an hourly wage and the flat-rate system has been around forever, it seems. Hourly employees need to be motivated to produce at higher levels and the flat-rate staff will race through the job just to make money. It’s a common urban myth that is sometimes true. Neither part of the argument is completely true or false. As usual, the truth lies somewhere in the middle. Based on human nature, everyone needs to have some type of incentive system to spur higher production while maintaining great quality control. The real issue is not how you pay your staff or how much you pay them. A basic problem is understanding what level of production you need from each employee to support their pay and holding them accountable to that standard.

The bigger problem is knowing what and how to charge the customer for that skilled labor. If you don’t charge enough, you’re out of business. Charge too much and customers don’t return and you’re out of business. Fortunately, this question is not as difficult as it may seem.

Let’s look at the wide spread of services you provide to the public. They can start at the basic oil change, which many customers have become used to at a lower price point. The services continue all the way up to intermittent performance diagnostics, which the customer expects you to fix the first time, whether you are able to reproduce the problem or not. Doctors don’t have that same problem. If they see you again it is because you need additional tests, which people gladly pay for. Well, almost gladly.

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