Make sure you’re charging enough

Automotive businesses have a problem with charging enough for the skills and expertise they offer. Here’s how to avoid underselling yourself

No business will make money if it doesn’t charge enough for its services. Yes, there are a lot of pressures that determine the ceiling, but the bottom line is this: if your pricing doesn’t reflect the work you do, your business may not be around for long.

The starting place is knowing exactly where you are with regard to margins, mark-up, and ultimately profit. If you don’t, you’re committing economic suicide. It still disturbs and surprises me immensely when travelling up and down the country visiting garage businesses where the owners and managers don’t understand their numbers.

Realistically, without having a firm grasp of where your finances come from and what they are showing us, we can’t run a business properly. And one of the most important figures we need to have a grasp of us is the price we charge for labour.

How much are you worth?

Most garage owners and managers fail to recognise the value they add to the process in terms of service, skill, competence, quality, reliability and their ability to respond to the customer’s wants, needs and expectations.

So, what happens is that garage owners set their labour prices based on the going rate in the area. It’s the only thing we sell – or our only revenue stream, call it what you will – and we decide it by plucking a figure out of the air.

Consequently, garage owners who don’t realise or understand the value of the products and services they provide are subsidising the cost of repairs with unrealistically low prices. Almost every problem the automotive sector faces – the acute shortage of trained and qualified technicians; the lack of interest in automotive services as a viable profession, as young people chase white-collar jobs; the technological advances in vehicle design; and the absence of succession planning or exit strategies – is the result of an inadequate revenue stream for both the garage owner and their employees.

Garage owners have consistently subsidised aftersales service through a lack of knowledge and understanding. In effect, they’re absorbing the costs involved in performing repairs, especially servicing, with artificially low labour charges. This can’t continue.

Why you probably need to increase your prices

The continuing escalation of rent, rates, insurance, salaries, training, tooling, equipment, and adherence to government and environmental regulations should dictate that a reasonable profit on parts (a minimum margin of 25%) in conjunction with an adequate labour charge is crucial for survival.

And remember, at the end of the day, your prices should reflect the investment you make in tools, training, technology, equipment and, of course, personnel.

Andy Savva FIMI (AKA “The Garage Inspector”) delivers business mentoring and training courses for independent garages

This is an edited extract from IMI's new MotorPro magazine, received free as part of IMI membership.