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Raising Labor Rates

I Capitulated For A While, Then Made The Decision

When I bought my shop, the labor rate was $45. I immediately raised it to $48, then $60 the next year. A few years later, we hit $95, then $99.

Some time ago, at our weekly meeting, I raised the specter of going over the $100 mark. Well, you would have thought I was asking the service manager to parade naked up and down in front of his house! He and my general manager teamed up and said that we’d lose all kinds of business if we did such a horrible, mercenary thing!

I capitulated for a while, and then made the decision. I went to our sign maker, and had new labor rate signs made, then reprogrammed the DMS to $110 an hour. That’s right. Ten percent. All at once. Which in reality was far less than the jump from $48 to $60. I made this decision with no staff consultation. I announced it one morning, and of course, the caterwauling began. Clients won’t come back when they learn of our new rate. People will freak out. No one else in our area was over $100 an hour. This is a disaster.

Guess how many complaints we had? One. From a guy who was always complaining anyway. We didn’t really want him around, and I was hoping he would go elsewhere. Alas, that was not to be. Even he saw that we were worth this extra cost for services.

The point is this: I meet dealers all the time who say, “I can’t raise my labor rates because I’ll lose business.” Poppycock, to use a euphemism. You, as a business, have to make a profit. You, as a dealer, have to pay your employees. You, as a businessman, have to pay your mortgage, your expenses, and I’m sure that you, as a hardworking business owner, want to take some money home to your family, and have a great life.

DA_HiResAs well, I’ve always had the highest PDI, freight and build charge in my area. When I hire a new salesperson, I always hear, “How can I possibly ask $250 more than everyone else for PDI than the other dealers?” I tell them that you just do it. Don’t assume that the customer will balk at it. It’s been my experience that most people are alright with it if you explain it properly. It’s the salesperson who presents these charges that won’t look the client in the eyes who has all the problems.

There are obviously limits; charging an extra 40% labor rate, or double the PDI and freight charge of your competition, may not work. But don’t be the cheapest; that will not build a business to be proud of – or a profitable one.

Once again, this is nothing new, and in my 20 group, we had a member tell us that his amazingly low labor rate was all he could charge, as no one in his area would pay more than that. We jumped all over him, and he raised his rates. Guess how many complaints he had? You’d be right if you guessed none. The problem was all in his head.

At the same time, you have to back it up. Your service standards have to be high. Very high. You have to strive to be the best. And when I say service standards, I don’t mean just having great techs, but having great service writers, and fantastic P&A counter people. Raise the bar. Make your competition jealous.

Don’t back down; you must have a profit, and if you make the transactions with your clients worth their money, you won’t be getting complaints or lost business. You’ll be getting fewer complaints, happy customers and more profits.

And what is the problem with that?

Some say his tears are adhesive and that he’s scared of bells. All we know is he keeps his identity hidden for various reasons. Send us an email if you have a topic you’d like him to cover at: [email protected].

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