A few simple questions before we get started. Do you know the value of each of your customers? Do you know how much profit you can make from each one? Do they need more than one job doing, have more than one vehicle? Work for a business with a fleet of vehicles? Do you know where your profit margin is? More importantly, do you know what your operations cost is?
When you run any business, you really, really need to know your financials. Don’t tell me: “I am too busy, I need to get this car out”; or “You don’t know what it is like, I don’t have the time for all of this marketing malarkey, social media posting nonsense and running through all of the accounts to see what I have paid out. As long as I have money left after I have paid everything we are doing well”; or “What we need is for insurers to pay us more”.
How many times have you heard that? As a vehicle repairer, body shop owner you need to stop. Think about that word for a second. stop and reflect on it. Is your business running you or are you running … stop if you keep doing what you have always done, meaning you will always get what you have always got. If you expect different results do you think they will come?
If you want things to change, you need to know where you are, before you can work out your future destination. When you have outlined your “present” and your “future” you can then create a road map from one to the other.
So, what’s your break-even point? To establish this, you need to know the cost of all of your monthly expenditures, the depreciated cost of equipment (their value to the business every month) and then divide that by the amount of hours you have to sell. That will tell you your break-even point of labour costs. This is the income you need to just operate and keep the lights on.
What is important to note while we experience the economic effects of Covid-19, where the hours that need to be sold are reduced, it needs to be counterbalanced with an increased labour rate.
Look at every “cost” to your business and review it
Can you get a better deal on your gas, electric, water? Review the “rateability” of the business premises. As recessions occur, property prices drop and so can business rates. What loans or lines of credit do you have? Interest rates are at a historical low, can you consolidate all your debts to one provider to pay less interest? What about your consumables? Can you get better deals?
Do you want to know the easiest way to increase profit? It’s simple, charge more. Increase your rates. “But insurers won’t pay that. You don’t understand”.
As a simple rule of thumb, your base labour rate should be approximately 2.5 times your break-even rate. If it isn’t, you are not charging enough. The frightening thing is that most body shops are charging 1.6 times, which means even well-run body shops are making just 3-5% profit.
As a business you need to be investing 10% of that profit on business development, future investment, staff training. I think you know what happens when you don’t.
Want to know how to get paid higher labour rates? Have a better business, give a better service, do the highest quality of repair.
Last, but very much not least, guess what happens if you only ever ask for R’s per hour? Think they will offer you more? What do you think your chances will be if you start much higher? So ask for more. They will pay more.