It is sometimes easy to underestimate your worth – the years of training, hands-on experience and aggravating, but hugely valuable, mistakes that have honed your diagnostic process – that have all boosted your first-time fix rate. Here, we consider a recent study into labour rates, discuss charging assessment fees & communicating your worth to customers…
A recent study carried out by the Independent Garage Association (IGA) indicates that independent garages provide consumers with outstanding value for money, unrivalled by any other sector in the automotive aftermarket. The IGA compared the rates charged by members in 2012 to those charged in 2020 and also analysed the direct labour costs using data from the Office of National Statistics. Stuart James, IGA Chief Executive, said: “The study clearly shows that in many cases, independent garages have been absorbing the rising costs involved with running a garage business, rather than passing those increases on to their customers.
“While this is great news for their customers, it is impacting on garage profit margins year-on-year, which in the long-term is not sustainable. In these difficult times, it is more important than ever for garages to build all ongoing costs into charging structures to future-proof their businesses.”
The UK Independent Garage Labour Rate Study provides its members with a reference tool to establish whether their labour rate is comparable with other garages in their area, plus a labour rate calculator helps members review their costs and work out an approximate breakeven hourly rate.
Costs including access to technical data and investment in equipment need to be built into charging structures to ensure services are not undervalued.
The study showed that the average labour rate charged by independent garages in the UK in 2020 was £47.47 – with an average of £47.90 in England, £45.52 in Scotland, £40.61 in Wales and £40.55 in Northern Ireland. The highest regional cost was within the M25 area, with an average hourly labour rate of £55.48. Over the last eight years, the cost of labour to the customer has fallen behind inflation, with the national hourly labour rate increasing by only £5.88 over this time. As of 2020, this equates to a deficit of 6.7% below the rate of inflation.
Technician salaries were also shown to be lagging significantly behind other occupations. The average salary in 2012 was £25,408 according to the Office of National Statistics and rose to £28,402 in 2019, an increase of 11.8%. In comparison, the national average salary for a UK worker in any occupation over the same period rose to £36,611, an increase of 38%.
The IGA has created a labour rate calculator to enable its members to work out a break-even charge out rate to cover workshops costs. To enquire about IGA membership, call 0845 305 4230 or email email@example.com.
Should you increase your labour rate?
Some garages will remain adamant that their loyal customer base would just not accept a rise in labour costs – no matter how much they justified the price increase by educating the customer on the background costs involved. There are just too many garages in their area willing to absorb these costs and charge an artificially low rate. Others will be in a situation where they have been able to increase the labour rate in order to stop working all hours for little return and to also deter an unwanted type of customer – those who want to supply their own parts, get everything done on the cheap and generally distrust anything the garage recommends. Filling workshop hours with profitable work on the cars of grateful customers – the holy grail!
After building up a successful dealer-level independent workshop business, Andy Savva, AKA The Garage Inspector, now shares the tools and experience he has built up over many years through his training programmes. He believes a fundamental part of running a workshop is appreciating your value. “The only commodity that a garage sells is labour, we can call it skill, time or knowledge. Most garage owners and managers fail to recognise the value they add to the process in terms of service, skill, competence, quality, reliability and ability to respond to customer wants, needs and expectations. So, what happens is that garage owners set their labour rates because it is the going rate in the given area. The only thing we sell, our only revenue stream, we decide the value of by picking a figure from the sky. 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 unrealistic low prices.”
Andy provides training on workshop financials and marketing your expertise, find out more at www.thegarageinspector.com/ training and check out Andy’s 30-minute YouTube video on labour rates here: www.bit.ly/SavvaRates
Charging for diagnostics
One of the biggest challenges workshops now face is getting paid for diagnostic work. Pricing up mechanical repairs is pretty straightforward but how do you estimate the cost of resolving an issue when you have no idea how long it will take you to find the underlying faults and then resolve them?
Barry Lawson of Ewan Lawson Motors (who provides an exclusive DPF case study from page 48) says he was first introduced to the idea of charging an ‘assessment fee’ when he joined the DPF Doctor network. He would charge £90 to assess any DPF issues and soon rolled this out to all diagnostic work. “Once we have a direction and information we need we can go further, if the customer wants us to, or it could turn out to be simple and rectified within this time slot,” says Barry. “I feel it works well for the customer. A lot of the time we hear “If it’s gonna cost loads I’ll just get rid of the car”. This way they can commit to £90 and once we have the report they can decide if they want to go onto repairs. I think most of the time the customer feels unwilling to go forward if it’s not clear what the fault is.”
Diagnostic guru and Technical Topics trainer James Dillon has charged a diagnostic fee for a number of years and says that managing a customer’s expectations is crucial. “The problem with diagnostics is, when a customer comes to your workshop they only want answers to two questions, how long and how much? The rest of it may as well be up to the fairies, as the customer isn’t interested. The problem we have as a technician is, the two answers you cannot give at the start are the ones they want answered, so straight away we have a clash. The second answer depends on the first answer and we don’t know that yet. Maybe a different way of thinking about it is to set some parameters. One technique is to set an informal budget with the customer. We in the workshop do this with a basic charge, to get their car into our workshop. The customer may say that the garage down the road is cheaper but surely they’ve already been there to know that, so presumably that garage couldn’t or wouldn’t do it.
“This agreement gives me enough time to have a proper look at the car. I can establish what’s likely to be wrong. However, there are two further benefits for me. Firstly, it gets rid of all the jokers. The people who don’t want to spend any money or who reckon they can’t leave the car with you for more than two minutes. Secondly, having a price that’s realistic will filter out all of the jobs that you would never want to do. Some of those jobs that come into the workshop, you’d have been better sticking £50 down the toilet and it would have been more fun to do! So actually, the assessment fee sounds expensive but it is a useful filter.”
To find out more about the training and technical support available from James Dillon, visit www.techtopics.co.uk.
It’s all about perception
The ideal scenario is that you are confident enough in your skills and knowledge to either demand the right renumeration for your work as a technician, or charge the customer accordingly, in the case of an owner/technician. No-one can be expected to know everything but as long as your process is methodical, you are referring to accurate technical data and are committed to ongoing training, you will be providing a quality service to your local area and need to ensure you are communicating this expertise to your customers. Shout about it before your competitors do.
“Almost every problem this industry of ours faces – acute shortage of trained qualified technicians, the lack of interest in automotive services as a viable profession as youth chase those 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 his or her employees,” says Andy Savva.
If it’s been a while since you reflected on your labour rates, take some time to consider your costs, your labour rate and the kind of work you want to do more and less of in the future. Andy concludes: “You must adapt to managing the business rather than the business managing you. Having the ability to reflect the health and strength of your business at any given time or a specific period is crucial for your success.”