Andy Crook of GotBoost Training ponders the ‘fair exchange’ and suggests the labour rate is something only garage owners concern themselves with and is not actually that important to customers
What happens if you put your prices up?
The first thing that happens is your takings will increase as long as the business activity remains the same. That income could allow you to invest in the business to provide a better service. And if you have a better service, you can win and keep better customers. But that relies on the principle of fair exchange.
What is a fair exchange?
Fair exchange is when both parties feel like the transaction is equal, that you are both getting what you want out of the transaction. If there isn’t a fair exchange for one side or the other, then ultimately, the relationship will come to an end because one party will be dissatisfied with what they’re getting from the arrangement. This is why you can’t just keep putting up your prices and not improve the level of service. If you do that, you will start to lose customers because they will feel ripped off or that you’re too expensive for the value that you provide. That is the negative aspect of putting up your prices, but this only applies if you do not reinvest in your business and the services you provide.
The positive part of putting your prices up, and it is linked to the principle of fair exchange, the higher the price, the more you want to do a better job, the more able you are to do a better job, because you’re able to invest more in your business. This is because you generate a surplus of cash to invest in the business instead of getting to the end of the month, year, quarter, and just about pay your bills.
The three reasons why you should put your prices up:
1 More income, therefore more profit, 2 It allows you to invest in your business, 3 It allows you to provide a better service, which ultimately results in you winning and keeping better customers.
Why haven’t you put your prices up?
The real reason why you haven’t put your prices up is fear – the fear of the unknown, of not knowing what happens when you do put your prices up. About every time I have this conversation there is a certain amount of pushback, a reluctance to increase prices. This is due to self-limiting beliefs; you simply do not believe you can charge more. This glass ceiling is holding your business back.
What happens if you don’t put your prices up?
What happens if you believe your customers simply won’t pay more and don’t increase your prices? Ultimately, you will be working for less because of inflation. Inflation averaged 2.6%, over the last 20 years. This means if you haven’t put your prices up year on year by 3%, you’re working for less each year, because of something called Net Present Value, (NPV).
Have you noticed that prices around you are going up for other commodities, especially utilities, gas, and electricity? Is it not right and fair that you pass on your increasing costs to your customers to cover your overheads? Everybody else is doing it, why don’t garages?
You must increase your prices year on year to keep up with inflation. Otherwise, each year you’re doing the same job for less. Although the amount of money changing hands is the same, Net Present Value means that the money in your pocket today is worth less tomorrow.
The average labour rate for independent garages in the UK
The Independent Garage Association, (IGA) carried out a survey in 2020 and published their findings. In 2020 the average labour rate for an independent garage across the whole of the UK was £47.47 plus VAT. Just under 50 quid in 2020. That report also spoke about inflation, suggesting garages haven’t been putting their prices up and have therefore fallen behind inflation for the period of their study.
There are two types of inflation, the retail price index, and the consumer price index, but without getting too technical, inflation is currently running at about 5%. Recent world events may result in this increasing.
The last time it was anything like this high was 1991 when it rose to the highest level in the last 20 years, which was 8%. To give you an idea of how much inflation fluctuates, in 2015 it was 0.1%.
The question that you’ve got to ask yourself is how do you compare with the UK average? Do you consider yourself average? Or do you consider yourself above average, and does your labour rate reflect that?
How do you compare?
The only other yardstick you have for comparing your labour rate is the MOT – the cost of doing an MOT and the time it takes. The price is set by the government and hasn’t gone up for quite some time, which means that using that as a yardstick, you also need to factor in the rate of inflation since it was set.
The price of the parts you buy has increased, which has resulted in a price increase for your customers. This goes unnoticed because you simply add up your margin. So, inflation or an increase in the cost of the materials, or the cost of that part to us, makes it feel like we’re not increasing our prices. But in effect, if the cost price was higher because of inflation or because of changes in the market, then the selling price will be higher. We are in effect putting our prices up because our parts prices have increased.
When was the last time a customer asked you what your labour rate was?
How often does that happen? If ever? All customers want to know when they book their car in, or when they’re asking for a quote, is how long and how much, so how long is it before you can do it, and when it will be finished, and how much is it going to cost me?
They’re not worried about the difference between the cost of the parts, the sundries, the labour. They just want to know what they will be paying when they come to pick it up and when they can drop it off and when they can collect it. The labour rate is something only us garage owners concern ourselves with, but it’s not that important to the customers.
All customers want to know is, what will the final bill be?
How the bill is made up is not that important to them. So, I think we need to get over ourselves a bit and decide to get in line with the rest of the country and make sure we’re covering our costs by putting our prices up. Not to exploit customers, but so the business remains profitable, to enable it to continue trading and offering that fabulous service that independent garages provide to customers.
Andy’s ‘Atomic Success’ program helps garage owners become more successful in business, providing the support and tools required to make incremental gains that lead to massive results.
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