Labour Rates: How do you decide how much to charge to service a car?
If you’re involved in business planning and budgeting at the moment, it’s the time when Labour Rates are increased, but have you questioned why this route is always taken?
One thing is for sure in my mind, over the last 10 years, the increases in Labour Rates for franchised dealerships have far out stretched inflation and in my opinion that’s wrong.
Consider this, in the year 2000, I wrote a computer programme that hosted a number of dealership questions (Just like Challenge of the Month on the main web site) and I did not want to keep re-programming the questions every year so I inflated the labour rates in the questions to buy me some re-programming time. The question is, what rate did I inflate to?
Well, I’ve looked back at those figures and the rates were inflated to £35, which means that the average labour rates back in 2000 were between £25 and £30. That was only 7 years ago and now the average labour rate in franchised dealership is hovering around £75 with some charging £100 or more.
It’s no surprise then that service retention is falling and is practically terminal at year 3. Is there an alternative way of doing business?
Here’s one thought. Franchised dealerships spend a huge amount of money on franchise standards, equipment, diagnostic equipment, tooling and training technicians, but none of this is necessary for standard servicing is it? The problem is that we use these reasons for justifying the prices that are charge. Consider this…
Charge a rate that is appropriate to the job in hand, not whether you might lose the customer or not.
For instance, many franchised dealers have discounted menu pricing for older vehicles – does this mean that they want to charge the full rate and only reduce it when they might lose the customer in year 3 – is this good for customer care?
Rather than having different rates which are dependent on the age of vehicle (or risk of reduced retention) why not charge an appropriate rate for all of your customers all of the time?
On jobs that do not require high skill levels and big investment in equipment, such a standard servicing etc, charge a rate that is appropriate to the job and is competitive with non-franchised service centres.
On the jobs that require specialist knowledge and special tools, again, charge a rate that is appropriate to the level of investment and training.
For instance, standard servicing might be charged at £35 per hour and a specialist job could be charged at £150 per hour. The rates here are irrelevant, I’m just suggesting a concept. What are your thoughts?
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Would this increase service retention?
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Would this decrease service retention?
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Would this upset customers?
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Would this please customers?
Once I get some feedback from you on this one, I’ll collate it for you and also discuss how to create better value for you and your customers.
One final thought, if labour rates continue to increase, I believe service retention will continue to decrease.
What do you think?
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