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Should I feel guilty for raising prices?


Jay Huh

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Hi everyone, first time post and it's been good reading everyone's input on this forum. Just so happened to stumble upon this forum and it's awesome having other people in my shoes.

 

I quit my job as a service advisor and started doing side work out of my garage @$35/labor rate. Became a mobile mechanic with $45/hr 3 months after. Got a shared building with 2 bays and bumped up to $60 an hour. 8 months later, I am now at my current very own 6 bay facility with 4 employees and I just bumped up my rate to $75/hour. I have 2 national chains that share the same wall (Meieneke and Precision tune) and they charge $95/hour.

Problem is, I still have customers that come to me from my $35/hr days and feel extremely bad and guilty for charging new rate. Should I be? Best way to implement change without losing customers? From the customers perspective, do you think they understand the operating costs and justification in price increase?

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No! Price goes hand in hand with quality service in my mind. I just went up to $75 from $65 and haven't heard a word about it. Sometimes our conscience tells on us. Be confident or your customers will pickup that you don't feel comfortable, and might buck. $75 is the bottom of the spectrum in my mind. If you offer a quality service with warranty then your good to go!

 

Sent from my SM-N910V using Tapatalk

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yeah, i agree, dont feel guilty but at the same time explain the extra costs involved so that may help them understand, rent, insurance etc. They should understand. However, you may still lose some because they came to you (most likely) because of the 35 an hour, they may not be able to afford the rest. If that does happen, it isnt your fault, your growing, thats a good thing, you wont grow at 35 an hour for anyone in that building.

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So your now in business having both employees and a physical location. I would suggest strongly on getting some business training (quick!) and spending some time every day with your business owner hat on.

 

You need to do two things IMO rather quickly. You need to add up all over head expenses, cost of employees, desired profit and establish pricing based on that info. Not on what you once charged or what the shop next door charges. Remember the shop next door might charge less per hour than you but maybe they charge more hours to perform a repair or find other way to produce profit. Either way, it should not affect what you do unless you wish to compete with them.

 

Which leads to item #2. You need to figure out who you are (as a business) and who you cater to and compete with. If you wish to compete with chains they will most likely win since they are designed to compete on price, they have corporate pockets and the one truly accountable is usually not on site.

 

If you're going to feel guilty about anything feel guilty your shortchanging your business, employees and family by subsidizing the cost of auto repair for your customers, that is truly something to feel guilty about.

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I agree with Wheelingauto. There is NO room for guilt. Now, I am NOT suggesting anything with respect to what your pricing should be because it varies in different locations.

 

What I can tell you is this. Countless times, working with clients, one of my first suggestions is to review pricing and change accordingly.

 

In one case, a client increased labor rate by $6.50 per hour. At the end of the first year, that increase made him just over $22,000 in revenue. He didn't work harder - come in earlier - or stay later.

 

What kind of vacation could you have?

 

Yeah, I thought so!

 

And you do NOT have to post labor rates or 'tell' customers. In other words, you don't have to start conversations with "you know I raised my prices because...". WIth that dais, don't deny it. but you don't have to offer that info. Your invoice probably spells it out clearly.

 

Hope this helps!

 

Matthew Lee

"The Car Count Fixer"

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also something to think about is most customers do not rate your business based upon your labor rate. The ones that used to come in for work at 35/hr you need to help them come to terms with your growing biz and hope that they will support it or else get rid of them. I was in the same boat you were and if a divine entity would endow me with an increase of +500 cars per month at half my labor rate I would emphatically decline. You are selling TIME and if you are short changing what you are selling and not turning a profit then why even stay in business? No matter what you do, 35/hr is WAY too little.

 

Regarding to you vs your neighbors, as mentioned before it really doesnt matter what you charge hourly. I would be surprised in 1/100 people question you on what your actual labor rate is. Provide value and to the right customer at whatever you charge and you'll be fine. Value must match price.

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Very simply, charge enough to be profitable, pay employees enough, buy equipment, subscribe to professional repair sites & take a vacation! Waiting for World Pac 2017 cruise.

Just remember, there will always be customers who think you over charge..... let them go.

I do.

Dave

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My clients never know when I've raised my prices. I don't tell them!! I also do not post my hourly rate, because I charge more hourly if it is German, Swedish, PITA job, etc. I have been in my present location 12 years and have had only about 10 or 11 suspects ask me my hourly rate. Usually I have found that these folks do not fit my profile.

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I raised mine and nobody noticed. Well, the same guy that complained $7 to mount and balance a tire was too much still complains that $22 is too much. But he still pays me and comes back.

 

I simply learned to not care about the bottom feeders. I don't put in your parts, I don't let you use my tools to save money. I still charge a fair price for quality work, it's just more than it used to be.

 

The dealer closest to me charges $175 to read codes, then $175/HR to diagnose. Fixing is $150/HR. Whenever I think I'm too expensive I take a ride and see what it'll cost to bring my car somewhere for service.

 

The hourly rate is one thing, billing the time is something altogether different. We all need to eat. Most of my customers make more than me for doing much safer work, that's something I contemplate.

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All guilt aside, I think its important to base your labor rate according to your costs, expenses and environment. It has to be fair to all parties and business makes its margins to survive. There are labor rate calculators out there to see what your labor rate should be calculating all of different factors about your business and market. There are also different labor rates for different jobs.

 

You may loose few customers but the one who believes and trust your work will never leave. Then you can build a better base of clients from there.

 

Good Luck!

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Do not forget that you can only pay your techs 30% of labor loaded.

You make it sound like a wage law. Obviously 30% is not a bad benchmark but it can definitely vary. I probably pay my techs closer to 40% loaded of my labor rate due to other factors such as tenure and experience. Before one of my three techs retired in May, the average tenure of my techs was 31 years. It's now 29 years with the remaining two. Is 40% too high? Maybe, but I haven;t had to hire a tech since 1994 and I can probably count on 1 hand how many days a year the three of them have called off sick in a year. When I hear stories from you guys about the problems finding techs I just smile.

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You make it sound like a wage law. Obviously 30% is not a bad benchmark but it can definitely vary. I probably pay my techs closer to 40% loaded of my labor rate due to other factors such as tenure and experience. Before one of my three techs retired in May, the average tenure of my techs was 31 years. It's now 29 years with the remaining two. Is 40% too high? Maybe, but I haven;t had to hire a tech since 1994 and I can probably count on 1 hand how many days a year the three of them have called off sick in a year. When I hear stories from you guys about the problems finding techs I just smile.

 

 

This is very true and great point! If you can reduce expenses elsewhere to compensate then you can certainly pay your techs more. It is more of a rule of thumb however it is important understand the WHY. In this business, your payroll is probably the biggest cost and is rather constant. For this reason there is a lot of emphasis placed on paying an appropriate wage so that the employee makes a good living while the business also stays profitable.

 

Another good point is that techs are harder and harder to find these days. This is however a dangerous line because many owners get it into their head that they are almost held hostage to pay their guys more and more just to keep them when they may not being doing their business a service and also keep on guys that aren't worth the higher wage. Even though techs are harder to come by these days, it is still a big ocean out there!

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  • 2 weeks later...

I am actually pretty familiar with your area and I actually think $75/hr is still too low. Your area is near a corporate park and a high traffic area and I think even at a price higher than $75/hr you will do fine as long as there is a perceived value from your customers, new and old. A good customer will notice and appreciated the additional amenities from switching from side work to a fully functioning facility and thus be fine with the increased price. Also, at our shop, a majority of our customers don't even know our labor rate. We sell everything by the job not by the time or labor rate. We occasionally get the price shopper who calls and asks our labor rate and in a majority of those situation we always get a "wow" when we tell them we are $95+/hr but those aren't the type of customers we want anyway.

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Just FYI in some states it is required to post the labor rate. It doesn't need to be lit up and blinking just in a prominent place like next to your license and tax id where the inspector can easily see it when he comes to check. Good customers don't care to look.

 

When you take your special someone out for dinner do you care how much everything on the menu costs? Is that the deciding factor on where to go or what to order? If your wife wants to order a side plate of olives to go with her salad do you care that for $10 you could have bought the whole jar? Of course not. My point is if the restaurant charged you $2 or $12 for ten cents worth of olives it makes no difference. $30? Sure that's probably too much. But if the waiter fails to bring them or presents them sloppily then any amount is too much.

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If you are feeling guilty is because you don't know your true costs. List out your costs and then see if you feel the same charging your low rate, there is no more incentive to stop doing quality work than to realize you are losing money on your hard effort.

 

Once you know your true costs, see how fast the feeling of guilt goes away. And even faster once you pair it with a reticent customer that may think he is your best customer.

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I went from $55/hr competing with the other independents in my area to $104.88/hr which I saw higher than the dealers in the area. You need to charge based on the value you offer. If your better you should charge more. I still have a lot of my original customers at $55/hr. I only lost the people that didn't want to spend money. Charge what your worth and sell the value with every customer.

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  • 2 weeks later...

In about 2002 I was in a pretty tough spot. I was losing money hand over fist. We had taken over a larger space on Sept 1, 2001 and ten days later the world fell apart. Then to boost new car sales, the dealers were doing no down payment, 0% financing, if you could fog a mirror you qualify. People were literally trading in their car if I told them it needed a set of tires. It was unbelievable.

I finally took a few minutes and calculated my break even point. I made a nice little graph with my fixed and variable expenses. The long and the short of it was that I needed a substantial labor rate increase to be able to survive. Not to make a profit, just to stop losing money.

I raised my labor rate $15.25 in one day. I only had one complaint, from my service advisor. Not one customer said a single word. Not a new customer, and not a long time customer. From that day on, I have never feared increasing my labor rate, and I certainly never felt guilty about it.

A couple years after that big jump, and another rate increase or two in the mean time, I had a lady just beat me up until I would give her my labor rate (we try not to talk about labor rate, only the bottom line job cost). She was mortified to find that my labor rate was higher than the Chrysler dealer a mile away from me. Two weeks later that Chrysler dealer went out of business. I wonder what her warranty was worth on the work they did for her? BTW, the service manager from that Chrysler dealer has been writing service for me since a couple months after they closed.

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In about 2002 I was in a pretty tough spot. I was losing money hand over fist. We had taken over a larger space on Sept 1, 2001 and ten days later the world fell apart. Then to boost new car sales, the dealers were doing no down payment, 0% financing, if you could fog a mirror you qualify. People were literally trading in their car if I told them it needed a set of tires. It was unbelievable.

 

I finally took a few minutes and calculated my break even point. I made a nice little graph with my fixed and variable expenses. The long and the short of it was that I needed a substantial labor rate increase to be able to survive. Not to make a profit, just to stop losing money.

 

I raised my labor rate $15.25 in one day. I only had one complaint, from my service advisor. Not one customer said a single word. Not a new customer, and not a long time customer. From that day on, I have never feared increasing my labor rate, and I certainly never felt guilty about it.

 

A couple years after that big jump, and another rate increase or two in the mean time, I had a lady just beat me up until I would give her my labor rate (we try not to talk about labor rate, only the bottom line job cost). She was mortified to find that my labor rate was higher than the Chrysler dealer a mile away from me. Two weeks later that Chrysler dealer went out of business. I wonder what her warranty was worth on the work they did for her? BTW, the service manager from that Chrysler dealer has been writing service for me since a couple months after they closed.

Thanks for your post. My mistake is posting and letting people know my labor rate (doesn't t hurt bc in lowest in the shopping center) but since I now have a good following, I like the idea of not revealing what the rate is and just letting them know how much the job would be. Still have to work on not feeling bad about the cost. I end up making the decisions for the customers sometimes when price hits a certain amount... good thing I have a service advisor on hourly/commission that doesn't feel bad like I do

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Jay most of the time us owners give too much stuff away, have a problem not charging enough, or wont's sell it all. My service writers sells bigger jobs than I can sell.

Yup, best way to go broke is to put the (former tech) owner at front counter. I don't write service for exactly that reason.

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  • 2 weeks later...

“If you do what you’ve always done, you’ll get what you’ve always gotten.” Tony Robbins

 

Revenue = profits = cash flow

 

If your unprofitable your out of business. People rarely ask what our labor rate is, and we don't volunteer it. You are in the Customer service business not the parts and labor business. If you run a great business and you are unprofitable you will long longer be there to help your customers.

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I post a labor rate. But I also post that we charge labor hours based on a combination of all data, Mitchell's, and professional experience. So with that combination they'll only know a price for a job by asking for a quote.

What I'd do for the old customers is give them a discount card that you sell say for $199/year. Let them get the first 3 months as a trial. There are a lot of examples of a discount card. 4 free oil changes and good discounts throughout. It'll give them a break while keeping their business. Also will line your pockets in advance by having the purchase of the card upfront.

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I post a labor rate. But I also post that we charge labor hours based on a combination of all data, Mitchell's, and professional experience. So with that combination they'll only know a price for a job by asking for a quote.

What I'd do for the old customers is give them a discount card that you sell say for $199/year. Let them get the first 3 months as a trial. There are a lot of examples of a discount card. 4 free oil changes and good discounts throughout. It'll give them a break while keeping their business. Also will line your pockets in advance by having the purchase of the card upfront.

You're in Raleigh??? Which shop? I too am in Raleigh. I like your advice too thanks

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      It always amazes me when I hear about a technician who quits one repair shop to go work at another shop for less money. I know you have heard of this too, and you’ve probably asked yourself, “Can this be true? And Why?” The answer rests within the culture of the company. More specifically, the boss, manager, or a toxic work environment literally pushed the technician out the door.
      While money and benefits tend to attract people to a company, it won’t keep them there. When a technician begins to look over the fence for greener grass, that is usually a sign that something is wrong within the workplace. It also means that his or her heart is probably already gone. If the issue is not resolved, no amount of money will keep that technician for the long term. The heart is always the first to leave. The last thing that leaves is the technician’s toolbox.
      Shop owners: Focus more on employee retention than acquisition. This is not to say that you should not be constantly recruiting. You should. What it does means is that once you hire someone, your job isn’t over, that’s when it begins. Get to know your technicians. Build strong relationships. Have frequent one-on-ones. Engage in meaningful conversation. Find what truly motivates your technicians. You may be surprised that while money is a motivator, it’s usually not the prime motivator.
      One last thing; the cost of technician turnover can be financially devastating. It also affects shop morale. Do all you can to create a workplace where technicians feel they are respected, recognized, and know that their work contributes to the overall success of the company. This will lead to improved morale and team spirit. Remember, when you see a technician’s toolbox rolling out of the bay on its way to another shop, the heart was most likely gone long before that.
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