Labor rates in our area have been the same for the past five years or more, and when I asked the insurers for an increase, I was told that I couldn’t get one because I was being paid what everyone else in my area was being paid. I’m barely getting by, so what can I do to get a higher labor rate? — Warren
Warren, let me begin by stating that you’re not alone in both your concern as well as your thinking that you somehow need to ask insurers for a raise. Your question has been asked by many others who have shared similar concerns for many years.
When I was a shop owner, I couldn’t wrap my head around the fact that while we offered superior workmanship and service and the highest quality products backed by a ‘lifetime warranty,’ the insurers consistently attempted to pay our customers the same rates and allowances charged by the high-volume, low-value service providers which I often refer to as the ‘Shake-n-Bakes.’
Many repairers who possess numerous OE certifications, I-CAR Gold Class status and ASE Blue Seal designations and offer state-of-the-art services are receiving the same compensation as other repairers without such investment and credentials. I personally find this as absurd as it would be for an Outback Steakhouse to accept the same amount for its steak as McDonald’s does for its hamburgers. This is comparing apples to oranges! So what can you do?
First, it’s important to understand that, being an independent businessperson, you have the right to charge a rate that you determine to be competitive in your marketplace. There are several aspects that should drive your company’s pricing such as:
- Your direct competition in your market (are you the ‘only one?’)
- The level of service and quality your company provides as compared to your local competition
- Pricing of those in and around your marketplace who offer a comparable level of service and quality
- Your target market (i.e. customer-driven, insurance-driven, fleet service, custom restoration, etc.) Do you want to be a ‘high-volume, low value service provider’ or one who offers ‘low-volume, high value?’ Or perhaps you want to offer varying levels of services and be a ‘come one, come all’ service provider?
The answer you seek may be dictated by several things such as your location, size of operation, capabilities and desire, but none more important than your cost of doing business (a.k.a. ‘cost of operation’). Each and every shop owner/manager must know their true ‘cost of operation’ to determine what they need to charge to remain in business and make their desired profit.
Once these and other questions are answered, you can have a better idea of where you and your offerings lie amongst your local competitors/colleagues and you can then determine and assess rates and allowances which will enable you to be competitive in your marketplace and earn sufficient revenues to pay salaries, maintain your facilities and equipment, market your business, save reserves for future expansion and maintain an emergency fund for those unexpected expenses.
While this may seem a daunting task, it’s one that’s paramount if one wishes to remain in business and prosper. Today, however, it may not be as daunting as in the past. Rather than to attempt this on your own or pay hundreds of dollars to an accountant, there is a better and less costly way.
Variable Rate System
The Variable Rate System (VRS) is a recent innovation offered to collision repairers by National Auto Body Research (NABR). The company is owned and operated by father and son team Richard and Sam Venezuela. While I receive no consideration for my endorsement, I’ve offered my suggestions and recommendations to Richard during VRS’s development and have encouraged that repairers be able to learn their true cost of operation through this program. As a shop consultant, I feel strongly that one cannot determine their pricing of goods and services without knowing their true costs to produce them. And if they can’t or don’t, they will likely allow others to do it for them. Thus, we arrive at the concern you and thousands of others share across the country.
Through this system, VRS offers the ability for a shop owner/ manager to determine and learn their true cost of doing business. This is a free service provided to VRS subscribers. The subscription is only $99 per month, and you can cancel your membership at any time. This program is great for repairers who currently don’t know what their labor rates should be in that it can instruct them how to best calculate them to have the opportunity to remain competitive and profitable.
Additionally, the VRS offers an even greater value in that it will enable participants to see what others who offer various levels of service in their area are charging, which enables them to more accurately determine their competitive pricing.
The VRS will also enable participants to do an apples to apples comparison of other service providers in and around their specific market area who offer the same level of training, certifications and services. This is the first time such a program has been offered, and it has being used by some of the best and most respected independent repairers across the country.
Remember, “It’s not about doing one thing 100 percent better, it’s about doing 100 things 1 percent better…consistently.”