Modern Tire Dealer

JAN 2019

Magazine for the professional tire industry

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M T D J a n u a r y 2 0 1 9 54 B u s i n e s s I n s i g h t A n article was written a few months ago in a different mag- azine that did a tremendous disservice to the industry and I'm furious. In the article, the author dismissed the idea of a gross profit benchmark of 60% as a myth and that most shops can't attain it. at is patently false, and the reasoning behind his statement shows a complete lack of understanding on how a shop's financials are built, and how a shop produces net income. Further damaging the industry, the author rails against increasing labor rates that will sustain the shop and allow it to attract the best talent available to the market. Instead, the suggestion is to essentially let your customers tell you what your labor rate is and how much they should pay you. Let's dissect this before my head explodes. First: If your labor rate is $200/hr., people will complain it should be lower. If your labor rate is $150/hr., people will complain. $100? Complaints. $75? $50? Complaints. ere will always be someone out there who thinks your rate is too high and should be lower. Furthermore, when was the last time a customer even brought up your labor rate? Two decades ago? If you have someone calling your shop asking what your labor rate is, it's the shop down the street trying to sniff out what they should charge — not a customer. Today's consumer, if price is their top priority, is looking at total cost of job, not an individual line item. In the article, the author states that you charge what the market will bear and to not base it on costs. What??!? So if I need a technician, and a good technician can demand $30 an hour, I can just charge $50/hr. labor because customers complain? Just because the shade tree guy down the street doesn't factor in rent and is the cheapest guy around? I don't have to worry about cash flow and hopefully I can reduce my expenses to nothing so there's some net profit at the end of the month? Who runs a business this way? Many factors go into setting a labor rate. How do you define what the market will bear? Sure, major players in the industry can spend a fortune on research and hire a firm to conduct surveys and run tests. But what is a small business in the tire and automotive sector to do? You must account for several forces; this is not limited to but mostly concerning your customer demographics, your fixed costs, and how much you need to pay competent people to work on customers' cars. What is the sense of lowering your labor rate to appease a handful of customers, when that means you can't pay employees the right wage? You know what the best compliment a shop can ever get is? "I take my car to 'blank.' He's expensive, but worth it." As a small businessperson, you need to focus your efforts on the customers who understand that doing business is a two-way street. You provide superior service and exceed expectations, and they pay above average rates for that service and convenience. If a customer wants below average price, point them in the direction of somewhere else. What's the old adage? Price, quality and speed: pick two? e only problem with that advice is as a small business, there is no more market for you in the price area. e big players have that space locked up. You must compete in quality and speed and focus on customers who align with that philosophy. ere's no reasonable explanation why any ethical author would tell an industry, Benchmarks are not a myth IT'S TIME WE FINE-TUNE THE RECIPE FOR SUCCESS BY INCOPRPORATING THE RIGHT INGREDIENTS FOR PROFITABILITY Dennis McCarron By ©GETTYIMAGES.COM/FOTOGRAFIABASICA

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