Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Sun Sep 30, 2007 11:54 am Post subject: Billing In The Biz, An Introduction
Pricing is based on a book that states it should take X hours to perform an operation. This amount is then multiplied times a rate per hour. The rate is based largely on what other shops charge and often determined by “calling around.” Dealers do not want to seem out of line so they set their rate just a little over local independents. Independents feel, to attract clients they must be lower than the dealers and set their rate thus.
Both know the rate is lower than what it takes to operate the shop, but that does not matter. The price of the job is based on an arbitrary average time multiplied by an artificial rate and results in an allotment of time. A portion of this time is paid to the person that must do the job, at another artificially low rate. To make a proper living, it is expected that the person will do the job faster than the time billed. When they do, this is celebrated and accepted as “efficiency.”
Some jobs they can do faster than the allotted time and these become “gravy jobs.” Because they are very desirable many shops compete for them and the price is thus lowered, until they become losers. Other needed and available repair, with a large market, is considered a “loser.” This because it is accepted that the “hours” allotted are less than those required. These jobs are avoided where possible and needed work often goes undone.
Proponents of the system say it is “fair.” I see this too as a fallacy. In reality the shop must make $X to stay in business. This they do by stating an artificial rate and billing more hours than required.
I see this as pointless, perhaps it is fear to express the actual rate. I do not see how this is more fair than stating the actual rate and actual time required.
A second claim I have heard is that it makes things equal. One person is not charged more than another, for the “same” work. Again, I say ridiculous. If the work is the “same,” charging actual time would result in the same price. Often the work is not the same, nor has it ever been written everyone should pay the same price. If one vehicle requires less time, to do the “same” job, they should not pay the same price.
If a vehicle requires more time, for any of a million reasons, clearly they should expect to pay more. If more time is required, I suggest they are not the “same” job, regardless of an arbitrary description.
The last argument I have heard is, suppose one tech takes longer than another to perform the “same” work? This is clearly a management issue. The reasons [causes] might be, one tech is less skilled. If this is the case, his rate might be different, just as his rate of pay might be different.
A final reason would be the tech intentionally works slower than he might. This too is a management/leadership issue. Willful misconduct is a hiring issue or worse a factor of mistreatment and lack of management in every case I have ever been exposed to.
My thought is this is a fundamentally flawed system and is by nature misleading. I think many shops fear changing because, “this is how everyone else does it.” My question represents a crucial difference in concept. Should I wish to be perceived the same as everyone else, or as something perhaps better?
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Tue Oct 02, 2007 2:25 pm Post subject:
Bud wrote:
A very thoughtful recap of pricing in your last 20 or so years in business.
Isn't the foundation that makes that work demonstrating value in the service?
Being able to demonstrate quality of a service before it is rendered is important. I wrote an article on the subject on my website and linked it to the articles on pricing I recently added to this site.
Bud wrote:
Then, of course, the more efficient the shop becomes the lower the prices become.
There are at least two possible scenerios.
A business can enjoy a cost advantage, undersell the competition and still make the desired profit.
A business can increase its rate per hour, sell at the same price as others and make a lot more profit.
In either case the business is in a very desirable position, relative to the competition. In an increasing market they can increase reserves, expand and make themselves ever more competitive. In a decreasing market, they can decimate the competition and remain profitable doing so.
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Tue Oct 02, 2007 3:54 pm Post subject:
MattFMN wrote:
How did the Labor Guide (too many repair facility's "bible") come into existence? Was it introduced to try to protect the public? Later, Matt.
Hi Matt,
That's a darn good question. It was around when I came along, just a lot thinner. But then, so was I Maybe one of the old-timers, like Guido can tell us
Forty years ago the shop rate was $12.00 an hour and I got 50%. Fifty hours a week times $6.00 an hour was about $300.00 a week, I couldn't spend all the money made.
Joined: 15 May 2007 Posts: 146 Location: Garden City, KS
Posted: Tue Oct 02, 2007 3:59 pm Post subject:
Quote:
It was around when I came along, just a lot thinner. But then, so was I Maybe one of the old-timers, like Guido can tell us
Forty years ago the shop rate was $12.00 an hour and I got 50%. Fifty hours a week times $6.00 an hour was about $300.00 a week, I couldn't spend all the money made.
I hope someone can chime in and give me an idea why we were blessed/cursed with the Labor Time Guide.
Wow...50%. I wonder what I would do with 50%! Thanks Louis. Later, Matt.
_________________ Matt Fanslow
ASE CMAT/L1
Crag-Technologies, Inc
www.wavehook.com
[quote="MattFMN"][quote]It was around when I came along, just a lot thinner. But then, so was I Maybe one of the old-timers, like Guido can tell us
I've got your "old". But since you asked so nice, this is a piece that I wrote for Motor Age long (IMHO) before I was on the wrong side of the half-century mark.
____________
Flat-rate rewards workers who produce.
When I was younger, we had a saying for replying to someone who said something of dubious
veracity. "Is that a war story or a fairy tale?" If they were newbies, we'd tell them the difference
is that a fairy tale starts with "once upon a time."
And so it is with my opening statement. Once upon a time, a man named Henry Ford was looking
for ways to bring warranty costs into line. You have to admit that it makes sense. Take a new
vehicle and you should be able to estimate the time required to perform various repairs with
proper tooling and training. The old method for determining flat rate times was: the vehicle was
already in the stall, the lift was set, the HAND tools and parts were on the cart and then the job
performed was timed. This was done 3 times and the times were averaged. Today, some OE's
deduct time because air tools are used. Since the tech normally purchases the tools, think of it as
being penalized for investing to become more efficient. Sounds hypocritical to me when you
think about how the OE's conduct business in order to improve stockholder returns.
Out of the warranty arena, flat-rate, or flat-rape as I prefer to call it, is nothing more than a crutch
for lazy management. I often hear shop owners and managers claim that without flat-rape, they
wouldn't be able to reward the good workers because they'd have to pay the lazy, incompetent
workers. One part that always is left out of this lament is -- who hired these workers? Poor
management hiring practices are what allows people of that caliber to be hired and kept.
There is no excuse for making an employee's salary contingent on management's ability to get
customers in the door. I don't see service advisors working flat-rape. I don't see managers
working for it either. A shop owner does. So does every other business owner in the country. You
pay your money and you take your chances. The rewards of shop ownership can be very great, as
can the risks. Flat-rape is management telling the employee to take the same risks as a shop
owner but without the same rewards.
This is not to say salary inducements such as bonus incentive pay can't or shouldn't be used. A
competent tech will make more money in a base+bonus pay scheme. But to make someone who
has no control over the traffic coming through the door responsible financially for business
slowdowns is preposterous. I'm also not saying that time estimations shouldn't be used for
internal record-keeping. This is an important business practice that isn't done in enough shops.
But it needs to be just that -- internal. A labor guide is not a god. Many times, time studies
haven't even been performed by the OE's. If they had been done, then why do OE Request for
Labor Time Adjustment forms exist? Most vehicles being repaired are not new. Common sense
should dictate that when doing a job that pays "X" for one item, it shouldn't be estimated at "X
minus whatever" to do more than one item.
It's time that management realizes that they work to support technicians. While it may be true
that no money is made until something is sold, nothing will ever be sold again if the deliverables
aren't there. It's time to wake up and look at things a little differently or else there really may be
a tech shortage.
Feel free to add your 2›, 3› if Canadian to Guido_PA@hotmail.com
_____________________
Forty years ago the shop rate was $12.00 an hour and I got 50%. Fifty hours a week times $6.00 an hour was about $300.00 a week, I couldn't spend all the money made. [/quote]
The labor rate was the same where I started in 1969. So was the pay for the Top Dog. Granted, I wasn't he. Come to think about it, I never would be either.
I hope someone can chime in and give me an idea why we were blessed/cursed with the Labor Time Guide.
Wow...50%. I wonder what I would do with 50%! Thanks Louis. Later, Matt.[/quote]
I wrote that piece over five years ago. I've been accused of being a hard-head. My opinion hasn't changed.
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Tue Oct 02, 2007 7:29 pm Post subject:
Guido wrote:
louis wrote:
It was around when I came along, just a lot thinner. But then, so was I Maybe one of the old-timers, like Guido can tell us
I've got your "old". But since you asked so nice, this is a piece that I wrote for Motor Age long (IMHO) before I was on the wrong side of the half-century mark.
____________
I guess "old" is a relative term. We have cypress trees down here close to 2000 years
guido wrote:
Flat-rate rewards workers who produce.
When I was younger, we had a saying for replying to someone who said something of dubious
veracity. "Is that a war story or a fairy tale?" If they were newbies, we'd tell them the difference
is that a fairy tale starts with "once upon a time."
And so it is with my opening statement. Once upon a time, a man named Henry Ford was looking
for ways to bring warranty costs into line. You have to admit that it makes sense. Take a new
vehicle and you should be able to estimate the time required to perform various repairs with
proper tooling and training. The old method for determining flat rate times was: the vehicle was
already in the stall, the lift was set, the HAND tools and parts were on the cart and then the job
performed was timed. This was done 3 times and the times were averaged. Today, some OE's
deduct time because air tools are used. Since the tech normally purchases the tools, think of it as
being penalized for investing to become more efficient. Sounds hypocritical to me when you
think about how the OE's conduct business in order to improve stockholder returns.
Out of the warranty arena, flat-rate, or flat-rape as I prefer to call it, is nothing more than a crutch
for lazy management. I often hear shop owners and managers claim that without flat-rape, they
wouldn't be able to reward the good workers because they'd have to pay the lazy, incompetent
workers. One part that always is left out of this lament is -- who hired these workers? Poor
management hiring practices are what allows people of that caliber to be hired and kept.
There is no excuse for making an employee's salary contingent on management's ability to get
customers in the door. I don't see service advisors working flat-rape. I don't see managers
working for it either. A shop owner does. So does every other business owner in the country. You
pay your money and you take your chances. The rewards of shop ownership can be very great, as
can the risks. Flat-rape is management telling the employee to take the same risks as a shop
owner but without the same rewards.
This is not to say salary inducements such as bonus incentive pay can't or shouldn't be used. A
competent tech will make more money in a base+bonus pay scheme. But to make someone who
has no control over the traffic coming through the door responsible financially for business
slowdowns is preposterous. I'm also not saying that time estimations shouldn't be used for
internal record-keeping. This is an important business practice that isn't done in enough shops.
But it needs to be just that -- internal. A labor guide is not a god. Many times, time studies
haven't even been performed by the OE's. If they had been done, then why do OE Request for
Labor Time Adjustment forms exist? Most vehicles being repaired are not new. Common sense
should dictate that when doing a job that pays "X" for one item, it shouldn't be estimated at "X
minus whatever" to do more than one item.
It's time that management realizes that they work to support technicians. While it may be true
that no money is made until something is sold, nothing will ever be sold again if the deliverables
aren't there. It's time to wake up and look at things a little differently or else there really may be
a tech shortage.
Feel free to add your 2›, 3› if Canadian to Guido_PA@hotmail.com
_____________________
There's a whole lot of truth in what you have written. I always felt incentives are basically a conditional promise. Give me this and I will give you that. If you can no longer give me this, no matter the reason, you get squat. Sort of heads I win, tails you lose.
Seems to me a real manager would put his money where his mouth is. For instance, here's the reward up front, the most I can pay. Now I'm going to work with you to make sure we still make a profit . . .
guido wrote:
louis wrote:
Forty years ago the shop rate was $12.00 an hour and I got 50%. Fifty hours a week times $6.00 an hour was about $300.00 a week, I couldn't spend all the money made.
The labor rate was the same where I started in 1969. So was the pay for the Top Dog. Granted, I wasn't he. Come to think about it, I never would be either.
Well, the older I get, the better I was . . .
mattFMN wrote:
I hope someone can chime in and give me an idea why we were blessed/cursed with the Labor Time Guide.
Wow...50%. I wonder what I would do with 50%! Thanks Louis. Later, Matt.
guido wrote:
I wrote that piece over five years ago. I've been accused of being a hard-head. My opinion hasn't changed.
Take care,
Guido
It seems every time I called a previous employer, about one of my current techs, I was told they had "a bad attitude." Most have been around about 20 years, I guess bad attitudes tend to stick together.
Joined: 15 May 2007 Posts: 146 Location: Garden City, KS
Posted: Wed Oct 03, 2007 9:54 am Post subject:
Thanks Guido! I love war stories...and a fairy tale here and there. Interesting paradox when shops use flat-rape for management, and techs demand flat-rape to be able to make a decent living...isn't is? Later, Matt.
_________________ Matt Fanslow
ASE CMAT/L1
Crag-Technologies, Inc
www.wavehook.com
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Maybe one of the old-timers, like Guido can tell us 
