Think Outside the Box By John Jervelund I got into a discus- sion with a friend ‘ about the “big box” oe parts stores, one of which is coming to > ™ Brantford, and did I think it would affect me. Of course it will affect me, and it will affect every repair station in the area. How much is up to the individual owner. The advantage the box stores have is that they buy from the big manufac- turers in such large quantities that they get the absolute best price. Then hav- ing no traditional pricing structure to adhere to, they sell to the consumer at prices which make the average repair station and/or jobber too expensive. With national brand name mer- chandise there is not a quality issue, but with electrical or anything else they brand under their own name, these products are probably made to be sold at a price, and possibly the quality is not there, but they will be cheap! There are two possible answers to this for the average repair station. First, refuse to install parts you don’t sup- ply. Bluntly put, it is unlikely that you are making any money on labor so why should you subsidize the consumer’s driving cost? Second, add 50 percent to the labor charge so that you will make some money on the transaction. If your flat rate is three hours, then charge 4 1/2 hours and immediately put up a huge sign and have a place on the work order for the customer to sign, stating that if the customer’s part fails for any reason you will not guarantee anything, including labor. Now, some customers will tell you that they are going elsewhere. Let them. Are you supposed to let them save money on repairs while going broke yourself? The box store usually has some service bays but are seldom able to get sufficient technicians of any caliber to man them. The box stores also charge for everything they do, there are no cour- tesy freebies there. Ifthe customer just needs that noise checked to be reas- sured that it is not a dramatic failure about to happen, he will sign a work order and be charged. Now, I’m not saying that this is wrong. If you spend the time, you should be paid. But we all know that with a good customer a quick check is probably free. What about parts coverage? The large manufacturers are concerned with inventory turns. If they don’t sell it three times or more within one year they won’t stock it. Many of the tradi- tional jobbers hold inventory based on what is on the road in your area, not on what some suit, in God knows where, thinks should happen based on national statistics. In the area of rebuilt electrical, the large rebuilders need volume to keep their prices down. Just try asking for something late model or exotic and see what the price and delivery quote is. So the strategy is: don’t install “big box” parts, don’t warranty anything concerning them, and add 50 percent to your labor charge if you decide to install customer-supplied parts. lam really big on the labor charge part of this because of several articles I have been reading in trade publications. In Ontario, to cover deductions and other expenses it costs about $2.50 per hour more than you pay the technician. This means that ifthe tech is paid $17.50 an hour then he actu- ally costs you $20 an hour. This ap- plies only if you do not have a benefit MARCH/APRIL, 2000 package and/or uniform package. If you do, you need to make that closer to $3.50 an hour. I was really surprised by this, being an employer. I knew there was an expense involved, but not how much. If you take labor costs, rent/mort- gage, heat, hydro, property taxes, busi- ness taxes, equipment purchase/repair, and insurances along with any other expense I’ve forgotten, then a calcu- lation I read rings true. In order to cover all expenses, leave something for re-investment in the business and still have some of the “P”-word left, your floor rate needs to be 3.7 times the rate paid to your highest paid techni- cian. The “P”-word is profit. I can’t figure out why everyone else can make this, but if] do it’s not right. Using this formula, if our highest paid tech makes $17.50 an hour, we need a floor rate of $65 an hour to justify being open. I have heard people say “I don’t need that much because I own my building.” This is just plain dumb! If you sold the building and invested the money, you would have income, and if you rented the building, you would have income; so by keeping the labor rate artificially low, all you are doing is tak- ing money out of your pocket and giv- ing to your customers. This is very nice for them, but not very smart for you. I’m sure they throw you a thank you party every year for being so chari- table, maybe even name you citizen of the year. There may be a silver lining in the coming of the “big box” stores, and it may be that we are dragged, kicking and screaming, into being better businesspeople. John Jervelund is owner of Brantford Starter Alternator, Brantford, Ontario. Page 1 of 1