How Much Should We Charge? By Bob Thomas The most im- ; portant business de- cision you ever have to make in any en- terprise is simply how much to charge. It doesn’t matter if you are the local hardware store, Wal- Mart, barber shop, florist, Holiday Inn, or an electrical rebuilder, your pricing can be the difference between strug- gling to pay the bills or having a fair profit remaining to pay yourselfas well. A quick check of any of the clas- sic business textbooks will tell you that you should charge the highest price the market will bear. But do you really know what your market will bear? Too many of us fall desperately short of this price, and our businesses and profes- sion have suffered as a result. Too many of us have fallen into the “I can sell it for X-amount” mentality. Too many of us have been selling our ser- vices for the lowest price we think we can survive at! Too many of us have guessed wrong because we simply don’t know our own costs. Too many of us think we have to be the lowest bidder in every instance. I have been answering the tele- phone at my shop for over 20 years, and am well aware that the number one question every potential customer asks is “how much is it?” Very few are re- ally looking for the absolute lowest price and nothing else. Many really just want to know how much they are spending. Some, believe me or not, will complain about the price no matter how low it is. If you take the time to communi- cate fora moment, you will find they also expect a certain level of service and quality and many do not realize that all parts are not equal. If you be- lieve you are offering a better part at a slightly higher price, tell them! Let them know why you charge a little more than the “big parts store” and what you have to offer that the “big parts store” can- not. Sell yourself. The “big parts store” does not have a resident electrical ex- pert. (If you are not an expert—get educated and make yourself one.) Let them know you will be there to help them if they have a problem after they install your part. Your price should not be based solely on what the other guy is selling his unit for. If you want to get the most for what you do, you must first know your own cost. That means knowing exactly your real cost of any given unit. This was much more easily done when all GMs had 10-SI’s and all Fords had 7058’s. Most of us have a pretty good idea what we have in a CS-130, or at least we think we do. But what about those special units that you don’t see every day? You know, the ones that make up for over half your business. The cost of components seems to change daily, along with all your other expenses. How can you keep up with itall? The answer is really simple. You have to write it down, somewhere. Whether you use an index card for each unit (or batch of units), the ma- nila tag that we use, or a log book, you have to keep track of the amount of man hours (or minutes) spent from tear-down to final testing. In addition, list all the parts used and their cost. If you use index cards and keep them on file, you might also record the vendor MAY, 2001 each part came from. This can become a valuable reference if a quality issue comes up later. Do not forget to list reclaimed parts that may have been salvaged from other cores. If you tear down 12 and only build 11, include the cost of the extra core lost in that batch. How much does your bench time cost you? The only way you will know is to add up all of your expenses ex- cept parts purchases and wages of your production employees. That is right, all of them. That includes rent, utilities, withholding taxes, tools, equip- ment, advertising, the subscription to the Exchange, basically everything you pay out that is not new units, parts, cores or production wages. Wages of nonproduction employees, like office, delivery and sales should be added in. It is really best to do this annually, since many expenses only come up once each year, and if you pay income taxes, most of the information you need is readily available on your tax return. Divide that figure by 1960, which is based on 52 weeks (less two for va- cation and one for holidays) times 40 hours. Now add that number to the hourly wage of the rebuilder who worked on the unit (or batch of them) and you have your hourly cost to mul- tiply by the man-hours. Does the number surprise you? You bet it does if you’ve never seen it before. And remember, you have not added any parts cost or profit yet. This is only your cost in time. How much profit should you add? Only you can answer that, but I’ll give you some guidelines. First, you should never sell anything for less than what you have in it, ever. If you have not been keeping a record of your cost, then I can guarantee you have already done that, more times than you want to know. Page 1 of 2