Don’t Leave It On the Table Evaluate Your Pricing By Nick Staub Rob Buksar’s article “Don’t Trip Over Ten Dollars Trying To Save A Nickel” (see the October Exchange), is a wonderful illustration ofa different way to look at your profitability in our ever-changing industry. My company has the advantage of being involved in almost every aspect of the electrical rebuilding industry, so we get to see more of the “big picture” than most. Weare a medium-sized unit rebuilder, an armature/rotor rewinder, a starter drive rebuilder, and an OEM and af- termarket parts supplier. In addition, we own and operate three small rebuilders that deal with retail, fleets, agriculture, construction and marine. Other than winding stators, we’re in- volved in pretty much everything. We get to see what drives people to us and away from us. One of the biggest problems fac- ing small rebuilders today is how they go about pricing their products. I have found that rebuilders generally hate being told that they’re too expensive, and will sell much of what they do for significantly less than they could and should sell it for. The electrical rebuild- ing industry is as professional as we make it. If we choose to give away our products for a fraction of their value, then that is how we will be per- ceived. The thriving shops I encounter know where the market is on the items they sell, which is the key. Sometimes a rebuilder should choose to be less ex- pensive than the market in their area, in cases where price is the only con- tributing factor. Other times a rebuilder should choose to be higher than the market, where quality or availability are more of the issue. The key, in either case, comes back to knowing where the market is. This is no small task, especially for those that got into this racket because they are mechanically gifted at repair- ing units. Most rebuilders say, “I don’t have the time to research these things, especially when there are so many units out there today.” I would reply that you can’t afford to be shooting in the dark, which most do. The problem becomes even more difficult when a small rebuilder gets their pricing direction from a national rebuilder that doesn’t do their research. Arrow was a great example of that. Their pricing on standard automotive units was in line with the rest of the industry, but their non-mainstream units were priced ridiculously. They were famous for having things like the old Jeep 3322 starter priced at $42 job- ber. When you start adding up the price of the armature, drive, fields, etc. you’re quickly above that, at cost, without labor! Now these large rebuilders do have some economies of scale when they build in large quanti- ties, but not near enough to overcome the sheer parts costs. The problem comes down to per- ception. The rebuilder looks at that and thinks that is what a Prestolite M2-style starter goes for. Further, that drives the end user to perceive that Jeep starters should be around $70. This is largely why our industry is perceived as less professional than, say, a car dealership. I’ve worked with some dealership mechanics that have no idea why an alternator does what it does, yet they command a higher dollar than we do. One solution is to bill your units as time and material. Many people don’t DECEMBER, 1999 like this method, but there are some virtues to it that can’t be ignored. First, it is very easy to track whether you are making money and properly evalu- ating your employees. You can total the hours at the end of the month that each mechanic bills out and find out exactly how efficient your help really is or isn’t. This method is no different than what a dealership uses— as well as your lawyer! The average employee works 165 hours per month, assuming he is there every day. For simplicity we’ll pay him $10 per hour. Payroll cost is $1,650 per month. I add 25 percent for “over- head” which should cover health in- surance, L & I, payroll taxes, retire- ment fund, etc. That figure is probably high, but I’d rather guess high than low when it comes to my cost. That brings our cost on this employee to about $2,062 per month ($1,650 base plus $412 overhead). Let’s say your labor rate is $40. With what we have defined so far, your man would have to bill out 52 hours to “break even” and cover the expense of employing him. Of course we don’t want to just break even, we’re in busi- ness to make a profit. I feel that an employee should be able to bill out 100 hours a month. This isn’t unreasonable when you consider that most dealer- ship mechanics bill 200 hours per month— yes, that’s more than they work. They have the benefit of “book time” and if they complete a four-hour (book time) job in three hours, the dealership feasts on the extra hour of income. The mechanic is usually en- couraged through incentives to bill more hours than he works, so he ben- efits as well. Many mechanics in our industry will ask about the parts they sell. My view is that they are two separate is-