Here is presented a logical case for what would happen if you did start to make a living wage. It is always easier, we realize, to tell you how to do things right than to do them right ourselves, but consider the following very seriously.
By Dick Glass* ['Reprinted from Management Update for August 1981, from the Electronics Technician Association, International.]
You must be saved
Yes, to make the decision to stop starving and to start enjoying the good life, you have to be SAVED. By that, we mean you can't just make the decision that you are going to quit kidding yourself about how fast you can make repairs, and about how many new TV's you will sell if you give service away, and how you will give your techs a raise . . . JUST AS SOON AS THEY START GETTING MORE EFFICIENT. First you must go BANKRUPT, or watch your wife leave and marry a $15 per hour postal worker, or realize your dumb 19 year-old kid i making $10,000 dollars more per year than you. After you have wasted much of the best parts of your life wishing that your wonderful personality would get you a lot of totally dedicated customers; after you have worked 12-hour days, all of your Saturdays, many Sundays; never even considered taking more than a week or two in vacation time; after you realize you could have done better sweeping the floor in a local factory . . . then you might be able, you might be conditioned, to considering the advantages of CHARGING ADEQUATE SERVICE RATES.
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Once you make the DECISION, you will realize these truths:
1. Low-priced competition is good to have around, not a deterrent to profits in your shop.
2. There is no logical reason that you should have lower service rates than Sears, RCA Service Company, IBM, or any other business that uses technical personnel.
3. If your charges are lower than com petition, customers will consider your shop lower in ability and technical expertise.
4. Higher prices TEND to discourage repair jobs on older, more-likely-to-be--'TOUGH DOGS' TYPES OF EQUIPMENT. Your efficiency will be higher.
5. Employee problems -employee turnover will cease to be a problem.
Because consumer electronics servicers deal so closely with their customers, they find that emotion has a great deal to do with how high their service charges are, rather than any scientific analysis of what rates SHOULD BE, or even where local COMPETITION is.
Throughout the history of our business, pricing has been the number-one problem. It has caused shop owners to fail or to work most of their life for inadequate compensation. It has been such a problem that some have resorted to 'hiding' their service rates by trying to include extra profits in parts, nonexistent parts, or labor functions. The lack of income that has resulted from too-low service rates has been responsible for most of the ills that have been evident in the service business--problems like low pay for employee techs; no reserve funds to invest in merchandise and parts (which allowed the Radio Shack chain to step in and take over that part of the business); no funds to allow bigger and bolder advertising signs; no funds to allow help to wash the windows or clean up the store; no funds to allow for investment in new products (which allowed all of the specialty stores to step in and take over the CB, Video, Alarm, etc. etc. businesses); no funds to allow the technicians to be sent to training schools or the boss to business school; and more.
Competition The excuse for this plague has been: "My competition is so low I just can't increase my rates, even though I know they are too low."; "My customers are older people on retirement and social security-they just can't pay higher ser vice charges."; "How can you charge $90 to repair an $80 TV?" and "I just can't get any efficiency out of my service department." Inadequate service charges also caused a large number of shops to decide that the answer to the problem might be in CUTTING COSTS rather than raising prices. After all, there are more ways than one to skin a cat! Since practically every shop I have become familiar with has already cut cost--TOO LOW- The only way to reduce them any further has been to attempt to reduce the products or brands serviced to a few, in hopes that familiarity and availability of repair parts will reduce time and labor expense.
That works real well. On those few items you do service, you can be more efficient and thus keep the cost of service lower than you could servicing unfamiliar brands and models. It is also like going fishing with no bait. You have several advantages by doing this: You have no bait cost; you lose no lures; you spend little time cleaning fish, untangling lines or ... fishing. It's the same when you narrow your services. While you can be more efficient on one brand of TV, and it seems you are doing better, often the result is a long-term loss of customers, a weakening of your community image, and a feeling in your own mind that you have cleverly found a way to undercut the competition.
If you are charging somewhere in the neighborhood of $25 or $30 per hour to perform electronic service, ask yourself if any of the above applies to you.
There is another emotional reason service prices have remained too low over the years: that is the HOPE many dealers have that if they keep service rates low, customers will come back to them to purchase furniture or new sets.
Since this does actually work -in an occasional instance-it appears to have some merit. However, since 80% of the customers have now defected to the discounters or anyone else who would give them a 'deal', that philosophy has proven to be a dud. It, too, has led to the downfall of many servicers.
To think rationally about pricing, set up a chart as in Fig. 1 for your shop. Fill in the blanks with your best guesses or predictions. Be an expert. Try to anticipate what will happen at the higher price levels. Even if your are now charging $40 per hour, you should make this fore cast regularly for your business.
The shop in the chart has been charging $20 per hour for service work, trying to reduce the hourly losses by under paying the technician, and skimping on necessary overhead expenses. At that, the "total cost" to sent a tech out on calls or to perform in-shop repairs is over $20. So each time something is serviced, a larger loss results. Fortunately, the owner is wisely reducing advertising expenses-hence reducing the number of repair jobs. He is correct in doing this, since the more service work he does, the more he loses! Were he to increase rates to $30, he might anticipate a gross (not NET) profit of $9.00. He would not lose ANY legitimate repair work, since $30 is still below any of the serious competition. At $40, he would perhaps lose a "shopper" or two, but the financial advantage of this rate over the $30 rate is clear--it produces a 24% increase in gross profit, in addition to a lighter work load.
At $50 per hour, the shop may find customers with older sets trying to find someone else to share their troubles with.
Depending on the shop's sales ability, let's estimate we would actually lose 7 of the original 20 jobs. We would lose these only if there were a lot of very low-priced shops in the area. With other prices what they are today on everything we buy, it is doubtful that seven jobs would be lost, but let's use if for illustration here anyway.
Notice that even if 7 were lost, the profits are substantially higher than the $40 level. Even the $30 price provides $10,000 more dearly-needed dollars per year for the shop. The $50 price is $2800 better per year than the $40 level, and while the total jobs are down only 35% from the $20 point, the actual work, be cause of the newer mix of sets, will be less than 50% of that needed for the $20 level type of repairs.
Some keys to overcoming the 'pressure' you feel from the community, relatives, and friends (which depresses your prices) is as follows:
1. Honestly estimate the 'worst case' anticipated losses in your shop.
2. Keep an absolute record for a month, showing number of repair jobs turned down, jobs taken in, phone inquiries that resulted in a rejected repair, and any other info you think may bear on the price increase project.
3. Stick to the price schedule explicitly.
Don't start giving every other job a 'break'. The grocer, new truck dealer, post office, hospital, and gas station give you no break.
(source: Electronic Technician/Dealer)