In the early ’80s, I found a book written by Tom Peters entitled “In Search of Excellence.” It offers advice on, and insight into, the art and science of business-management concepts that were then in use by several 1980s companies. Since the book was published, it’s grown to become a staple in sales and marketing libraries.
Within the book, I remember a comment that has stayed with me throughout my business and marketing career. Peters wrote that you had to have “guts” to charge a higher price for a good product or service. This came to light recently when we were discussing repair rates in the store.
Over the years, I have known many dealers that have developed substantial repair departments. Many have won awards for their level of service and quality of work. Yet, despite the fact that they might be ranked the best in their market, their overall margins were the same or, on occasion, a little higher than other dealers in town.
When asked why they failed to get more money for their services, despite being ranked the number-one provider in town, they all had the same reply: “If we asked for more money, we would no longer be competitive and we’d lose the repair sale!”
Musical equipment continues to become more sophisticated. Many dealers report that finding qualified technicians to work on this equipment is challenging. It’s become a chicken-and-egg scenario. If dealers don’t charge higher labor rates, then how can they afford to attract, hire and keep qualified technicians?
Ask a dozen of your top customers what your labor and repair rates are, and you’ll probably hear that they have absolutely no idea. Ask the same customers what they expect of your shop and they’ll most likely reply by saying, “We want the job done right the first time and with a minimum amount of downtime.”
Next, ask what they perceive the cost would be to perform their own service work, and you’ll discover that many will believe it to be a minimal hourly wage. Here, again, this causes the dealer to be hesitant to increase the labor rate for fear of becoming uncompetitive.
Many dealers feel that they are leaving money on the table, citing that labor costs are just too low. Check the rates you’re paying to have your computers serviced. Ask yourself how they can charge the rates they do to service this type of equipment out of a briefcase. Next, ask yourself why you cannot charge a higher repair rate for a $1,000 guitar or a $5,000 sound system with all types of computerized controls and electronic enhancements.
Take a long, hard look at some of the costs that operating your store entails. Some of those costs continue to rise every year, even as repair rates remain stagnant. Here are the common items that affect your store’s repair rates:
- Technician wages are a major item, but remember to review the following: worker’s compensation, federal unemployment taxes, state unemployment taxes, FICA, paid vacations and holidays, group insurance, employee pension plans, uniforms and overtime
- Occupancy expense
- Utilities
- Interest
- Liability insurance
- Service staff training
- Shop tools and supplies
- Office supplies
Other common items are increasing in cost on a regular basis. Ask yourself this: “If these costs are going up, shouldn’t my repair rate be adjusted to cover my store’s increased costs?”
Hourly Labor Rate vs. Flat Rates
Many successful dealers have developed flat-rate repair pricing. This is a program automotive dealers have used effectively for years. The program increases profitability and makes it possible to hire and keep top-notch technicians. Despite this, dealers continue to hesitate to set up flat rates, all because they do not believe it will work.
Music dealers too often argue that flat-rate pricing is too difficult to institute because of the variety of gear they service and the conditions under which the gear is utilized. Most manufacturers develop flat rates for their warranty fees. Although dealers might argue that these rates are unrealistic, they can be used as a guideline. If you believe the manufacturer’s flat rates are off by 15 to 20 percent, then adjust your own flat-rate program accordingly.
Look at the advantages available to you as a music dealer by establishing flat-rate labor pricing:
- Profit can be increased by reducing job times.
- Invoice disagreements can be eliminated.
- Service technicians can be given specific goals to meet.
- It can be used as the basis for an incentive-based compensation program.
- Many customers prefer to know the cost before the work begins on an instrument.
- Technician efficiency and productivity can be easily measured.
If your store works with road reps, flat-rate repair pricing allows the salesperson to give price quotes in the field, develop a sale on the spot and avoid the possibility of the competition having an opportunity to quote on the job.
Why not take the time NOW to review your service department’s repair pricing? Have the guts to raise your rates a couple of points. Review last year’s sales. Refigure them with an additional three- or four-dollar increase in your hourly labor rate. You are absolutely guaranteed to find that your shop is a whole lot more profitable!
Teach your staff how to “sell” the value of the repair services you are providing. It’s easy to toss out claims about the quality of your work. However, testimonials from real customers will have a much greater impact on the sale. By incorporating strategic namedropping within the conversation, your staff will have more ammunition to combat the competition and close the deal.
It’s your business: have the guts to charge a fair price for the quality service your store performs. Your service department is there for one purpose, and that is to produce a profit for the store.
David Hall is Retail Sales Manager and Webmaster for Hartland Music, Inc. and the Waukesha County Conservatory of Music, a full-line, 15,000-square-foot, freestanding facility with more than 2,500 students per week. Contact him at david@hartlandmusic.com.