Getting Paid for Diagnostics
The way Joe Hanson sees it, getting paid for diagnostics should be a no brainer.
“Diagnostics is a service,” says Hanson, who owns Gordie’s Garage in Roseville, Mich. “Every service must be a fair exchange of our most valuable resources, which are time and money. The exchange should go like this: I spend time diagnosing their vehicle, and in exchange, they give me money for that time and knowledge. That’s fair.”
Sounds fair enough, but charging for diagnostic time still remains one of the most debated topics in the mechanical repair industry and a challenge for many shops.
“Why is it a challenge? There is a perception from some of the retailers that you can just plug in a quick device and pull a code and the customer is on their way in no time. We have to overcome that challenge,” says Mike Brewster, owner of Gil’s Garage in Burnt Hills, N.Y.
The fact is, not charging for diagnostics— or not charging enough—can hurt your gross profit dollars, effective labor rate, and ultimately, your bottom line.
“I like to focus on gross profit dollars generated per hour. Any time you’re working on something and not being paid for it, that affects the labor rate and gross profit dollars generated,” says Brewster.
Ratchet+Wrench talked to a number of shop owners—who were all singled out by industry business consultants as effectively getting paid for diagnostics—to highlight strategies any shop can implement to get paid for diagnostic time.
UNDERSTAND THE IMPORTANCE
Before you can successfully charge for diagnostics, you need to believe that the time is worth something, says Barry Barrett, sales trainer at RLO Training.
“Most people don’t really believe that it’s really the right thing to do. You have to believe it’s the right thing to do,” he says. “We spend thousands of dollars on equipment, tools and training and we get paid the least on testing. That makes zero sense.”
David Kusa, owner of Autotrend Diagnostics in Campbell, Calif., agrees and notes that the technician who tests and diagnoses the vehicle is more than likely the most experienced, most trained and highest paid technician in the shop. Plus, with vehicles becoming increasingly complex, the investment in equipment is becoming larger.
“The investment into getting the correct answer is very big,” he says. “There needs to be a return on that investment. It’s very important that that diagnostic and inspection time gets paid for.”
Oddly enough, Barrett says that the most resistance in the shop when it comes to changing beliefs often comes from the technicians.
“They don’t believe you should charge more for diagnostics,” he says. “They think, ‘If I spend half an hour diagnosing it, then we shouldn’t charge the customer an hour to do it.’ Then I put it this way: If that’s true, then it’s also true that if it pays an hour to put on a water pump and you do it in 30 minutes, then we should only charge half an hour. Well, to them, they say, ‘No I beat the time.’ When we’re talking about testing and diagnostics, it’s the same thing.”
Start by getting your technicians and service advisors—who may be afraid to charge—to understand the value and necessity in charging for this time before trying to get them to consistently sell diagnostic work.
FIGURE OUT WHAT’S RIGHT FOR YOUR SHOP
There’s no hard and fast rule for how much your shop should charge or how you should approach selling diagnostic work. You need to figure out what’s right for your shop, and all the shop owners interviewed agreed that this took some trial and error for their shops.
Dan Gilley, director of RLO Training, says that he generally trains shops to shoot for between 70 and 75 percent gross profit on labor. However, with diagnostic or testing labor, there are no related parts sales and thus, no parts gross profit.
“The more sophisticated shops look at gross profit per hour,” he says. “When you have a target for gross profit per hour and you know that when you sell diagnostics there is no parts gross profit contributing to the gross profit, you must adjust your labor charges accordingly. Typically shops need to double their labor rate (actually 1.74) to maintain the same gross profit per hour.”
At Kusa’s shop, he says that most drivability diagnosis take one hour of labor time.
“The general model for us is that we sell parts and we sell labor,” he says. “If we look at our model as revenue per hour, if you’re going to spend one or more hours diagnosing a car, there’s no parts involved in that.”
Although he says that his consultant, Bill Haas of Haas Performance Consulting, suggests charging double the hourly rate for testing, inspection and diagnosis, Kusa chooses to charge 1.5 or 1.6 times the hourly rate.
“I have a different approach to that because you don’t have any parts cost during that time,” he says. “If you’re charging $100 an hour, then you need $160 to do your testing and diagnosis.”
Brewster, on the other hand, says that his shops charges on a case-by-case basis. He says they matrix 0.25 more than what the shop’s normal labor rate is ($94) for most drivability diagnosis, but if the vehicle is diesel or more involved, it will go up from there. He also manages his technicians in blocks of time.
“We don’t want to get six hours into something and not have some sort of resolution. You can get lost and way off track,” he says. “Managing the effective labor rate is how we do it in our shop.”
Although you can charge as much as you want for diagnostics, doing so doesn’t make any difference if you can’t sell the time. All the shop owners agree that, by far, the most important step is communicating the process and managing customers’ expectations.
“There has to be some value,” says Kusa. “As long as everybody understands what the process looks like, it seems to negate that lack of perception of perceived value.”
Kusa, Brewster and Barrett said there are five tips to create more value for customers when it comes to selling diagnostic time:
1. Explain the process. Don’t get too technical, Kusa says, but do use layman’s terms to outline what your technician will do and why you need to charge.
Kusa says that you need to focus on the value for the customer, not the technical terms. When a customer comes into a shop, pays to find out what is wrong with their car and is then told they will need to pay even more money to fix the problem, he says the customer doesn’t see the value.
“You just gave me a bunch of money and the only difference is that the light is out,” Kusa says. “In your mind, that’s the end result.”
2. Sell tests. Brewster says that when selling diagnostic time, he uses the words “tests,” instead of using time. For example, he will explain to the customer that for X amount of money, the shop will perform certain tests that will get to the bottom of the problem.
“It doesn’t necessarily give the customer the impression that you’re going to have the answer of what’s wrong with their car in a specific hour,” he says. “We can state the results of the test that we’re doing and say, ‘This test leads us to believe that this is what’s happening and here’s where we’re going to go for the next portion.’”
3. Keep the customer updated. Brewster recommends getting the customer involved in the process and updating them after 30–60 minutes with the results of the diagnosis.
“We’ll give the technician a vehicle with a list of symptoms from the customer and say, ‘Spend half an hour on it and then report back with what you found,’” he says. “We can say, ‘Here’s what we know and at this point. It looks like it’s going to be a little more time. Why don’t we give you a ride home or get you in a loaner car. We won’t spend more than another hour on it before I call you and let you know where we are at that point.’”
4. Don’t call the process “expensive.” Barrett says that one of the most common customer objections is over price of diagnosis, and he notes that oftentimes, that objection is planted by the shop themselves. “If I say, ‘I know it’s expensive but … .’ What did I just tell you? That it’s expensive,” he says. “You might not have thought it was expensive at all. You’re trying to show empathy but you’re doing it the wrong way. What you’re doing is creating an objection.”
5. Don’t tell the customer you’re just “looking at it.” Barrett refers to “look” as a four-letter word: “You bring it in, we’ll look at it.”
“Then the customer says, ‘It costs $100 just to look at it? ’” Barrett says. “When you use value words, you’re going to be able to charge more. The problem is, we use non-value words and they don’t perceive any value in it. And if they don’t understand, they’re not going to buy it.”
Instead, he suggests that shops explain to customers that to inspect their vehicle, an ASE Master technician will need to run a series of tests and procedures to isolate the issue and educate the customer on how to proceed.