The way Joe Hanson sees it, getting paid for diagnostics should be a no brainer.
âDiagnostics is a service,â says Hanson, who owns Gordieâs Garage in Roseville, Mich. âEvery 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. Thatâs fair.â
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.
âWhy 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,â says Mike Brewster, owner of Gilâs Garage in Burnt Hills, N.Y.
The fact is, not charging for diagnosticsâ or not charging enoughâcan hurt your gross profit dollars, effective labor rate, and ultimately, your bottom line.
âI like to focus on gross profit dollars generated per hour. Any time youâre working on something and not being paid for it, that affects the labor rate and gross profit dollars generated,â says Brewster.
Ratchet+Wrench talked to a number of shop ownersâwho were all singled out by industry business consultants as effectively getting paid for diagnosticsâto 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.
âMost people donât really believe that itâs really the right thing to do. You have to believe itâs the right thing to do,â he says. âWe spend thousands of dollars on equipment, tools and training and we get paid the least on testing. That makes zero sense.â
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.
âThe investment into getting the correct answer is very big,â he says. âThere needs to be a return on that investment. Itâs very important that that diagnostic and inspection time gets paid for.â
Oddly enough, Barrett says that the most resistance in the shop when it comes to changing beliefs often comes from the technicians.
âThey donât believe you should charge more for diagnostics,â he says. âThey think, âIf I spend half an hour diagnosing it, then we shouldnât charge the customer an hour to do it.â Then I put it this way: If thatâs true, then itâs 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, âNo I beat the time.â When weâre talking about testing and diagnostics, itâs the same thing.â
Start by getting your technicians and service advisorsâwho may be afraid to chargeâto understand the value and necessity in charging for this time before trying to get them to consistently sell diagnostic work.
FIGURE OUT WHATâS RIGHT FOR YOUR SHOP
Thereâs 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 whatâs 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.
âThe more sophisticated shops look at gross profit per hour,â he says. âWhen 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.â
At Kusaâs shop, he says that most drivability diagnosis take one hour of labor time.
âThe general model for us is that we sell parts and we sell labor,â he says. âIf we look at our model as revenue per hour, if youâre going to spend one or more hours diagnosing a car, thereâs no parts involved in that.â
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.
âI have a different approach to that because you donât have any parts cost during that time,â he says. âIf youâre charging $100 an hour, then you need $160 to do your testing and diagnosis.â
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 shopâs 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.
âWe donât want to get six hours into something and not have some sort of resolution. You can get lost and way off track,â he says. âManaging the effective labor rate is how we do it in our shop.ââ
COMMUNICATE EFFECTIVELY
Although you can charge as much as you want for diagnostics, doing so doesnât make any difference if you canât sell the time. All the shop owners agree that, by far, the most important step is communicating the process and managing customersâ expectations.
âThere has to be some value,â says Kusa. âAs long as everybody understands what the process looks like, it seems to negate that lack of perception of perceived value.â
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. Donât get too technical, Kusa says, but do use laymanâs 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 doesnât see the value.
âYou just gave me a bunch of money and the only difference is that the light is out,â Kusa says. âIn your mind, thatâs the end result.â
2. Sell tests. Brewster says that when selling diagnostic time, he uses the words âtests,â 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.
âIt doesnât necessarily give the customer the impression that youâre going to have the answer of whatâs wrong with their car in a specific hour,â he says. âWe can state the results of the test that weâre doing and say, âThis test leads us to believe that this is whatâs happening and hereâs where weâre going to go for the next portion.ââ
3. Keep the customer updated. Brewster recommends getting the customer involved in the process and updating them after 30â60 minutes with the results of the diagnosis.
âWeâll give the technician a vehicle with a list of symptoms from the customer and say, âSpend half an hour on it and then report back with what you found,ââ he says. âWe can say, âHereâs what we know and at this point. It looks like itâs going to be a little more time. Why donât we give you a ride home or get you in a loaner car. We wonât spend more than another hour on it before I call you and let you know where we are at that point.ââ
4. Donât call the process âexpensive.â 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. âIf I say, âI know itâs expensive but ⊠.â What did I just tell you? That itâs expensive,â he says. âYou might not have thought it was expensive at all. Youâre trying to show empathy but youâre doing it the wrong way. What youâre doing is creating an objection.â
5. Donât tell the customer youâre just âlooking at it.â Barrett refers to âlookâ as a four-letter word: âYou bring it in, weâll look at it.â
âThen the customer says, âIt costs $100 just to look at it? ââ Barrett says. âWhen you use value words, youâre going to be able to charge more. The problem is, we use non-value words and they donât perceive any value in it. And if they donât understand, theyâre not going to buy it.â
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.