Win the Diagnostic Game: Part 1

Sept. 30, 2019

How to accurately calculate what you should be charging

Get them to your shop. 

Always sell value, never time. 

Ensure you actually make a profit. 

Make sure your tech doesn’t get lost in the weeds. 

Sound like a fantasy? Well, let me explain how you can avoid the zero-profit trap and WIN in the diagnostics game.

How should you handle the phone-shopper call: “How much to fix my check engine light?” OR “Can you just check the codes for me?” 

Of course, the most important element of converting the call and making sure that you get the sale is to get the vehicle to your shop. Just about every part store out there—as well as the majority of your competitors—are offering a “Free Check Engine Light Scan.” I do understand that we are not in the business of giving our expertise and/or time away but, again, the challenge is to get the car to your shop where you have the opportunity to sell who you are and the value of your expertise. If it helps you wrap your head around the concept and justify the effort, consider the Free Code Scan an extension of your marketing efforts. If you are not already, I do suggest offering a Free Check Engine Light Scan. Of course, this is exactly what it is, a free scan to identify the code(s) only. It is NOT a diagnosis of parts or the cause of failure. Here is the basic scripting once asked:

 “Hey, how much to fix my check engine light?”

“We would be more than happy to perform a free code scan for your check engine light. With this we can determine what system the code may be related to and if the code is related to a reliability critical system or component. I can do this for you while you wait if necessary. Would you like to stop by now or what other times would fit your schedule?”

The goal is to get the vehicle to your shop and the customer at your counter, and as quickly as possible. Often a GS or porter can run the basic code scan and provide the basic information to your service advisor without involving or interrupting your higher priced technicians. With the code information, which can be retrieved rather quickly, you will then have the opportunity to educate and sell the value of your expertise and diagnostic services (see below). The scripting for this initial call-back conversation is pretty simple and you can adjust for any variant of Diagnostic code or issue. Let’s say the code is a simple emissions code like a P0440. 

“Mr. Jones, we have had a chance to perform the quick computer scan and the fault code related to your light is a P0440. This particular code is a diagnostic/emissions code rather than a failure code and is related to…(insert brief description of EVAP system and the Gov. requirements to test and verify system integrity). The good news is this particular code will not cause a safety or reliability concern. It will not cause the vehicle to not start, any form of drivability issue or affect the efficiency or reliability of the vehicle. The bad news, however, is that without testing & correcting the actual cause for this code, the light will stay on. The risk is there is only one check engine light and it does not specifically indicate a diagnostic-only code different from a code or concern that COULD result in a failure, a breakdown or cause damage to the engine or transmission. With the issue left uncorrected and the light still on, if there is something that would occur that could cause such a concern, you as the driver may not have any warning or indication that such a failure may be eminent. The most responsible thing we can do for you is to actually diagnose the cause for the current condition let you know exactly what it would take to fix it and get the Check engine light to stay off." 

We do offer this free code scan to get them off the phone and to our shop where we can use the information to convert them to a package. So, with their interest now peaked, it’s time to close the deal on selling the customer on value of your experience, expertise and diagnostic testing services. Did you notice I specifically said value, NOT price or time? Well, let’s talk about time and the value of it as it relates to the labor-only services first, then we will get to selling value VS. time. 

Labor-only jobs at your normal door rate (or worse, discounting the diagnostics back into the repairs “if you allow us to make the repair”) will kill your profitability and may even cost you money. The key is to make sure you are charging at a rate that will support your expenses and your profitability. Without the balance of having parts sales to go along with the labor sales, we lose any chance of making a profit on the job unless we charge at a higher rate that makes up for the lost parts Gross Profit (GP). Remember, in the basic repair model your business needs to make money on both parts and labor. This is necessary so you can pay for the cost of goods, your fixed expenses and keep some net profit for your pocket. See the examples below on how money flows through a normal job versus a labor only job.

Normal sale:

$100 total sale would typically be made up of $50 parts sale & $50 labor sale. The $50 of parts sale at a 50 percent margin would leave you with $25.00 parts gross profit (once you pay for the cost of the $25 part). The $50 of labor sales at a 50 percent margin would leave you with $25.00 labor gross profit (once you pay for tech.) The combined parts and labor gross profit on the job would be $25 parts plus $25 labor = $50.00 total gross profit. You still have to pay fixed expenses of the business though right? As an industry rough average, fixed expenses are normally 25 percent of total sales. So, 25 percent of the initial $100.00 sale is $25.00 dollars in fixed expense. You have $50.00 of gross profit minus the $25.00 fixed expenses equals a $25.00 net profit for your pocket. Not bad at all. 

Labor only sale:

The $100.00 sale (assuming 50/50 parts labor) is now a $50.00 labor only sale. At a 50 percent margin would leave you with $25.00 labor gross profit (once you pay for tech). Having no associated parts sale means no parts expense, BUT also means no parts GP dollars. At this point, your total GP dollars are related to just the labor sale per above. You do still have to pay fixed expenses though. As in the example above, fixed expenses are normally 25 percent of total sales. In this case though you had labor sales only, but the fixed expense always assumes parts and labor sales because that’s our model. So, fixed expenses are still $25.00 ($50.00 labor assumes $50.00 parts or should have been a $100.00 total sale). So, your $25.00 labor GP dollars only minus the $25.00 in fixed expense = $00.00 profit for your pocket. If you “waive the diagnostic if we make the repairs." Well, I am sure I don’t have to explain that math.

How do you avoid the zero-profit trap? I suggest a diagnostic labor rate (per hour) of 125 percent or your normal door rate. The additional dollars from the elevated diagnostic rate collected on the labor time we have allocated for the diagnostic testing procedures will make up for the loss of the parts gross profit as a labor-only operation. As you see, I mentioned “the time we have allocated for the diagnostic testing procedures.” We all know the huge black hole of getting buried in the diagnostics testing. All the best math and planning will be for naught if we can’t monitor & control the time our technician spends on the diagnostic testing. We will get to that in just a minute, but I wanted to get to the second half of the Value of Time statement above. 

We must have a process and tool to sell our diagnostic services profitably. We have discussed how to calculate what you need to charge for the time. Now, we need to discuss how you sell it, which we will do in an upcoming column.

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