Service Shop Evolution

By Glenn Hansen

“A lot is changing right now, from parts to labor rates to battery equipment. It’s evolving fast. I’ve never seen it like this,” said Greg Paul, owner of Paul’s Lawn & Garden in Massillon, Ohio. And he’s seen a lot. Paul’s parents started the business decades ago. We look at changes taking place in and around the service shop at OPE dealers. We talked to service providers, distributors, consultants and dealers to learn what’s happening and what’s to come.

Shop labor rates

“This should be a flashing red light for dealers,” said Sara Hey of Bob Clements International. The question of shop labor rate, she said, has been a problem for some time, “but it’s bigger now because of the problem in finding good technicians, due to both retirements and an overall shortage of labor.”

“Pricing jobs is astronomically important. And when you get this right, you can do a lot of things better and solve a lot of problems, especially the personnel issue,” she said.

“Labor rates are inching up, but the rates in OPE dealerships still lag behind other industries,” said Tim Berman, a product manager for C-Systems software and long-time industry expert. In 2020, the average cost of an auto mechanic’s labor hour was $131 dollars, according to data from Statista. (The median annual wage for automotive service technicians and mechanics was $51,940 in May 2023, according to the U.S. Bureau of Labor Statistics. And for OPE mechanics and technicians, its $45,180).

To find the average posted shop labor rate at OPE dealers in the U.S., we spoke with a parts distributor that recently polled a large group of dealers and asked, “What is your posted shop labor rate today?” Just 17 percent said they posted a rate of $101 or more. Meanwhile, one third of dealers use a posted rate of $80 or less.

Greg Paul said he listens to the advice of Bob Clements and Sara Hey. “Bob Clements says that if people are not complaining about your labor rates, your rates are not high enough.”

“Fix this issue and everything changes,” said Sara Hey. Most OPE dealers, according to Hey, figure their shop rate using a simple “time and material” process. This, she said, is good for customers but not for dealers. Hey advises a strategic mix of pricing, including flat-rate pricing, menu pricing, and the time-and-material structure.

Flat-rate or menu?

Flat rating pricing, she said is what many auto dealers do. Dealers should set prices for service work by the specific job – blade sharpening or chain sharpening – not by the hour. This includes the cost of parts and should be 70 percent of a dealer’s service work.

Next, she said, is menu pricing like in a restaurant, only for basic services. This is good for pre-season service work, for example. Paul’s Lawn & Garden uses both these pricing structures; it has menu options for “basic” service up to a “total” service that includes the basics plus several more workups. Menu pricing, said Hey, should account for 20 percent of a dealer’s service work, and the price the customers see includes the cost of needed parts like filters and lubricants.

The other 10 percent of a dealer’s service work should come from time-and-material jobs. “Pricing by time and material works when you have to diagnose problems,” said Hey. “Put your best technician on these jobs.” 

“Most dealers still don’t flat-rate, because there isn’t an industry standard for flat-rate pricing,” said Tim Berman. Consultants will sell a dealer their pricing guidelines, but nothing comprehensive exists today. Many dealers that do flat-rate have either written their own internal guide for common jobs or have purchased one from a consultant.” We did find a few OPE dealers that post service pricing on their websites, though it seems most dealers prefer the “contact us for service pricing” method.

The cost of service

“The price of a basic gas mower has gone up by about 25 percent over 25 years. But our labor rates have gone from $35 to $115 over the same period,” said Greg Paul. “Our labor rates had to go up to attract people to this industry. But then equipment service becomes not feasible for the price of the equipment.” Where do you draw the line? “Anything that retails for under $300, we refuse at the counter,” said Josh Flynn, CEO of Power Equipment Plus, a power equipment dealer group in New York. “It doesn’t make sense for us. We just tell people to buy a new one. And they may think I make more money on the sale of new equipment, but I don’t. I would make a lot more servicing these, but in the end it’s better for the customer to buy a new one; they’re going to have less trouble.”

Tim Berman sees a profit opportunity for dealers that’s worth talking about. “One best practice that we have seen is charging more for parts installed in the shop than over the counter. We look across our data analytics over 2,500 dealer locations, and very few dealers are doing this. This could mean tens of thousands of dollars in missed revenue that nobody would have to lift a finger to gain.”

Service is communication

Cell phones are among the best tools technicians can use, according to Sean McLaughlin, owner of Flyntlok dealer management software and a John Deere dealer in Alaska. “I think the biggest change in service over the last couple of years has been the mobile phone,” said McLaughlin. “The latest stats from our DMS show that more techs are using their phones to manage their work. In the move from paper to paperless, oftentimes, the techs were the last people to convert. Today’s phones changed all that.” 

Technicians can easily photograph equipment to document and fi x problems. “They can use the phone’s speech to text to record the ‘complaint, cause and correction’ steps. And by texting the customer with their findings and the pictures, they cut down on wait times. “This also gets them clocking in and out of jobs more accurately leading to better statistics on tech efficiency.”

“We are almost entirely digital. My system allows me to be completely paperless and we are 100 percent digital once equipment is in the shop,” said Greg Paul. He admits having a driver or two who might still use paper for service work when on the road. But removing paper from the service process, from triage to estimate, improves efficiency and communication for Paul’s business.

“Texting is on the rise with our dealers,” said Tim Berman. “This completely revolutionizes the communication with a shop because customers can pause what they’re doing briefly, the dealer can read and respond on their own timetable. Asynchronous communication, other than email, just works because nearly everybody texts.”

Putting these conversations “in writing” keeps them legally enforceable and defensible, according to Berman. “I haven’t heard of a case where it needed to go to litigation,” he said, “but I have heard plenty of cases where a dispute at the service counter ended promptly when the service advisor pulled out their phone and showed the customer where they agreed to have the work performed.”

Text messaging is not new, but it is highly efficient. “Still, many dealers don’t text. What an opportunity to stand out,” said Berman. So many service businesses use text messaging for communication, and many dealer-management systems enable automated communication this way. A dealer just has to turn it on.

“Dealers can get more approvals more quickly because customers can see every text message immediately, and they don’t listen to voicemail,” said Berman. “Customers are demanding a better customer experience,” said Sara Hey, and she said that includes good communication about pricing and the service work through the process.