Why You Need to Renegotiate Your Rates (And How to Do It)
Money, the Pink Floyd song goes. It’s a gas.
Hey, sing along with us!
Grab that cash with both hands
And make a stash.
Money! It’s a hit, are we right? Sure, maybe it’s the root of all evil, but we kind of need it to survive—which brings us to the topic at hand: getting more money…by raising your repair shop’s rates.
Hey, why are you backing away? This is an important topic!
We get it. While increasing your prices is a necessary part of running a repair shop, telling your customers about said increases usually ranks just below getting a root canal and somewhere above explaining to your parents why you flunked a particular class.
But have no fear—Fullbay is here, and we’re going to help you a) understand why it’s so important to increase your rates, and b) have that actual conversation that will hopefully lead to more revenue.
Let’s start out with the why. We’ll even provide a few handy reasons why you should—just in case the thought makes your eye twitch.
WHY SHOULD YOU RAISE YOUR RATES?
There are generally two reasons why anyone raises their rates:
- Your underlying cost structures have changed. How are your margins looking? Narrower than they used to? We live in a high-cost time. Prices have gone up for everyone—and you’ve got to pass that on if you want to remain solvent.
- You want to improve your profitability. You can do this by cutting costs or raising rates (or some combination of the two).
If you don’t raise your rates—like ever—you erode your margins and your sustainability. “You might go from 30-40% margins down to 20%, and then the next thing you know, you can’t float the cash to run your business because you don’t have the surplus you used to,” Chris O’Brien, Fullbay’s COO and former fleet manager at Shamrock Foods, explains.
Keep in mind that both reasons are absolutely valid. You may want to boost profits while combating shrinking margins. It’s been a wild few years—stuff happens.
HOW TO RENEGOTIATE YOUR RATE WITH AN EXISTING CUSTOMER
While it would be nice to skip over awkward conversations and just magically enjoy more income, the sad reality is you’ll have to talk to your customer. We’ve provided a 4-step plan for you to follow.
STEP 1: DO YOUR RESEARCH!
Evaluate your current rates and take a look at what’s going on in the market. Assess your costs! What is the market demand in your area? What are techs being paid?
You can get a lot of this information from our latest State of Heavy-Duty Repair. Go ahead and download it now if you haven’t already, as it’s filled with information on salaries, wage increases, labor rates, and more. This is the kind of information you’ll need to bring into any conversation with a customer as it’s—to put things bluntly—your reason why.
STEP 2: LOOK AT YOUR CURRENT CONTRACT
Take a look at your existing paperwork. Is there a standard increase in price built into it? “A lot of times, people don’t even notice that at the beginning,” says Robert Gilbert, Fullbay’s VP of Finance. Since it’s already in the contract and they’ve already agreed to it…well, you guys are already where you want to be.
Say, that’s not a bad future-proofing tip, is it? Maybe build a yearly percentage increase into your standard contract language so you have it going forward.
Newer operations—or those who are new at rate-raising—keep in mind the change doesn’t usually happen overnight. The industry standard is 30 days’ notice; you tell your customer you’re raising rates on July 1, well, the rate doesn’t go up until July 30.
STEP 3: HAVE THE CONVERSATION
Here’s another tip: Approach The Talk softly.
Yes, we understand the desire to just get it over with. But the diesel world balances on communication. You have to approach this talk with finesse. That doesn’t necessarily mean wining and dining them (although they may like that); it just means you aren’t going to write I’M RAISING MY RATES on their lawn in toilet paper without some sort of forewarning.
We recommend starting the discussion with a business review. Sit down with your customer and review your performance with them (Fullbay’s various reports make this really easy—just sayin’). Communicate the value your shop brings to the table—highlighting the success they’ve had and the satisfaction they’ve expressed (this is why you always keep your testimonials and online reviews!).
Then, when they’re glowing about how awesome your shop is, you grab your helmet and roll into your discussion around raising the rates. Present the data. Wave the State of Heavy-Duty Repair at them if you want (new tactic: Blame it on Fullbay!).
Unless it’s a truly outrageous increase, most customers will be OK with things. This is business. They expect it. In today’s world of outlandish inflation, they really expect it. So while you should be braced for a couple of probing questions, you probably don’t need to expect a gigantic argument.
STEP 4: IF THEY BALK, GIVE THEM SOME OPTIONS
We know, we know. We just said most of your customers would probably be cool with an increase. But there’s always a handful that won’t be.
We can help you with those, too.
Customer isn’t sure about the rate increase? Present them with some options that will still provide value to them and allow you to recoup some revenue. “Maybe you have three people around the clock doing midnight services,” Chris says. “Maybe your customer doesn’t need those services—maybe there’s an alternative that provides more value to them.”
For example, the customer in the example above might only need two people doing midnight services. That frees up one tech to take on new work (and new revenue).
WHAT IF MY CUSTOMER SAYS NO TO THE RATE INCREASE?
If the worst happens and a customer flat out says, “I won’t pay more” and you can’t come to an agreement on options, well, you’ve got some decisions to make.
The easiest thing to do is fire them.
Yes, you can fire a customer. Just make sure you’re following your contract to the letter (some may have terms built in that you’ll need to fulfill) and wish them well as you send them on their way.
But…not everyone can do that.
Any business—marketing agency, freelance writer, diesel repair shop—needs to diversify its income. If you’re dependent on one customer to keep the lights on, you’re giving that customer a lot of power over you. They effectively control your business! But when you’re a small shop, or just starting out, well, sometimes you aren’t as focused on growth and reaching new clientele as you could be. It happens to the best of us, but it puts you in a terrible spot if your “I Keep The Lights On” customer goes rogue.
“When a customer provides 80% of your revenue,” Robert warns, “losing them is really, really painful.”
If anything, that’s an understatement. Imagine your revenue just being slashed by 80%. Scary, right?
So, if a customer going AWOL over rate increases is going to tank you—well, maybe you agree with that customer and keep their rates as-is. And then you spend the next year growing your operation and taking on new customers so you’re never in that situation again.
RAISE YOUR RATES!
This is usually the spot where we tell you how great Fullbay is, and how sharing the data you get from our reports can help you have the rate conversation with your customers. But frankly, we already did that, so we’ll just point you to our free demo and wish you luck in that important discussion.
In the meantime, crank up the Pink Floyd and think about what you might do with that added revenue. Hey, maybe you’ll buy a football team…