Every time your shop works on a vehicle, there is a potential for a comeback. The cause of the comeback could be due to technician error, miscommunication or additional failures on the vehicle. The random nature of these comebacks can make them difficult to anticipate. But, comebacks and financial losses due to low-quality or defective parts can be prevented.
Let’s say you are replacing a front hub unit on a 2014 Ford F-150. If the shop has a labor rate of $125 an hour, and the job bills two hours, that equals $250 for the job. You can find a front hub unit from a brand with a spotless reputation and OE experience for $220. But, you notice your local supplier has a hub unit for $145 from a brand that does not have the same pedigree. You may think you are doing the customer a favor with a less expensive hub unit. But, you could be short-changing your shop, inconveniencing your customer and creating profitability problems down the road.
Let’s do the math. If the shop has a markup of 35 percent on parts, the less expensive $145 hub unit would have a customer price of $195 on the final invoice. This hub unit will yield a profit of $50. On the other hand, the high-quality $220 wheel bearing hub unit will cost the customer $297, generating a profit of $77 for the shop. By selecting the less expensive and low-quality hub unit, you missed $27 in profit from parts markup. It doesn’t sound like much for you or the customer. But if there is a comeback with the low-quality hub unit, the $27 could balloon into a loss that could be ten-fold or greater.
To understand the potential losses, you must look at your time, people and space as “inventory.” When a shop opens its doors in the morning, it has a limited inventory of these items. You can’t add more hours to the day. Technicians can work only so many hours or clock so many labor hours at a flat rate. And, you have only so many bays to work on vehicles. When the doors are locked at the end of the day, this inventory is depleted.
What if the less expensive hub unit fails on the F-150? You will probably pull a technician off a paying job to resolve the problem and satisfy the customer. The job will use two hours of the technician’s time. At $125 an hour, this represents a loss of $250 to do the job again. But, you just lost two hours of technician and bay time on warranty work. Projected losses could be in the $500 to $700 range depending on the job’s profitability and billable hours lost.
There are other immeasurable costs of a comeback and an unhappy customer. A customer’s negative experience can impact your future referrals and even hurt your online reviews. What if you installed the high-quality hub unit in the first place? Most customers will not complain about the price. Instead, they are buying your reputation and capabilities to make their vehicle safe again. Beyond that, the higher-quality part protects the customer against comebacks and also safeguards your profitability.
Sponsored by BCA Bearings