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I like Tom’s concept, but it was never the way I did it. I actually did his calculation in reverse. My concept is different enough to be ridiculed by most. I have always felt that I would not have a business if I couldn’t produce a product at or below market price. Thus market price is my whole world. My market competition is the dealer for the couple cars I choose to specialize in. My product has to be as good or better and equivalent in price. I market against the local MB and BMW dealers. My labor price is ten percent less than what they charge, even if my cost state I could do it for much less.
I then paid my techs (when I still had techs) a yearly figure between thirty and forty percent of what they billed.
A few times over the 36 years I did this my labor rate was forced close to my “Market rate” as dealers were having bad times and they reduced their rates. Most of the time my rates were 25 -30 percent above all independents in my market area and I was thus out of competition with them. This was fine because long term I also was interested in only the top third of the market, thus I was very happy for the bottom two thirds to find another place to use price as their first reason to be there.
If on the other hand this method had produced a price below what my costs would have demanded as a price I would have then known that I was in the wrong business. If one can’t produce a product sellable for market price then one should find a different product.
