It’s a common enough practice: looking at the market to see what your competitors are charging for something and then charging either roughly the same, or even slightly undercutting them. Take labour rates, for example. In 2022, when our State of the Nation Survey asked Members how they set their labour rates, 54% said they checked what similar businesses were charging. When it came to pricing parts, 45% of Members said they set a standard percentage mark-up on all parts and 40% said they matched the retail price.

At the time, we asked automotive business coach Rachael Evans from The Workshop Whisperer what she thought of these practices. It’s fair to say they raised some alarm bells. She said workshop owners needed to price “based on your own costs of running your business and what you know you need (to earn) to get yourself to the gross profit benchmark on every job.”

In other words, “the going rate” is irrelevant because it’s not specific to your business, doesn’t take into account the amount you need to make to break even, and certainly doesn’t consider the level of profit you need to make. All it reflects is what other workshop owners believe customers are willing to pay.

This pricing strategy should be reassessed for several reasons. Firstly, it could be negatively impacting the sustainability of your business by creating unnecessarily fine profit margins. Secondly, as Rachael said in 2022: “(If) you are not pricing every job based on that job’s particulars, you will continue to leave money on the table”. And thirdly, as British business coach Gavin Ingram—author of Motivate People—points out, “pricing should always be based on value, not what your clients want to pay."

“Your job is to prove that everything is not equal,” he wrote in the 2017 blog Recite After Me, "Pricing Is About Value. Period." on recruitmentjuice.com/blog.

“Prove your worth, carve your niche in the market. You are trying to run a business; you should charge based on the value that you add to your clients.”

Which begs the response, “but surely, I can’t charge more than the market considers ‘a fair price’?” As Gavin argues, people will pay an extraordinary range of prices for the same bottled water based on whether they’re in a supermarket, a corner shop, a fancy restaurant, or an airport.

“Fair has nothing to do with pricing,” Gavin says. “Who the heck defines what fair is? Your client? That’s not fair.”

That tallies with Rachael’s comments, again from 2022. She said workshop owners “fear that, ‘if I actually priced this to make a profit, I’d price myself out of the market’.”

“Most of the time that fear is unfounded,” she said. “If you’re a good general repairer, 80% of your customer base is going to trust the work you do and the price you charge. As long as you are fair, and not being exorbitant."

“Being fair means being fair to both yourself as the business owner and to the customer. We’re not in business to do favours to people.”

She also said it’s common for workshop owners to “price with their own wallets” because they know what they’d be willing to pay themselves—forgetting that the customer is paying for the convenience of getting a job done properly the first time.

So, how do you set pricing that balances creating sustainable, profitable business that creates value for customers at a price point they’re willing to pay? There are a range of options.

Flat-rate pricing model

You might consider a flat-rate pricing model, where (once you know your break-even point) you set fixed costs to each kind of repair job, assuming a standard time frame for completing the work, and charge the customer a pre-agreed price no matter how long the job takes. Customers like this model because they know their costs up-front. For the business, it provides a predictable flow of revenue, although it can pile on the pressure if a job blows out. It can also give a little motivation to your technicians, who are paid based on estimated times rather than actual hours worked.

Hourly pricing model

You could also opt for an hourly pricing model, which means your costs are covered if a repair blows out, as customers pay for the labour and material used. This does create room for conflict though, so customer communication is key. It also removes time constraints on your technicians, allowing them to focus on doing a quality job, but if they take more time this can also limit your earning potential.

Which should you choose? It comes back to your own goals in business, your relationship with your customers, and the value promise you’re making to them.

Whichever model you choose, at least you’ll be set up for long-term business sustainability—because your profit margins will be based on informed pricing decisions, not on “the going rate”.