Using Next Month's Money to Pay Last Month's Bills? How Sandy and Zac Got Out
If you're using next month's money to pay last month's bills, the fix is usually charging properly for the work you already do, not finding more of it. Sandy and Zac Green run SSkids Tyres, a tyre and mechanics workshop in Eudunda, South Australia, and they were charging $100 an hour for everything. They replaced that with a labour rate for each kind of job, kept the same number of technicians, and watched their profit go "up and up and up."
Living month to month like that wears you down, and it has nothing to do with how good you are on the tools. Here's what Sandy and Zac changed, and how to check whether the same thing is happening in your shop.
What does "next month's money" look like in a real shop?
Eudunda is a country town. When you run an auto repair shop in a place that size, you know your customers by name, and they know you. Sandy and Zac put it plainly when they spoke with Dean:
"As close as a community we are, the people that back us back us, and the people that don't go elsewhere."
The customers were loyal, but the bank account didn't reflect it.
"Cash flow was always tight, always. You know, we're always just using next month's money to pay last month's bills, and you know, it's just always so tight."
Tyres had always been the strong side of the business. In their words, "tyres had always outweighed the mechanical side." The mechanical work was there, but it wasn't pulling its weight, so every month started behind. Before they joined us, there was one number on every job.
"We were 100 bucks an hour for everything... So that was, no matter what it was, 100 bucks an hour flat rate."
I hear this all the time from owners of country garages. One flat rate feels fair and safe, because nobody can accuse you of overcharging when every hour costs the same. The trouble is that a diagnosis, a repair, a general service and a heavy vehicle job are different work, and they don't take the same skill or equipment. Charge them all the same and you lose money on the hardest jobs while telling yourself you're being fair.
What did Sandy and Zac change?
They replaced the single flat rate with a labour rate (labor rate, if you're reading in the US) for each type of job. These are the rates they read out on camera:
- Diagnostic labour: $195 an hour
- Repair labour: $165 an hour
- General service labour: $140 an hour
- Heavy vehicles: $155 an hour
Put that next to where they started. Every hour of diagnostic work that used to bring in $100 now brings in $195, which is $95 more for the same hour of the same technician's time. Even general service, the lowest rate on their board, sits $40 an hour above the old flat rate.
What surprised them was how much clearer the shop became. The new rates "really help to itemise the job," and as they told Dean, "it's made it so much clearer for us, I think, in the workshop and in the office as well." When the rate follows the type of job, the technician, the office and the customer can all see what the work was and what it cost.
The second change was quieter and mattered as much. They put the basic processes in place, one at a time, and they're clear that nothing fancier than that did it:
"Just putting the basic processes in place has got us to where we are today."
Did customers leave when they put the rate up?
This is the fear that keeps auto repair shop owners on a flat rate for years. In a small town it's louder, because the customer you upset is the one you'll see at the footy on Saturday. The thought is always the same: "You can't charge that."
Sandy and Zac's answer:
"No one has complained, not one person. Gone from 100 to 195."
That's in a country town where everyone talks, and the customers who backed them before kept backing them after.
What happened to the numbers?
Sandy and Zac describe it as profit going "up and up and up," and then "the sales just went up and up and up and then hit that million."
The best scene in the whole video is the countdown. Zac, as his mum tells it, was asking for about two weeks before they got there:
"Are we there yet, Mom? Are we there yet, Mom? How much more do I need, Mom?"
You can hear how much that milestone meant, after years of every month being tight.
Here's the important part: they did it "working with the same amount of technicians, too." Nobody new was hired. They charged properly for the hours their team was already working.
They're also honest that they're still learning. They "still consider we're only 2 years in here," and call themselves newbies, which is what makes their story useful to you. They didn't have it all worked out before they changed the number, and you don't need to either.
Hear it from Sandy and Zac, in their own words. Two minutes and sixteen seconds, from their flat $100 rate to the day they hit the million.
How do I do the same in my shop?
These are the three changes Sandy and Zac made, in the order to make them.
1. Stop charging one rate for everything. A flat rate undercharges your most skilled work. Work out what your shop needs to charge, and why, in How to Work Out What Your Labour Rate Should Be.
2. Price diagnosis as its own job. Sandy and Zac's diagnostic rate is the highest on their board, for good reason. While your technician is finding the fault, you're not selling parts, so that hour has to earn more. How Should I Charge for Diagnostics? walks you through it.
3. Raise it, and hold it. Don't announce it, do it. Change the rate, and make sure whoever quotes at the front counter, your service advisor or service writer, says the new number with confidence. How to Raise Your Labour Rate Without Losing Customers shows you how to make the move in steps and hold it.
If cash flow is what's keeping you up at night, read How Do I Fix Cash Flow in My Auto Repair Shop? next. And if you're flat out every day and still short at the end of the month, Why Am I Busy but Not Making Any Money? explains where it's going.
Changing your rates is the kind of work we do with owners inside The Engine Room, with a business coach beside you while you make the change.
Questions auto repair shop owners ask
Will I lose customers if I stop charging a flat rate?
Sandy and Zac went from $100 an hour to $195 on diagnostic work in a country town, and not one person complained. Customers who value your work pay for it when the price matches the job.
Should a general service cost the same per hour as a diagnosis?
No. They're different work. A diagnosis uses your best technician's experience and your equipment, and it sells no parts while it happens. That's why Sandy and Zac's diagnostic rate sits $55 an hour above their general service rate.
Do I need more technicians to get out of the cash flow hole?
Not necessarily. Sandy and Zac's sales hit the million with the same number of technicians. Fix what each hour is worth before you add more hours.
Where do I start tonight?
Pull up your last ten invoices. Next to each one, write what kind of work it was: diagnosis, repair, general service or heavy vehicle. Then look at the labour rate you charged on each.
If it's the same number down the whole column, that's where your cash flow is going. Sandy and Zac's advice for what comes next is the best I can give you: "If you just even do one thing a week, you know, that gets you one step closer to where you want to be."
Related questions:
See what changes for the people who do this work. On our Our Clients page, auto repair shop owners, named and on camera, tell you what actually changed in their shops and their numbers.
More on this topic: all Pricing articles.
Whenever you're ready, here's how we can help.
- Not ready to spend anything yet? Start free with Shop Talk, a 30-day reset for auto repair shop owners on our YouTube channel, and our free resources for auto repair shop owners.
- Over $50,000 a month and tired of every month being tight? The Engine Room changes how the whole business runs, from your labour rates to your team, delivered online with one-on-one coaching on demand from a business coach who is a current or former auto repair shop owner.
- Running an auto repair shop under $50,000 a month? Auto Superstars Academy builds the foundations first, with one-on-one coaching on demand from a business coach who is a current or former auto repair shop owner.
