The $20 dilemma.

Posted Wednesday, March 13, 2013

Professional labor costs money, to the detriment of the occasional client.

A service we offer.

We charge $130 for a 500 GB hard drive installed into a Macbook Pro, with an operating system installed. This price includes

  •  500 GB drive
  • Part installation
  • Installation of a functional operating system
  • Same day service

This amounts to approximately $50 in parts, and $80 in labor. It takes about 30 minutes to fully disassemble & reassemble an A1226/A1260 Macbook Pro, and 45 minutes to install the OS. At an average shop labor rate of $75/hr, plus $50 for the part, this comes out to $130 – a logical price based on our labor rate. We come up with the labor rate using a basic formula most use in the business of computer repair – 3.5-5x the cost of what the person performing the repair would make hourly, to cover rent/other staff/taxes/promotion, along with every other associated expense of running a business.

Service in action!

A customer calls after receiving their promised free diagnosis, and wants to discuss it with a technician. On the $130 for hard drive She says she’ll call back after checking the price of the hard drive, after asking us for its capacity. I figure she won’t go ahead with the hard drive install, because she wants to check the price of the drive – and that’s fine. That’s fair business. I shop around all the time. I see the writing on the walls in vocal tone – she wants to figure out the part cost so she can clarify labor cost, and low-ball the labor. I call this, the twenty dollar dilemma.

My powers of deduction haven’t failed me yet! She calls back to say she found the drive for $55 on Amazon. I see exactly where this is going. I tell her yes, Amazon has it for $55, and if you want, I can find it for you even cheaper! She asks to clarify the labor cost, and I do – $50 part comes out to $80 in labor. It takes a half hour to install the drive, and 45 minutes to install the operating system, which comes out to $80 over about an hour and five minutes. I’d also like to clarify in this blog that while purchasing from Amazon requires waiting for the item to be delivered from a distribution center before you can even begin DIY, we could have the laptop functional within an hour and a half of your phone call.

Convenience; it is worth, and does actually cost something. And that’s all included in the $80.

The lowball… if part cost is X!

She asks if I will do it for cheaper after finding out the part cost, and I say no. Mere blocks away you have companies charging $200-$250 for the same thing. Here’s the kicker.. she tells me geeksquad will do it for free. Uhm. Excuse me? I say “ok, wow. I wish I had knew they would do it for free beforehand – I would not have wasted one day of your time performing a diagnosis if you had an extended service plan with someone else, or a warranty.” She explains that she has no warranty or service plan because it’s 4 years old. This means 1 of 2 things.

a) The real reason Best Buy is bleeding money is because their computer repair division has not been charging money to repair computers. If this is the case, shit me rivers, I am going to FIRE EVERY TECHNICIAN TODAY and give everything to them. You hear that, hartford? No more workman’s comp! No more payroll taxes. God I am happy.

b) Someone has an overactive imagination.

As much as I wish it were A…. something tells me it’s B. Ideas?

Labor rate pricing vs. market pricing.

I have my own staff reminding me daily how silly it is that I still use labor-rate-based pricing. I set prices based on the job difficulty, part cost, and time spent on the machine. I do not set prices based on what customers “may be willing to spend” or what others are charging at the time(aka market prices) – which is why my hard drive+install+OS reinstall price is one of the lowest in Manhattan for a retail store.

Does this system make sense?

My philosophy has one main flaw. It does not take into account the business reality of target demographics. This pricing system is not ideal for either demographic. The $20-$30 demographic – that I often fit into – do not want to pay anything over $20-$30. I use $20-$30 as a general line in the sand, as an expression. It may differ from person to person in this demographic. They have a set idea of what labor is worth, and it’s $20. Then you have people who simply want to get it done. These people do not care about the difference between part cost and labor, and they don’t leverage how easy it is to lowball your rate. There are people who will spend $250 easily for this same service.

Why this system makes no sense.

The people who do not want to pay more than $20-$30 won’t pay $250, $300, or $130. So, by charging a logical parts & labor rate of $130, I don’t get the business. There are people who want to pay what they feel is reasonable based on what a working machine is worth to them – they will pay $250, or $300. So here, they will pay $130, but they would have paid $250 as well.

Why we use this system anyway.

Simple; I have a conscience. Silly me. Unfortunately, my ability to sleep at night rests in whether I could live with my actions if I were on the receiving end of them.

The DIY assumption.

Do we lie on parts cost?

I feel like a lot of people think that repair shops try to lie to people on part cost, because many do. It’s one of the sales tactics used to sell a service – discourage a customer from having a repair done because “it’s not much more to do it here.” I can tell from the surprise in one’s voice when I tell them the part cost is even less than what they think it is, that they are expecting me to fib on the part cost. I tell the truth; it’s because I truly don’t have any shame on the labor charge. I am not a market based repair center – I don’t have to go “well, we figured we could get $250 out of you, so we decided to charge what you’re willing to pay so we could get the most money.” I have a clean conscience with “This is what our time is worth for this particular job. This is the part cost, and amount of time put in. This is the total charge.” I can live with explaining that, so no lies or fibs are necessary.

Do we lie on difficulty?

Another one. I can tell when people go “I can do that myself!” that they are expecting opposition, or a discount. They’re often surprised when I go “you probably can.” Another way to sell people is to convince them of how much work goes into the repair. I don’t have to lie. You can indeed do this yourself. I’ve never tried to tell you otherwise. I act like this has no bearing on the repair cost… because it doesn’t. You can cook pasta yourself – why pay $50 for it at a restaurant? Same idea.