...they're reactionary and unsophisticated and do not track their expenses on a month-to-month basis, Ronak said.
“Usually, they're very slow to act; small businesses basically wait for pain. They wait until the employees are saying, look, I need a raise, and they lose maybe a couple of employees," Ronak said. "Then to be preemptive, they agree to a pay increase to keep a valuable employee before they realize an increase in their posted rate. It is then a shop owner realizes, I don't make enough money to pay my employees in order to keep them.
"They figure that they’re going to have to raise their labor rates, but they usually wait too long," he said. "After the cost increases, that's typically how a small business does things. They wait until after they see the cost increase and suffer significant lost profits.”
What are some of the main factors that can affect labor rates?
“In many cases, it is influenced by exterior factors outside of your area,” Ronak said. “If capacity is tight, shops can dictate their prices. Or if the market area is expanding rapidly and the supply of shops is really constrained, that can affect rates.
"If there's far too much demand on your business, the best way to get rid of a four-week backlog is to double your price," he said. "And all of a sudden, you can work that backlog back down and make a lot more money for the work that you're working on.
"There's also a consequence of facilities that are consolidating into fewer locations, as some of these consolidators are buying up competitive shops, market opportunities and options are changing the dynamics in some of those markets," he said. "Consolidation can stratify a market and consumers may choose not to go to a chain and opt for a more individualized family repair center.”
Geographic or political restrictions can also limit new shops entering or exiting the market, which can impact labor rates and door prices.
“I used to joke that in San Francisco, the growth rate of body shops in San Francisco was...
Ed Attanasio