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Giving Away Profits To Stay Busy Makes No Business Sense

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The automotive business has changed significantly over the years and engine builders are not building as many stock 350 small block Chevys today. You’re building different engines, but if you haven’t changed your business methods you may be stuck in the past.

The automotive business has changed significantly over the years and engine builders are not building as many stock 350 small block Chevys today. You’re building different engines, but if you haven’t changed your business methods you may be stuck in the past.

Why am I writing about your wallet? To be perfectly honest, it’s because I want you to stay in business. If you’re not in business, Engine Builder magazine isn’t in business. If you’re not in business, Goodson Tools & Supplies isn’t in business. If you’re not in business, Dave Monyhan is not employed, and that is totally unacceptable.

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I’ll bet any of you that you’re not working on the same engines as you were ten years ago, five years ago or even one year ago. And that’s a bet I’m sure I’d win.

Why am I so confident that I’m right? Besides the fact that I see it every day in the tools and supplies that engine builders are buying, it’s a matter of survival. Surviving in a down market means making changes. The automotive business has changed significantly over the years and you have finally come to the conclusion (kicking and screaming all the way) that 350 small block Chevys are yesterday’s news.

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Of course, we still build 350 Chevys, but most of these small block V8s are used for racing or street rods, or some other special application. But let’s face it; the everyday small block engine build is going away.

These days you’re more likely to be working on a lightweight V8, V6 or an inline 4-cylinder engine; many with dual overhead cams and multiple valves per cylinder. These late model applications are dimensionally different than your father’s Oldsmobile for sure.

You’ve tooled up and “teched up” to be able to work these new smaller and lighter weight engine models. You may have even invested in new late model equipment that is geared toward machining these smaller and lighter components.

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You have changed, Grasshopper, and that change is good!

But have you changed how you determine what it actually costs you to machine these engines versus what you use to charge for the old small block Chevy?

Calculating what to charge seemed easier back in the day as everybody was charging about the same to do the standard valve job. Most of the pricing was created by averaging segments of your market and comparing them against other markets and labor price sheets were created.

Of course, there was always that one shop that was racing to go broke on by being the cheapest in the land. Not the correct approach by any means. Unfortunately, I’ll bet almost none of you has re-visited what it really costs to do that valve job today.

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It is pretty clear that the main goal of a business is to make this thing we call profit. Even a non-profit business must cover its costs of doing business.

So what is profit?

The dictionary defines profit as “an excess of income over expenditure, especially in a particular transaction or over a period of time.” Profit exists when income exceeds cost.

If I charge $100 for something that only cost me $62 then I just made a $38 profit. Or have I? There are two kinds of profit; gross profit and net profit. Gross profit is that middle area of what it costs you versus what you sell it for. Net profit is what is left over after you pay all the bills and before you pay the taxes.

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Here is the mathematical formula for calculating your gross profit: take your selling price and subtract the cost. Then divide that number back into your selling price and you have gross profit. Remember, we can’t get to net profit until we have gross profit and net profit is what you put in your pocket after you pay all the bills, employees, and of course, yourself. Isn’t that why you should go to work each day?

Example: Selling price is $200; Cost is $135. Or, $200 – $135 = $65; Divide the 65 into the 200 and you have .325 or 32.5% gross profit.

Now I am not going to tell you how to run your business but I am going to get into why you’re thinking about how you charge should probably be changed.

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I know just about everybody has done a valve job on the small block Chevy and that all of you charge anywhere from $150 to $175 for the “basic” valve job. You, of course, add extra for surfacing, guide work and seat replacement as you find these additional labor charges due to the condition of the cylinder head, and I’m sure that most of you will charge more for any high-performance enhancements requested by your customer.

In fact, I’ve found that most of you will charge 20% to 35% more for performance or race valve jobs due to the extra angles and radii required for valve seats and add on a premium if you get into the bowl or throat area of the combustion chamber.

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Now in comes a 4-cylinder OHC Chevy; it only has one cam, with just two valves per cylinder. What do you charge for this job? I’ve seen some shops simply cut the V8 valve job cost in half and hope for the best. But let’s think about this for a minute. Why would you just cut the labor in half? You may say that you only have half the work to do. Sorry, but your reasoning is wrong. You still have the same amount of overhead being in the shop whether you’re working on a V8 or 4-cylinder.

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I suggest that you at the very least charge 75% of your basic valve job ($112.50 if your base rate is $150). Your rent didn’t go down, the electric bill didn’t go down and your help’s wages didn’t go down just because they’re working on a 4-cylinder instead of a V8. So why should you charge less? You invested in extra tooling to be dimensionally correct. You invested in the latest surfacing machine to achieve the surface requirements needed with today’s gaskets.

Still think half is a fair price? Maybe for the customer but not for you.

Let’s say you charge about $120 to $150 for a V8. You should be charging between $115 and $135 for a 4-cylinder OHC. Keep in mind, this is way before the surfacing, guide work, and seat replacement or other labor is identified. Now you have more parity for your labor efforts for these two very different but same cylinder heads.

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Now let me ratchet it up one more notch.

Let’s talk about something other than automotive. did you ever think about the V-Twin applications such as Harley-Davidson or metric motorcycles, ATVs and powersports vehicles from Honda, Yamaha, Kawasaki, Polaris, etc? These are the current toys of the men who were boys and wish them to be well maintained.

Doing a valve job on one of these is not much different than the Chevy or the multi-valve OHC cylinder heads. After all, they still have valves, guides and seats with tolerances that must be maintained or achieved. The really neat thing about these “other” applications is what you can charge to machine them.

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A basic Harley valve job starts around $225, going up to around $300 with guide work and seat angle enhancements. Or, how about a single-cylinder Honda or Yamaha? A basic valve job will average about $90 to $120. Again, this is before seat or guide work is done or enhancements are made to the ports.

If you can charge $20 to $30 dollars per cylinder for boring and honing a small block Chevy wouldn’t you like to charge $75 for boring a single cylinder Honda? How about $150 to $175 for boring and honing a set of Harley jugs?

This is very good money if you can get the work. Let’s face it, as I have said, you have the knowledge, you have the equipment, you have the necessary tooling, so why aren’t you doing these engines?

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Don’t forget, there are many other engine applications out there just waiting for you to machine and rebuild just like you are doing in the Chevy world. Engines such as lawn mowers, outboard marine (4 stroke now) small displacement diesels, the list is quite large. In order to grow your wallet equally large you need to go after these engines and get them to your shop.

Don’t be afraid to charge for your time, your talent and your tools. Time is money and your time is your livelihood. You should be paid for all of your knowledge, all of your equipment investment and everything else that goes with being an owner in today’s machine shop.

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See ya in the shop!

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