Labor and the Good Stuff

Aug. 7, 2012
Why labor is the most important cost to most types of business, including yours.

During my monthly ride on a tool truck, I frequently hear customers express concerns about the quality of tools made overseas. But I’ve learned from tool distributors that, when it comes to professionals’ tools, the brand means more than anything. Here’s why.

Labor is the most important cost to most types of business. As a technician or shop owner, labor is the only thing you have to sell. Sure, you make money on parts too, but you can’t sell them without your labor. The work you sell must make enough money to pay the bills and make a profit. Your tools, knowledge and skill all play a role determining your bottom line, but your time is limited, so you must sell your labor at the highest price your market and your reputation (your brand) will allow.

The price of labor has a huge impact on a manufacturer’s bottom line too. The lower the unit-labor cost (total cost of labor divided by the selling price of one unit of product), the more profit is made on each unit. Throughout history, whole industries, indeed whole economies, have been built on low labor costs (but even slave labor isn’t free).

Today, labor for manufacturing is an international market. Assuming it’s possible to keep quality and (non-labor) costs acceptable no matter where the product is made (common, if not always easy), the price any one manufacturer pays for labor has a major impact on the whole market. If one manufacturer finds a way to reduce labor costs, their competitors must do the same just to remain competitive. That’s one reason several European car companies have opened production plants here in southern U.S. states (I wonder how the Germans feel about exporting jobs to America).

A product’s country of origin isn’t the only thing that determines its quality. Design, engineering, materials and the name on the product all play a role, but the biggest factor by far is the customers’ expectations of the product. That’s right, the customer controls the quality with their decision to buy or not buy the product.

And that’s the point. Companies that sell tools to professionals understand what their customers expect, and they do what’s necessary to protect their brand and keep their customers coming back. The quality of any tool you find on a tool truck is also guaranteed by a real person who visits you every week. If a tool doesn’t meet your expectations (and that’s the definition of quality; meeting expectations), a real live human being will do what it takes to make you happy. Rest assured that a tool guy doesn’t want to sell tools that he thinks he’ll have to buy back.

No doubt about it, the junk tools are out there, but lucky us; we know where to find the good stuff.

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