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Pricing Your Shop's Services Without Adversely Affecting Customer Relationships
There's no doubt that pricing is one of the most misunderstood elements of business. There's not only a lot of bad information out there, but with these tough economic times, there's a lot of uncertainty, as well.
By Bob Cooper
What I decided to do with this article is break the subject of
pricing down into three components: Base pricing, price modification and
At Elite, we believe that in all cases, your prices need to be
competitive. By “competitive,” I’m not suggesting that you need to
charge the same price as the shop down the street. What I am saying is
that your prices need to be competitive with other service providers
that deliver a level and quality of service that is comparable to
yours. So take the pulse of your community to discover what other
well-run shops are charging for the more popular
services and repairs.
If you’re not competitive, you’ll have a short-lived career, so don’t
develop a false sense of security by telling yourself that your shop is
far better than your legitimate competitor’s. Remember, in the world of
business, with all due respect, your opinion doesn’t count. Your
customers’ perception of value is the only thing that really matters.
And, for them, perception is reality.
Once you’ve concluded what your base pricing needs to be to ensure
you’re competitive, you’ll have to run the numbers. When you do the
math, you should be able to quickly determine if you can operate a
profitable business (at your predetermined pricing structure) based on
your fixed expenses, the required return on investment, your cost of
goods and your shop’s potential. You should easily be able to determine
the number of employees you’ll need and the number of enignes you’ll
need to build in order to reach your financial goals.
One option you can explore after running the numbers is to find ways to
provide added value to your services that will allow you to increase
your pricing. Bear in mind that your customers’ perception of added
value will need to be easily recognized, and it will need to be cost
justifiable, so consider added-value items like longer warranties,
premium parts and complimentary loaner cars.
The other point you need to consider with price modification is how
often you should raise your prices. Some management companies suggest
that you should systematically raise your prices every quarter, but at
Elite we strongly disagree. It makes little sense to say we should
automatically raise our prices just because we can.
What I would encourage you to do is review your pricing once a quarter.
If there are no negative changes in your economy, and no changes in your
competition, you may then want to consider raising your prices.
If you do, the increases should be small, unless you are correcting a
major deficiency. Not only are small increases more easily acceptable in
the eyes of your customers, but you will find that you will feel far more comfortable selling the small increases, as well.
Bear in mind that any time your sales staff have a hard time buying
into a price increase, they’ll have a hard time selling it.
You also may want to consider loading the majority of your increases in
your labor charges, rather than your parts pricing, and here’s why. In
the customer’s mind, parts are parts, but labor charges are far easier
to defend because your machinists may be more skilled than the ones
down the street.
If you spoke to two doctors about a surgery, you would
more than likely expect the price of the anesthesia to be about the same
with both doctors. But, if the one doctor charged more for professional
services than the other, you may very well feel it’s worth it, because
he or she could conceivably be a better physician. It’s no different in
your business. To the consumer, parts are parts, yet the technical
expertise between two engine builders will never be the same.
Another good rule of thumb is to avoid falling prey to other shop owners
telling you that they jacked up their prices and haven’t lost any sales
at the point of sale. These are typically the same shop owners, who, a
year later, find that their customers have all but disappeared.
The reality is that just because your customers authorize a job, it
doesn’t mean they were “sold” on the job. Oftentimes, they’ll approve
the job (at a price they feel is too high) just to get the repair
behind them, and then they’ll never come back.
In all cases, I would strongly encourage you to monitor the “consumer
acceptance” of your pricing. First, you need to pay close attention to
the sales that are lost at the point of sale and track each one.
Second, you should do your follow-up calls, and monitor how many of those customers ultimately return.
The last component you will need to monitor is your number of referral
customers, both in actual count and as a percentage of your total leads.
There’s no question that if your customers continue to return, and
continue to tell their friends about you, your prices are considered
In closing, far too many shop owners have this ill-founded belief that
their services are worth more than they really are. They jack up their
prices, they make a lot of money for a few months, and then their
Don’t let this happen to you. Instead, you should do what all the
well-run, ethical shops do. You should deliver great value to everyone
who comes into your shop; you should never put money ahead of people;
and, if you do decide that it’s time to raise your prices, just be sure
to do it carefully. And, in a manner that will not adversely affect
those priceless relationships that you have with the single most
important part of your business: Your customers.
For the last 20 years, Bob Cooper has been the president of Elite Worldwide,
Inc. offering automotive professionals sales, marketing and employee management
solutions. To learn more about how Elite can help you build your automotive
business, visit www.EliteWorldwideStore.com.