It’s Your Business
- Subject: Identifying and keeping your best customers
- Essential Reading: Shop Owner, Center Manager
- Author: Terry Greenhut, Transmission Digest Business Editor
Do you cater to the right people?
In business, as in life, the 80-20 rules always seem to apply – things like how 80% of your aggravation comes from 20% of your employees and 80% of your profits come from about 20% of your customers. Now, I don’t know how aggravating your employees really are (the little dears), but I do know the part about the customers to be true. Although you may have lots of them, the ones who spend the most money with the fewest hassles and consistently help you to pay your bills are only about 20% of the total. If you’ve ever muttered the words, “Gee, if only I had more customers like her,” then you know what I mean.
With that small a percentage of your customers being that good, doesn’t it make sense to spend a little extra time and effort to make sure they are always happy? They are truly the ones you can’t afford to lose. They pay your prices, hardly ever complain, and sing your praises all over town.
Unfortunately, most businesses don’t cater to that class of customer. They treat them as an automatic source of revenue. That’s a very dangerous attitude. We are the most vulnerable to other shops stealing our customers when we take them for granted. We need to keep in continual contact with them through phone calls and service reminders. If we have discount coupons to offer for special services, they should be the ones to get them first.
Most owners and managers expend too much of their energy bending over backward for a group of malcontents who are never satisfied and never want to pay a fair price for services and repairs. That group wants everything done yesterday and wants it cheap. Of course, if it breaks again because they paid for only the cheap fix, they don’t want to pay again. In fact, they become quite indignant if you ask them to shell out any more money. You have to ask yourself, “Which kind do I want for customers?” Then focus your efforts on going after as many in the right classification as possible.
I visited a very nice shop this morning, one that has everything going for it: It’s clean and modern, has friendly people and has a great reputation in the community. It should be making really good money, but it has an owner who, in his words, “Can’t get his customers to pay him enough to make a decent living.” It turns out, after a lot of questioning, that these customers he was referring to did not comprise the vast majority but only a small minority who questioned his prices and tried to negotiate for cheaper ones. More questioning and I found out that the owner was negotiating the price in his own head before beginning the negotiation with the customer. He would look at the repair order that he had so carefully prepared, based on a labor rate that he figured out was profitable and a parts markup that made sense as well. When he got all done writing it he’d decide that the customer would never pay for that many hours or that much for parts, so he would discount the price to a point where hardly any profit was left. When he was proposing it, if the customer still thought it was high he would discount it even more, many times forfeiting his entire profit. Even though it was all his doing, he still found it more comforting to blame it on the idea that customers wouldn’t pay his prices. But how would he know if he was afraid to ask?
Why would anyone charge less if they didn’t have to? In a word, “fear.” The fear of losing a customer in a shop that isn’t very busy to begin with can be overwhelming. Lose a few in a row and it’s easy to see why an owner would become gun shy.
There are some important factors that this owner is not taking into account. One is that no matter how much he discounts up front, customers will still think the price is too high because they don’t want to spend anything to fix the car in the first place; nobody does. So the owner’s pre-discounting the price isn’t going to stop customers from objecting. The right way is to quote the price that was figured out and see whether they object, then handle the objection. Many times what you think will be a major price objection turns out to be one that is easily handled and you can still achieve a full-price sale.
Another factor is that exchanging dollars without making a profit just to get a job sold makes no sense. The only exceptions I can see would be a “loss-leader” price on a minor service in the hope of creating a new long-term customer or if a critical bill is overdue and there is a lot of pressure to bring in enough cash to pay it. That one probably has happened to us all from time to time. It’s one of those “exceptions that make the rule.”
Some owners and managers are afraid that today’s customer knows a lot more pricing information than the customer of the pre-Internet era. That in itself scares them into keeping their prices low. One owner told me that all his customers know the prices when they come in. They all call around first or shop on the Internet before calling him. It’s the word “all” in that sentence that bothers me. That’s quite an assumption to make, that all of his customers shop his prices before coming in. The only way that might happen is if he’s giving prices over the phone before checking out the problem. By doing so he is prompting his customers to call around and compare. That would be something he needs to stop immediately.
This computer age we live in is fantastic, and if we listen to all the hype we can easily believe that everyone has a computer, that they are turned on all the time and that people use them for everything. Not true. There is a percentage of people who are in touch all the time. You can spot them walking down the street. They’re the ones with the Bluetooth earpiece blinking and sticking out the side of their head and carrying a Palm Pilot phone instead of a regular cell phone.
There is another group that searches the Internet for items they haven’t seen available locally or to look up a local merchant. There are some who have computers and rarely go online and, believe it or not, there are lots of people who don’t have computers and don’t want them. They still look in the yellow pages, read print ads and call when they are searching for a product or service. If this weren’t true your phone would have no reason to ring, but it does.
So how many people really know the price before they come in? A much smaller number than you might think. So why would you believe they all do? Because a few had some idea of a price, not that it was the right price, but it was enough to traumatize you into thinking that they all know.
An example of the owner’s fear is that he wouldn’t apply his normal markup to dealer parts even though he knew he needed that percentage to make a profit on the job. He tried to make me believe that every one of his customers calls a dealership right after he quotes them a price to see how much the dealer would have charged for the parts. I’m sure this really did happen. The question is how many times? Even if it was only a couple, the incidents might have been enough to make the owner truly believe that “they all do it.”
No, they don’t. The truth is it’s more like 2%-3% who would ever make that call, and they would do so only if they were told that the parts were coming from the dealer, which means that 97%-98% wouldn’t. So if you don’t charge the right price you are basing a very important business decision on what a very small percentage of people might do, not on what the big percentage will do. In other words, you are giving up the full price you could have received from the vast majority to cater to the small minority who don’t want to pay. That doesn’t make a lot of sense.
Understand that any customer who would make a call like that isn’t someone you would want for a long-term client anyway unless you could somehow make them understand that it isn’t the right way to shop for auto repairs. If you don’t make a profit from this type of customer the first time, you won’t the second, third or fourth either. You need to take charge of the sale when a new customer comes in. Let him know how you do business and what you expect of him, just as he wants to know what he can expect from you. Remember that if you drop your price to accommodate him the first time he will expect it every time, and as soon as you refuse he is gone anyway. So you might as well ask for and stick to your price the first time. That will set the tone. If he doesn’t get you to drop the first time, he probably will never ask you to again.
At some point you really need to take stock of your customer base to see whether you are spending inordinate time and resources trying to make unhappy people happy. If you are, maybe it’s time to focus on making the happy ones even happier.
Your main target, the one you need to exploit most and probably are doing the least to acquire, is the friends of your best customers. It only makes sense. People tend to hang out with others who are most like themselves. So when you have customers who care more about the quality of repairs and the way they are treated, they generally have friends who tend to look at it the same way. How do you get them? You ask: “Do you have any friends who might have mentioned lately that they are having a problem with their car or with the shop that is presently providing their service?”
If they give you a name, ask for a phone number and the permission to call and use their name as a referral. When you call, introduce yourself and make your offer. Say: “Hi, this is Bob from Sam’s Transmission and Automotive. A good friend of yours and a customer of mine, ‘Mr. Smith,’ told me that you were having some kind of a problem. He thought I might be able to help, so he asked me to give you a call. What kind of problem are you having and how can I help?”
Of course, this example is for the retail customer, but it can work just as well for wholesale. A referral from a good account, one who doesn’t really give you a hard time about your price and who pays promptly, is probably the best you can get. He is likely to know someone in another company with the same point of view and can give you either a great referral or a testimonial you can use.
Either way, you have to initiate the action. You can’t wait and hope that someone will refer anybody to you. Yes, it happens, but not nearly as often as you would like. That’s why you need to generate the lead yourself. Being proactive is today’s key to a strong ongoing business.
Visit www.TerryGreenhut.com
