Rich or Poor, It’s Nice to Have Money!

It’s Your Business

Author: Terry Greenhut, Management Editor

That title is a real attention grabber, isn’t it? I write it on the blackboard whenever I do a seminar to make the audience wonder what it’s all about. It’s actually a very simple concept: When you have money, this business is relatively easy; when you don’t, it’s awfully hard.

It isn’t that the business is ever really easy. We all know that, but it is so much easier when you can buy what you need. When you have the money to invest in good advertising and outside-sales help, you give yourself a fighting chance to make the money you want and need. When you can afford to hire topnotch technicians and continually provide training, you guard against losing money on comebacks, low productivity and bad judgment calls. When you can hire a manager or service writer who makes you a lot more in new revenue from sales than his or her salary costs you, your job will be easier and you can expend more energy on being the entrepreneur you are supposed to be to build your business and make it even more profitable. When you can buy the best equipment and parts, you can provide the top quality you need to feel comfortable about asking the prices you really want.

Many businesses, especially automotive related, start out undercapitalized and never recover from it. They are always working from a deficit. Basic decision making is difficult when you are worrying about money continually. You may not buy the most-suitable piece of equipment, thinking that it costs too much. You may not hire the best technician, because he wants more of a salary or a higher flat-rate hour than you think you can afford. You may buy a lower grade of parts in a misguided effort to save some money that could wind up costing you a lot more in the long run if they don’t last or are defective from the get-go. And here’s the worst one: You may cave in on the prices you quote because you’re so desperate to sell every job that wanders through the door.

Selling at unprofitable or very low-profit prices will never allow you to build any cash reserves. All your revenue will go to pay bills. So the best thing you can do if you’re in that situation is to learn how to value and sell your work properly so you can break the cycle and begin to make and retain some real profits.

Unfortunately, the low-price cycle is hard to break without a little help. First you have to find out exactly what it costs to do business so you can figure out a labor rate and parts markup that make sense. It’s almost impossible to defend pricing that isn’t based on real numbers, not only to customers but also to yourself.

Then you must be convinced that your work is worth more than you sell it for. You have to believe that you sell the best products and services available.

When you don’t have the highest of confidence in your technicians or you know you aren’t buying the best parts, you fear asking for good money, feeling as if you aren’t being 100% truthful or not having enough faith in the products or services to demand good money for them. Just try selling the next job for top dollar after you’ve had three unexplained comebacks in a short space of time. All your faith goes out the window and is very hard to get back. You start saying things to yourself like, “How can I ask a lot of money for this job? I don’t even know if my guys can make it work right.” And how do you pitch a top-quality job to a customer when you don’t believe it yourself?

We all know you can’t protect against every comeback. There are just too many possibilities. But what you can do to help yourself have the confidence to charge the right price is to eliminate all the controllable reasons that you can. If you buy only the best parts, hire only topnotch people (even at entry level), provide proper training, keep up to date with industry changes and technical advances, and invest in the best shop tools and equipment, the likelihood of comebacks will diminish.

The effect of having faith in your shop and the work it produces as a pricing criterion is grossly underemphasized. Because pricing in our business is subject to so many varied factors, it is, or should be, individualized to each shop, not to a group of shops in any particular area. In other words, five shops in a certain part of town shouldn’t be charging the same prices for their services unless it turns out that the overhead and profit they want to make are all exactly the same, and we know the odds of that being the case are somewhere between slim and none.

Although pricing should be derived from knowing costs and the profit the owner wants to make, other factors come into play that may be a legitimate concern in setting prices.

The neighborhood: Is it high, medium or low income? Are the vehicles of an age that they may need the type of service or repairs that you offer? For example, if you drive through the side streets in your town, how old are the vehicles you see in people’s driveways? If they are mostly late-model, the chance to get major repair work is greatly diminished and you will probably want to emphasize service and maintenance. If they are so old and dilapidated that the customers wouldn’t spend the money to fix them, that isn’t going to help you. But if they are in that middle-age group where they are too young to get rid of and too old to be under factory warranty, you are probably in the right place at the right time for performing a considerable amount of major surgery.

The competition: Are they asking a high, moderate or low price? Are they advertising or giving low-ball prices over the phone, even if they are using them only to lure customers into their driveways? Do they price using a labor and parts guide of some sort, or are they just winging it? Many of the tactics your competitors use can be turned against them if they are not realistic in their dealings with customers.

For example, if a customer tells you that another shop quoted him a very low price over the phone, you might respond: “At the price he quoted for the whole job, he didn’t even cover his cost of labor. Do you think there is any chance that once he sees the car he might try to add on what he missed? If you’d really like to know what it will cost, why don’t you let me set up an appointment to check out your problem. Who knows? We might be able to save you a considerable amount of money. Can I put you down for 8 o’clock, or would 11 a.m. be better for you?”

In your own shop: Does the owner or manager have faith in his or her objection-handling skills so that they can ask for a higher price without too much fear of losing sales? Is the owner or manager willing to spend the extra time it takes on the phone in an initial call or during a visit to the shop that would make the customer feel more comfortable and realize the need to spend a little more to get a better repair or service? (This is also known as the “Schmooze Factor.”) How much schmooze time is the owner or manager willing to invest? The more schmooze time, the more likely it is that they will create a happy, long-term customer who is willing to pay a fair price.

If you really want to become rich, the key is in what you do after the sale is complete. Follow-up in the form of “Thank you” notes, customer-satisfaction phone calls, service reminders and appointment-making calls for already recommended services is what separates those who just get by from those who make serious money. This is a time-consuming task that only a small group of wealthy shop owners undertakes. The rest either don’t see the return on investment or believe that their time is better spent doing other things, such as turning wrenches (which, by the way, never made anyone rich).

Acting like an entrepreneur and building your business while hiring the most-qualified people to produce the work is the only way to have a highly successful business that withstands the test of time.