We may once have figured out exactly what everything costs us and worked out the appropriate markup to allow us to make a profit, but how long ago was that? What has changed since then and how far behind are we? If you were once profitable on a certain amount of volume, and although the volume hasn’t changed, the profit is dwindling lower and lower: It’s obvious the fault is with your pricing.
When I first enter a shop and before I start selling, I like to look at past individual sales amounts for the past year to get an understanding of the previous pricing policy. The next step is to find out what the market will bear in that area. When I get into the shop and start selling, I make a list of transmission types. I call the dealership on each transmission type as they come in and get a price before I work up my cost. The dealerships will set what the market will bear in any area I am working in. Within a month or two, I have the list up to date with the most common 15 or so transmission types that this particular shop is working on. As a salesman, I do not care what the other transmission shops are charging. They are not whom I am competing with. I am competing with dealership prices. They set what the market will bear – local transmission shops do not. Now that I know what the market will bear, I work up my prices based on that and make sure I am not leaving any money on the table.
I found myself in an argument the other day that I couldn’t win no matter how right I might have been. It was with two golf buddies who know I’m in the auto-repair business and chose to vent their frustration about the cost of car repairs on me.
Pricing your work incorrectly is one of the most-common strategic errors. Does your labor rate reflect your cost of doing business with a percentage of profit for the amount of billable hours, or is it a number that is comparable to or cheaper than your local competition? Do you know what the fiscal burden is for each employee? Do you know what it costs to turn the key in the door every day, so that your pricing reflects the absorption of those costs plus a correct profit percentage? These are all vital data without which you have no way to price your work correctly.
That’s how his fellow service advisers introduced him to me at the seminar. His name was Steve but no one called him that. Most just called him “10” for short, as in “Hey, 10, how much did you give away today?”
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.