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Never Apologize for Your Prices


Joe Marconi

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Shop owners today understand the challenges of rising costs and inflation.  Without addressing this issue and making the needed adjustment to your margins, the increase in your expenses will end up hurting your bottom line. Adjusting prices, up or down, is a function of being in business and, at times, unavoidable.

Shop owners often fear that their customers may push back with any price increase. They ask themselves,  “Will my customers understand? Will they shop other auto repair shops to compare my prices?” 

The truth is your true profile customers are not loyal to you because of the prices you charge for your services and repairs. Yes, you need to be competitive, but you also need to be profitable. Your best customers are loyal because of the value they receive from doing business with you.  Those are the customers you need to focus on and spend most of your energy on.

If you determine that you need to raise your prices, do it, but never apologize. Continue to build value in what you do. When value increases, price fades as an issue. However, when the customer does not see the value in your services and repairs, the customer will then focus more on the price.

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You are right.  If and when you raise prices, make sure you believe in them and the why for.  We have found when quoting every single time the cost of a check engine light, if we ourselves believe in it, then the customer

knows that and realizes the value.  

 

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I agree with you Joe.  However some younger, less experienced shop owners think that way.  I know I did.  I used to be ignorant to job costing.  What you speak of is really a mindset.  Due to the way our transmission shop sold work, less than 5% would have a price objection.  It's sort of a different business world when it comes to transmission repair.  Before I learned about job costing and profitability, I sold all transmissions for the same price, $387.05, in the late 70s and early 80s because that's what my ex-boss did.  When I started doing job costing, there were some transmissions that I was actually LOOSING MONEY on.

Slowly, I started charging labor plus parts based on my costs, then a whole new world opened up to me.  Imagine that; by simply doing what G/R shops have been doing forever, I finally started turning a profit.  I was young and ignorant about business before that.

Just today I read a news story about Amazon charging their sellers an additional inflation & fuel surcharge of 5% to the already high 15% commission on sales.  That means Amazon charges sellers 20% of their gross revenue.  Amazon's New 5% Surcharge  I'm sure sellers' prices will soon reflect the price increase, it's inevitable.  In my industry, late model transmission prices have gone through the roof.  But when coupled with the 30% rise in used car prices, many are simply being forced into paying $4k-$5K and more for a transmission because that's the least costly of all alternatives.

I think we should all revisit our pricing structure before inflation and fuel costs pushes us out of business.

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I agree with: " Your best customers are loyal because of the value they receive from doing business with you." I arrogantly used to think I was SO good at calling customers back with the additional work needed. They said yes all the time and I thought it was me. I finally realized it was their past trusted dealings with us made everything so easy and smooth. I know they trust us with their car and their pocketbook.

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14 hours ago, DUFRESNES said:

You are right.  If and when you raise prices, make sure you believe in them and the why for.  We have found when quoting every single time the cost of a check engine light, if we ourselves believe in it, then the customer

knows that and realizes the value.  

 

Great point! We, and everyone in our company, need to believe in the prices we charge. And also, everyone in the company needs to know the why. Great points! 

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13 hours ago, Transmission Repair said:

I agree with you Joe.  However some younger, less experienced shop owners think that way.  I know I did.  I used to be ignorant to job costing.  What you speak of is really a mindset.  Due to the way our transmission shop sold work, less than 5% would have a price objection.  It's sort of a different business world when it comes to transmission repair.  Before I learned about job costing and profitability, I sold all transmissions for the same price, $387.05, in the late 70s and early 80s because that's what my ex-boss did.  When I started doing job costing, there were some transmissions that I was actually LOOSING MONEY on.

Slowly, I started charging labor plus parts based on my costs, then a whole new world opened up to me.  Imagine that; by simply doing what G/R shops have been doing forever, I finally started turning a profit.  I was young and ignorant about business before that.

Just today I read a news story about Amazon charging their sellers an additional inflation & fuel surcharge of 5% to the already high 15% commission on sales.  That means Amazon charges sellers 20% of their gross revenue.  Amazon's New 5% Surcharge  I'm sure sellers' prices will soon reflect the price increase, it's inevitable.  In my industry, late model transmission prices have gone through the roof.  But when coupled with the 30% rise in used car prices, many are simply being forced into paying $4k-$5K and more for a transmission because that's the least costly of all alternatives.

I think we should all revisit our pricing structure before inflation and fuel costs pushes us out of business.

Agree. I think that what's so important to all shop owners is that they need to truly understand the cost of doing business. Early on as a business owner, I confused busy with being profitable. After failing, I realized that the KPIs of the business drive the business for the long term. 

 

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13 hours ago, newport5 said:

I agree with: " Your best customers are loyal because of the value they receive from doing business with you." I arrogantly used to think I was SO good at calling customers back with the additional work needed. They said yes all the time and I thought it was me. I finally realized it was their past trusted dealings with us made everything so easy and smooth. I know they trust us with their car and their pocketbook.

I would tell my service advisors, "Build relationships with your best customers and won't have to sell. All you'll need to do is tell." You just proved that!!!! Thank you! 

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About three months ago I did a $25/hour increase. I don't even think about it today.  The price is now what it is and I will probably do another increase soon.

 

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31 minutes ago, xrac said:

About three months ago I did a $25/hour increase. I don't even think about it today.  The price is now what it is and I will probably do another increase soon.

 

Being in the transmission business, virtually all of our business is a transactional business, rarely repeat business unless it's a warranty claim.  I was rarely asked about our individual prices.  People would only look at the bottom line, with tax.  When we raised our labor prices, nobody knew or asked about it.

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7 minutes ago, Transmission Repair said:

Being in the transmission business, virtually all of our business is a transactional business, rarely repeat business unless it's a warranty claim.  I was rarely asked about our individual prices.  People would only look at the bottom line, with tax.  When we raised our labor prices, nobody knew or asked about it.

I have only had two people ask what our labor rate is the last three months. All people want to know is how much and how soon.

 

 

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Let's all remember, that a labor rate is an internal number we need to know in order to remain profitable after we pay our technicians. The consumer does not the ability to understand this number. 

For example: If a shop charges $175 labor to replace front pads and rotors on a Honda Civic, and that can be done in 45 minutes, that translates to about $233 per hour. HOWEVER, if your labor charge for an oil change service on that same Honda is $20.00 and that is done in 30 minutes, that equals $40 per hour.

Sell the value of the job to your valued customers and receive value in return for your labor. 

My hope is that ALL shops across this great nation crunch their numbers and realize how labor is crucial to their success and to pay their employees! 

 

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2 hours ago, xrac said:

I have only had two people ask what our labor rate is the last three months. All people want to know is how much and how soon.

 

 

I agree with that.  We used YouTube videos of 2-3 minutes to show people what's up.  After I Email or text them the final bid, over half would either text or Email me back the "When" question which opened up for the assumptive sale.  I didn't sell that way on small-ticket repairs.  I think most people feel the "how much" and "when" questions are all they need to know.  In the '90s and early 2000s, we were in a different market area where there was a lot of nitpicking the final estimate/invoice.  I can't help but think that a lot of that was attributed to there not being any YouTube around, but also because it was a low income area.  Location selection is very important, which I didn't realize until I was in my 50s.

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I think also we are seeing the passing of the baby boomers. Boomers were taught to be tighter with a dollar by their depression era parents. The younger generation is pretty free with money. 

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1 hour ago, xrac said:

I think also we are seeing the passing of the baby boomers. Boomers were taught to be tighter with a dollar by their depression era parents. The younger generation is pretty free with money. 

I've never heard it quite that way, but I believe you are right.  My dad used to tell me terrible depression-era stories.  He was even into long-term food storage for fear of going hungry.

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16 minutes ago, Transmission Repair said:

I've never heard it quite that way, but I believe you are right.  My dad used to tell me terrible depression-era stories.  He was even into long-term food storage for fear of going hungry.

I know that when we opened 23 years ago price was a large factor but does not seem to be today. 

 

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4 minutes ago, xrac said:

I know that when we opened 23 years ago price was a large factor but does not seem to be today. 

 

I, myself, was much more sensitive to price objections when I was younger.  As I grew older, I became less sensitive.  I also noticed that the few people that would try to pick our price apart would only zero in on items they had a frame of reference for like ATF, gear lube, motor oil (for sticks that took it) and other such things.  Early on, I started pricing those items competitively with the auto parts stores and hid the real markup in other items or labor.

People simply didn't have a frame of reference for items like torque converters, rebuild kits, bushings, etc.  What I REALLY WOULD LOOK AT is the P&L to see if we really had at least a 60% gross profit margin.  I was lucky having QuickBooks where I could print out a current P&L with a couple of mouse clicks.  If we were off target for any given month, I would adjust pricing.  Having a wife as an accountant and using QB as our shop management and accounting software spoiled me. 🙂

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Larry, you bring up a good point; the older we get the less sensitive we are to people's reactions to our prices. And a big part of that is what you state with regard to your P/L.

When the shop owners truly understand what it takes to turn a profit, setting margins and pricing becomes a normal function of the business.  

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2 hours ago, Joe Marconi said:

Larry, you bring up a good point; the older we get the less sensitive we are to people's reactions to our prices. And a big part of that is what you state with regard to your P/L.

When the shop owners truly understand what it takes to turn a profit, setting margins and pricing becomes a normal function of the business.  

Yeah, Joe, we had different profit levels on different parts, labors, and whole jobs.  What I learned to pay attention to was the overall gross profit of the business.  It was very easy for me due to learning accounting through an early SMS I invested in named Digitree out of Colorado.  They were eventually bought out by Mitchell and Mitchell quit supporting the repair shop version and only supported the body shop version.  Later, I eventually went to a transmission shop-only software program called TransShop 1-2-3 by Larry Kuperman. (now retired) He stole the idea from Lotus 1-2-3.

I learned a lot of easy management tricks through DigitTree.  At the end of the week report, I would also print (remember dot-matrix printers?) out checks for that week's sales tax and 941 tax.  At the end of the month, I would pay my 941 with 4 checks.  We paid sales tax quarterly and I would pay that with 12-13 checks.  That kept our bank balance from looking overly inflated giving me a false sense of security.  Even worse, I wouldn't spend the money on something non-essential.

It simply blows me away at the number of small business owners who don't know accounting.  Reminds me of a young rebuilder I hired (early 30s) who had been building transmissions for about 10 years.  Depending on the year model of a certain transmission, the steel plates and friction plates were of different thicknesses.  I told him to measure the old ones to know which ones to use.  I then learned he couldn't read a mic.  I asked him how he could go so long not being able to read a mic.  He said his old boss had a digital read-out mike, dial calipers, and a dial indicator.  He had never learned to read a mic the old fashion, but standard, way.  That young builder reminded me of small business owners who don't know accounting nor do any in-house accounting.  Many have an accountant for all of that and the P&L and balance sheets they get from their accountant are basically an obituary as to their financial picture.  They are often a month, a quarter, or heaven forbid, a year old.

There are plenty of ways to learn accounting.  Online, books, and even YouTube can all teach standard accounting principles and practices.  It's not that hard and definitely not rocket science.  Even the numbering of groups of accounts is standardized.  For our members who don't, I would strongly suggest bringing all accounting in-house and only using an accountant, or CPA like we did, only annually.

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