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Time to Raise Prices?


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I know that many shop owners, including myself, have been reluctant the past few years to increase labor prices and part margins. We have lived through extraordinary times the past few years with so many of our customers losing jobs, their homes, loss in the 401k and retirement, and other economic difficulties. But while many of us have been sitting on our prices, the world has still moved forward. Our cost of doing business has risen the past few years with increases in insurance, medical, taxes, workers comp, unemployment insurance and many other of our fixed and variable expenses.

 

So, the question becomes, “To raise prices or not to raise prices”. We all know the effects of pricing ourselves out of business, but we also know that maintaining prices can also drive us to close our doors. In the past I have always looked to increase production and sales per customer. But that strategy is not easily implemented in this battered consumer market.

 

I am one of those shop owners that has not raised prices the past few years, but now I am putting together a plan to make price increases. It will be small and incremental, but it must be done. I will also create new programs and promotions to promote more value for the consumer. Value is key these days. People want to walk away from your shop knowing the money they spent was not a mistake but a real value.

 

How are other shops keeping up with rising costs of doing business?

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I've been struggling with this all summer. I actually changed my parts matrix earlier in the year and lowered some of my pricing, brakes in particular. I was feeling some push back from customers on our premium brake service. I have not liked the results, it dropped my overall parts margin by about 2%. I have recently tweaked the matrix again to try and recoup the lost margin.

 

Labor rate is at $79.43 currently and I really haven't had many customers ask about it. I also increased the labor matrix to increase the effective labor rate on bigger jobs. I will probably increase our labor rate by about 4% next month.

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  • 2 weeks later...

I raised my rate in July from 79.95 to 85.95. Didn't see any real loss in business but it has been a tough go for a while now. Avg ticket is 2.6 hours so it made about a 15 dollar difference in each ticket. Then my neighbor, a used car dealer, told me the local new car dealers were lowering their rates. Took a Focus in to dealer for a security issue I couldn't address. In their service drive the sign that had 110.00 per hour had the 110 crossed out and 89.95 marked in at the bottom. A quick survey found many of the local dealers had LOWERED their rates from over 100 to the 90 range. Makes me wonder if I made the right decision. I know what I need to make based on avg car count. But if I have a slow week then the numbers all go out the door.

MR. WIZARD I DONT WANNA BE A SHOP OWNER ANYMORE!!! B):blink::rolleyes:

 

Don't enter a price war. No one wins a price war. For a dealer to lower the labor rate that much means that the dealer is desperate and in financial trouble. The same way you saw no change in your business when you raised your labor rate, the dealers will see no change in their business. All they will accomplish is less income. Do what you do best, provide the best customer service and WOW the customer each and every time. Take price out of the picture by doing this.

 

Think about this, ever go into a Starbucks lately? They are feeling the affects of the economy, but you still pay 2 to 3 times for a cup of coffee. They focus on the customer, not the price. We need to do the same.

 

Hang in their, better days are coming. I know it and I feel it. We have turned the corner, and the road looks pretty good.

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  • 10 months later...

I'm at $65 hourly and a pretty common matrix. I'll post it up later. I've been catching some flack for charging by the hour for diagnosis. But otherwise no complaints. Had a customer tell me 3.2hr was outrageous to diagnose and repair an intermittent a/c issue. Has me rethinking the by the hour concept.

 

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I'm at $65 hourly and a pretty common matrix. I'll post it up later. I've been catching some flack for charging by the hour for diagnosis. But otherwise no complaints. Had a customer tell me 3.2hr was outrageous to diagnose and repair an intermittent a/c issue. Has me rethinking the by the hour concept.

 

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Stick to your guns.
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I'm at $65 hourly and a pretty common matrix. I'll post it up later. I've been catching some flack for charging by the hour for diagnosis. But otherwise no complaints. Had a customer tell me 3.2hr was outrageous to diagnose and repair an intermittent a/c issue. Has me rethinking the by the hour concept.

 

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In which way are you rethinking?

Did you offer him to stay right over your head and watch you every move while you diagnosing that intermittent?

I wonder what line of business is he in.

The doctor would spend 15 minutes (maybe) just chatting with you, charge the insurance company whatever they are willing to pay him and write a guesstimate prescription of whatever you told him your symptoms are.

Would you customer prefer that approach?

whatever the Phynny and Xrack say

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In which way are you rethinking?

Did you offer him to stay right over your head and watch you every move while you diagnosing that intermittent?

I wonder what line of business is he in.

The doctor would spend 15 minutes (maybe) just chatting with you, charge the insurance company whatever they are willing to pay him and write a guesstimate prescription of whatever you told him your symptoms are.

Would you customer prefer that approach?

whatever the Phynny and Xrack say

For years I never charged for diag time. Just a flat rate 1 hr charge. After much study and y'alls help I've determined that's asinine and I might as well be working for free. Its a rough hurdle when you've built the reputation for charging like that. I'm getting there lol. Thanks for the words of advice!

 

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hey ncautoshop,

 

I think your approach shouldnt be to tell the customer you are charging him "3.2 labor hours" but to present the diag job's benefits and then give the customer the price afterwards. When you mention "labor hours" it is very confusing to the customer in my opinion and they will often question what you spent your time on and what you were doing. If you simply explain to them that is the charge for the procedure and the diag steps and test you have to take it should be a lot easier for you to sell more. Try to set yourself apart from other shops in the many ways you are different from other shops (your knowledge, customer service, honesty, facility if applicable, tools and equip if applicable). I tend to give the price shoppers away since they will normally be a lot more headache than they are worth in the long run.

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hey ncautoshop,

 

I think your approach shouldnt be to tell the customer you are charging him "3.2 labor hours" but to present the diag job's benefits and then give the customer the price afterwards. When you mention "labor hours" it is very confusing to the customer in my opinion and they will often question what you spent your time on and what you were doing. If you simply explain to them that is the charge for the procedure and the diag steps and test you have to take it should be a lot easier for you to sell more. Try to set yourself apart from other shops in the many ways you are different from other shops (your knowledge, customer service, honesty, facility if applicable, tools and equip if applicable). I tend to give the price shoppers away since they will normally be a lot more headache than they are worth in the long run.

That's what I've been trying to work towards. It can be hard to watch business leave. But if you're not making money what's the point? I've been reading every shop management book on the market, every magazine, especially this forum and any resource available for technical and management knowledge. My wife's getting frustrated with my commitment to work lol. 2 years ago we had a little girl, my life changed. I've never had to much drive to be successful! Facility upgrade is next on the list! (Sorry for the thread hijack, wasn't my intention!)

 

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ncautoshop,

 

I used to and still do feel the same way. I hate it when I feel like I didn't sell a job or sell the shop well enough to a price shopper (someone calling wanting a specific price quote). Sometimes its definitely something I should have tried harder at pitching the shop as the place for their business instead of so easily giving the price away. A lot of times I also think that its probably better off I lose the majority of these customers because they will probably end up being someone else's problem in the long run. I tend to have very loyal customers and that is something that is certainly most appreciated. The folks who jump around from shop to shop are the worst to deal with and are not your desired customer.

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In this situation I think he was frustrated with the situation more than my price. He had been to the local Honda shop which replaced the a/c compressor, after pickup it only worked occasionally. They took it back in twice before calling me to come look. They replaced the relay because they thought it was getting hot etc etc. I think often customers are rude or blunt because of the situation. Its not like their buying a new TV, something they want. Our services are unexpected and expensive regardless if its 20 bucks or 2000. I try to achieve 100% customer satisfaction and when they are not happy it bothers me. Probably to much! More than anything with this situation I'm worried he'll go to everyone and tell them how expensive I am. People always seem to tell me how someone said I was expensive. I don't want to be one of the local rat holes. To offer the quality I want to offer there's no way I can make it at 10% markup or parts and 50 on labor!

 

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So many consumers do not understand the concept of paying for diagnostic testing. We still charge for diagnostics testing, but we stay away from the words, labor and time. We have adopted the process much like the doctor.

 

For example, when someone comes in for a check engine or air bag light or ABS light, we offer them the initial scan at no charge. We explain that until we have a direction, giving prices on diagnostic testing is difficult. After we scan the computer and access the trouble codes, we then prescribe what tests are needed and explain this to the customer. The charges are for the tests only. Much like a doctor ordering lab tests and an X-ray. We explain that after the tests are done, we will discuss the results and what will be needed to repair the car.

 

This has worked really well since we started this plan about 4 years ago. It stopped all the up front push back from customers. In fact, it allowed us the make a profit on diag testing. Now 9 out of 10 people go forward with the tests; as before, we spend WAY too much time trying to explain and justify diag testing, and many people walked away.

 

One thing to note, your best customers will never argue price, ever notice that?

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Starting This Monday change your hourly shop rate to $139.95 per hour and fix their problem the first visit. When cheaper shop prices are mentioned, invite the customer to have the other shop do the work and then bring the car back to your shop for a recheck together. You will point out the sloppy oil change work, poor tire balance, missing/loose bolts ,problems missed ,etc so the that the customer can go back and ask for their money back. B)

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So many consumers do not understand the concept of paying for diagnostic testing. We still charge for diagnostics testing, but we stay away from the words, labor and time. We have adopted the process much like the doctor.

 

For example, when someone comes in for a check engine or air bag light or ABS light, we offer them the initial scan at no charge. We explain that until we have a direction, giving prices on diagnostic testing is difficult. After we scan the computer and access the trouble codes, we then prescribe what tests are needed and explain this to the customer. The charges are for the tests only. Much like a doctor ordering lab tests and an X-ray. We explain that after the tests are done, we will discuss the results and what will be needed to repair the car.

 

This has worked really well since we started this plan about 4 years ago. It stopped all the up front push back from customers. In fact, it allowed us the make a profit on diag testing. Now 9 out of 10 people go forward with the tests; as before, we spend WAY too much time trying to explain and justify diag testing, and many people walked away.

 

One thing to note, your best customers will never argue price, ever notice that?

 

I'll add an odd situation I experienced yesterday.

 

Customer walks in after scheduling the appointment the day before with a vehicle he needs checked out because he just bought it and there are some noises coming from the undercarriage. I set the customer up and I tell him, "There will be a minimum of a $50 inspection fee. If there is any need for further testing or diagnostics I will inform you before we proceed." Customer agrees and hangs out in the waiting room. Fast forward 30 minutes later after speaking to the customer about our findings and having an estimate drawn up the customer says, "So you don't have to charge me the $50 right?" I responded, "No sir like I informed you earlier, we charge for every inspection because it is our time and expertise." He then says, "No no, I'll show you here on yelp, you give free inspections." <_< I then smoothed things over by saying, "Sir I'm sure you came to us because we have a great reputation and provide great service. I promise you, you will be very happy as we take care of all of our customers. In regards to the inspection fee, you have to pay for this now however I will take care of you when you bring your vehicle back for the estimated work." He seemed fine with this but definitely learned I have to clarify that inspection/diag fees are not comped and have to be paid!!! :angry:

 

He was Indian and from my experience people from Indian and Middle Eastern decent you have to be prepared to inflate your estimates so they can knock you down and negotiate. Its in their culture and they have to walk away feeling like they won something LOL :lol:

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Sadly, with some people, price is a game. But paying our bills is no game and we need to make a profit. Now with that said, we would all be a lot better off if the entire industry did not focus on price as much as it does. Every TV ad that has anything to do with auto repairs uses the words: discount, low price, cheap and other words to draw consumers on price.

 

Those who know me know that I always preach; if we brand ourselves on price, we will die by price.

 

My shop is not Joe's Discount Auto. It can't be. In order to discount I would have to hire low skilled workers, use cheap parts, work on certain cars, target masses of people and limit the amount of services we offer. That means I become a Wall Mart type business.

 

After 33 years here's what I have learned about price and business; The more I narrow my focus and target the customer I want, the more profitable I become. Don't be everything to everyone, understand your key customers, and take care of those key customers as if they are family.

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I have made increases in labor rates and have never seen customers leave. I have lowered my parts mark up as well because of the economy and only hurt myself.

 

The supermarkets and the sporting goods stores have not lowered their prices...... One thing that is hard for me is the fact that my customers are always happy because I give them a quality service no matter what. When I don't charge what I should, my family pays for it - crazy isn't it?

 

I do think it is important to be in line with price sensitive items though, brakes oil changes etc.

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In this situation I think he was frustrated with the situation more than my price. He had been to the local Honda shop which replaced the a/c compressor, after pickup it only worked occasionally. They took it back in twice before calling me to come look. They replaced the relay because they thought it was getting hot etc etc. I think often customers are rude or blunt because of the situation. Its not like their buying a new TV, something they want. Our services are unexpected and expensive regardless if its 20 bucks or 2000. I try to achieve 100% customer satisfaction and when they are not happy it bothers me. Probably to much! More than anything with this situation I'm worried he'll go to everyone and tell them how expensive I am. People always seem to tell me how someone said I was expensive. I don't want to be one of the local rat holes. To offer the quality I want to offer there's no way I can make it at 10% markup or parts and 50 on labor!

 

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I thought about what you have said and agree, or at least know exactly how you feel NC.

Just imagine two scenarios, your client is going around (i know he won't, but we are imagining) and telling all the people that he knows, that he got the best - no cheapest, possible deal from you that was ever possible and so proud of it that he can't contain himself. At the same time he is telling everyone that although he got a great deal, he was treated poorly, was lied to and got an ATF in the brake fluid.

Another scenario, the same guy is going around, telling everyone that he probably paid the highest price for the same type of service, but got treated with respect, has now the best possible warranty and feels his car could not possibly perform any better.

Which hypothetical scenario would you prefer?

I know (from personal experience) that a 100% customer satisfaction is only a goal, not a possibility or a reality and price satisfaction is a relatively a small aspect of the total satisfaction.

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  • 1 month later...

I think price is harder to get over for shop owners than for anyone else. There are tons of customers out there who are willing to pay for our services as long as we provide them value. I've made a lot of changes in the past year and I couldn't be happier that I did. Changed my labor rate to $64.79 roughly 4-6 months ago. Still much lower than I want to be, but I short handed myself when I started. I figure I still have time to take it up slowly and not do a $10-15 increase all at once. I do well enough now that I keep my 60% profit on labor after techs are paid.

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Some customers are just price shoppers to the core. I took in a No Start 2006 ML350. Jumped the car in front of the line and worked on it the next day. The last shop replaced the fuel pump and still could not fix the car. We traced the problem (after 8 hours of diagnostic) to a bad connector and pin to the fuse box. We recommended to replace the bad connector and pin as well as the fuse box. After speaking to the customer everything was all fine and he was notified the parts will be in on Friday.. This morning I got a call from the same customer with a whole lot of, "my cousin brought the same car to the dealer with the same problem and they charged him XXX," and "I am a first time customer, don't you want to keep me happy???" Nevermind we got the car figured out within a day and did something the last shop could not do but now all of a sudden we are the bad guys because we are charging a fair price for a hard to find electrical problem that another shop couldn't.

 

East Indian customer if that matters to you all. For those in the know, gives a lot of insight!

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Some customers are just price shoppers to the core. I took in a No Start 2006 ML350. Jumped the car in front of the line and worked on it the next day. The last shop replaced the fuel pump and still could not fix the car. We traced the problem (after 8 hours of diagnostic) to a bad connector and pin to the fuse box. We recommended to replace the bad connector and pin as well as the fuse box. After speaking to the customer everything was all fine and he was notified the parts will be in on Friday.. This morning I got a call from the same customer with a whole lot of, "my cousin brought the same car to the dealer with the same problem and they charged him XXX," and "I am a first time customer, don't you want to keep me happy???" Nevermind we got the car figured out within a day and did something the last shop could not do but now all of a sudden we are the bad guys because we are charging a fair price for a hard to find electrical problem that another shop couldn't.

 

East Indian customer if that matters to you all. For those in the know, gives a lot of insight!

My worst fear isn't that he's upset, its the fact he'll tell everyone that I'm "outrageously" expensive. Ive recently started using a matrix instead of 45% markup across the board and its helped. But I've recently lost two of the customers I started with years ago for this reason. I just keep telling myself "if I cant make a decent living whats the point?" Do I really want those customers. We've also been using a 40% over book hour, which has helped morale and maximized efficency on rust buckets.

I'm to the point if that I'm not concerned about the market around me. Their still in rat hole shops and not growing....might partially be their pricing structure. ($40.00 an hour and no markup on parts)

 

 

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I have read/heard, whatever somewhere, don't quote me on that :)

That, if at least two of your customers don't tell you that you are too expensive or charging too much, it means you are not at your "optimal" hourly rate. So think of it as a compliment from them.

Now, if those two customers are the only ones you got in for that week, that's a problem, isn't it?

As far as "price sensitive" (lmao not at them, but with them at myself) customers and responses to their complaints, i usually ask what they do for living and if they wouldn't mind doing the same job for about half the salary.

This usually takes care of the highly analytical types, others just won't hear you no matter what.

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The customers that will generally complain about your price no matter what you do are:

 

#1 The customer that is accustomed with dealing with low end shops. These guys generally don't respect what we do.

 

#2 The forum/internet guy. Can't tell you how much these guys bug the crap out of me. They will go on a forum and read some stupid low price for a certain job and expect everything to be in line with that. Oh yeah they will also tell you how to fix their car.

 

#3 Culturally cheap or negotiate everything customers. No matter what you do these fools will barter you to death. They have to walk away feeling like they won.

 

 

Now if you have a clean facility, great customer service, quality repairs and timely turn around times then you should only be getting complaints from these 3 types of customers. There are ways of dealing with them (which will still give you white hair and nightmares) OR you can throw them back into the polluted ocean.

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If you have a clean facility, great customer service, quality repairs and timely turn around you should be able to upgrade your customer base and gradually move away from having to deal with the bottom feeders. To my way of thinking the fastest way to fill up a shop with bottom feeders is to keep prices low and to offer cheap oil changes. I refuse to offer a $19.95 oil change because of the type customer it attracts. Now maybe if a shop is less than 2-3 years old one needs to do it to build traffic but it can be very counter productive in my opinion.

 

 

 

Definitely the goal however in big cities your chance of encountering morons driving expensive cars is super high. :(

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  • 1 year later...

I know this is kind of old, but I went from being 55 an hour going from my garage to when I moved in to my new 1 bay shop it went up to 92.50 over a 1 year time frame. No one has complained and our quality of customer just keeps getting better. I am still not as expensive as others but, we are a 1 bay shop, and in october we did 92.5k in sales.

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I know this is kind of old, but I went from being 55 an hour going from my garage to when I moved in to my new 1 bay shop it went up to 92.50 over a 1 year time frame.  No one has complained and our quality of customer just keeps getting better.    I am still not as expensive as others but, we are a 1 bay shop, and in october we did 92.5k in sales.

very impressive. That's 300+ an hour. How many employees?

 

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Only 1 and my self

That's very impressive. I remember seeing the industry average is only $1,000 a day per tech, so your well above that! What is your work mix like? What shop management system are you using? Must have a very high aro! Is that a typical month?

 

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The ARO is 405 with a 230 car count, lots of that is winterizations, in alaska to prepare for -40 we install a block heater, engine oil pan heater and battery trickle charger and rate the coolant to -60. it averages about 300 per vehicle and take up to 2 hours per car. But some as few as 20min. we will do just about everything including tires and alignments.

 

We are using alldata manage, and a typical month is about 55k

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That is very impressive. How does your parts cost run compared to the lower 48 and what kind of markup do you get?

 

we aim for a 55% to 60 % profit margin on the RO. if cost is 10 and list is 20 we will sell it for 15. unless we need to make up a little on that job then we will move closer to list price. Parts cost I couldn't tell you.

 

Here is a hub from carquest, they are our main supplier and we are a tech-net shop. 2005 chevy silverado 1500 4wd hub.

 

We pay about a dollar a square foot rent and heating the shop is 600 a month in the winter with a 400 electric bill for 1000 square feet.

 

CARQUEST Premium Bearings 515058 $431.99 $210.82

 

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Our Shop is located in the West Coast of Florida. Florida was / is Hard hit economically in the past Real Estate Fallout. Also very tourist driven seasonally. We have an 8 Bay Service Center. I have raised our Rate from $85.00 to $98.00 Per Hr. Last Year. We are one of the Most expensive shops in the area. Averages in the Area are anywhere from $65-$85 Per Hr. We Did not experience any loss of Business from raising our rates and also being one of the highest priced, for an independent service center. We found the key is to make sure that we are competitive in menu rate flat fee priced items such as wheel alignments, rotate and wheel balances, coolant flushes, oil changes, a/c recharges, Basic Brake Jobs Etc. These menu rate flat fee items are items that consumers can easily compare from shop to shop looking at ads and comparing these items. These menu rate jobs are how consumers perceive if you are priced competitively in the market place. Other repairs / services are quoted at our $98. per hour labor rate according to our Labor Guide (we use Mitchell) and also round up .10 per Hour. We sell and build value by offering Extended warrantees, Nationwide Warranties, both on Labor and Parts. We offer options such as a Reman. Parts with one year warranty or New Parts with 2 and 3 year warranties. . Good quality parts over white box cheap import parts etc.. We also offer upgrade services such as example a standard wheel balance for a set competitive price or a Roadforce type improved wheel balance for a higher price selling the value upgrade of the better service. We offer a standard cooling service and an upgraded premium BG coolant Service giving the consumer options Testing/Diagnostic Services are sold initially free code scan on 1996 and newer vehicles. We then review the error codes and educate the customer on the costs for the testing required. Example: if a vehicle has a misfire code we quote our hourly rate at a pricing range of $98-$150. and have setup testing packages of level one through three testing packages. if there is a misfire code plus an evap. code. We will charge per error code plus additional for smoke testing if necessary. We thoroughly educate the consumer and do not have a problem selling diagnostic / testing services. Hope this helps . Sorry for the drawn out response. Respectfully, John

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We raised our price from 75 to 85 at the beginning of the year and I did not get any resistance from customers at all. We also went from 24 to 30 dollar oil changes and I fixed my price matrix significantly. Last year we did 350000 in sales and that was out 4th year. This year we are on track to finish around 600000 and at a lot better profit margins. Thanks to some management training, ATI one day class and 2 day repair shop coach class and ratchet and wrench articles we almost doubled sales in one year.

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      Firstly let me say that I an just a regular guy from the UK who is the owner of a seven bay service centre/garage. I am not a financial expert. The dreaded inflation is upon us again. For the guys as old as me then this is nothing new. Back in the 70,s we had 15% inflation, but we all got by and lived for better trading days. Here in the UK we have always looked up to the USA because of your business prowess. So what do you guys look out as your worst enemy!
      When prices are going up then I find that the gap opens between rich and the poor's disposable income. So this question will effect garage owners in different areas. My garage is in a poor area with many immigrant families who drive cars. So this means we have to be more flexible with pricing. Finding out if your customer can afford that service ! For this reason we devised a three tier service pricing structure. This has also the effect of not loosing your profit margins. 
      The lowest price should include an oil and filter change and a general vehicle check over. This way we find the customer will perhaps be able to afford a service and your profit margins wont drop. This is just one small idea that we carry out! What do you guys do in these times of high inflation ? 
    • Advertise your services or products to passers-by attracting them towards your business
    • By Joe Marconi
      Most communities have a variety of repair shops, dealerships, and franchise models.  Do you consider them the competition, or colleagues?
      Do you think it's worth it to get to know other auto businesses in your community?  To share and exchange business ideas and strategies?
       
       
       
       


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