Why? Perhaps they are concerned that raising their prices will stop the phones from ringing. Perhaps they think that failing to meet their necessary margins will somehow keep them competitive.
We both know they are not thinking it through that much. Odds are, they are stopping at the "low prices will keep me competitive" part of the equation. The fact is that all of us have to remain competitive, but we also have to make enough money to stay in business and reinvest in our businesses. I think most of us will agree that there are really three key areas that will help us get a good night sleep: increasing sales volume, reducing expenses and increasing profit per sale.
Many business owners feel guilty about increasing profits and spend too much time cutting costs. For example, many service advisors will search around for the best price on a part. But the time he or she spent trying to find the best price hurt the ability to increase sales volume, lowered the gross profit in dollars and really did not reduce the shop's expenses. At the same time, our hero is tying up your sales staff with price-shopping.
So what should he have done? Most of us know that customers buy on benefits before price. Price is important, but showing a customer the value of the better widget will generally make the sale. At the repair shop level, our service sales staff need to focus on selling quality parts against a pricing matrix that guarantees the shop the necessary profit margins that will keep it viable. Repair shops that align themselves with quality parts suppliers will help satisfy all three areas of focus better.
Increasing sales volume will occur if a shop has great suppliers who are efficient at getting the product out the door and into the technicians' hands. This allows the repair shop to sell and complete more work each day. Because great suppliers also sell and market quality products, customers are more likely to recognize the name and see the benefit of the suggested part, saving the service advisor time.
In my experience, the items that really drive expenses up are not in the expense part of profits and loss, but rather in the cost of goods. A perceived cost savings of $20 to have a courier pick up a part could have a real cost of one lost hour of labor, including the cost per hour of a technician standing around. On the other hand, you could send an employee to pick up a part and then you have the loss of them not doing their regular job, plus the cost of running your truck.
And finally — increasing profit margins per sale can only happen when a shop stops spending $100 to pick up a part for a customer that it only stood to make $50 on.
So why am I telling you about repair shops? Because next month we'll cover how suppliers and repair shops can work together to create margins on which both can survive.
Donny Seyfer is a second-generation repair shop owner and ASE Master Technician. An active industry educator, Seyfer hosts two automotive radio shows, serves as chairman of the Automotive Service Association of Colorado, works nationally to help repair shops with IT and service information utilization and writes for Motor Age, a sister publication of Aftermarket Business.
