Over the years I have seen hundreds, if not thousands of shop owners do irreparable damage to their businesses. This damage occurs when they are mesmerized by the management trainers or consultants who tell them that they can solve all of their problems by raising their prices. At first they are pleasantly surprised to hear that their services are worth more than they are presently charging, because it plays to their ego. They are also told that they have nothing to worry about, because none of their customers will complain. They then jack up their prices and are pleasantly surprised when they discover, as they were told, that not one of their customers objected to the new pricing.
Over the next few months profits typically swell, and the shop owners smile all the way to the bank. Then, unfortunately, in far more cases than you would imagine, 9 to 12 months later these shop owners find that all of their good customers are gone, and the reason is pretty simple: Rather than complain, their good customers just take their business elsewhere. So before you listen to the pied pipers who tell you that you can solve all of your problems by jacking up your prices, I wanted to share a different strategy with you. It’s one that I used to grow some really great shops, so I know it will work wonders for you, too.
First of all, any price increase should be small and incremental. You will find that small increases will not only be considered acceptable by most of your good customers, but they will allow you to monitor your customer’s acceptance. When you move forward with this approach, you need to monitor your lost sales at the point of sale to ensure there is no appreciable increase.
Secondly, you will need to perform your customer follow-up calls to keep your finger on the pulse of your customers, and to enable you to detect any early signs of price resistance.
Lastly, you need to monitor your percentages of repeat customers and referrals. I have discovered over the years that there is only one true judge of pricing, and it’s our customers, so if a customer continues to return to your shop, and if they continue to recommend their family and friends to you, then it’s safe to say that they are comfortable with your pricing.
How often you revisit your pricing is subjective, too, but I would encourage you to do it at least two times a year. Another benefit of small incremental price increases is that they will allow your advisors to feel comfortable with the new pricing. This is critical to your success as a business owner, because as we all know, if your advisors feel uncomfortable with your pricing, it will be hard for them to put their hearts into every sale as they should.
Lastly, in the coming years you will need to make some decisions regarding the gross profit margins you make in both your part sales and your labor sales. With today’s technology, and your customers’ access to information, customers are going to be quick to compare prices. Given the choice of the two, I would much rather defend a higher labor rate than a high part price, and here’s why: Regardless of how skilled your advisors are, when they are trying to defend why they charged a higher price for that alternator than the price the customer found online, it’s going to be a tough sale, because in the customer’s mind, a part is a part. Yet if your labor rate is the highest in town, that’s something your advisors should be able to easily defend because your technicians aren’t just technicians; your technicians are superstars.
In closing, I would be the last one to say you should or shouldn’t raise your prices, but what I can say is this: If you just listen to the pied pipers, they will scare off your customers and put you out of business. On the other hand, if you implement small and incremental increases, and if you monitor and measure customer acceptance, then you will be on the road to building a more profitable, successful business.