The Price Is Right...Or Is It?
It's hard to make money without knowing your costs
By Jolie Abraham
If you are going to be financially successful in your detail business you must price your services based on your cost of operation and what prices your target customers are willing to pay--not just lower than the competition's prices.
Enough cannot be said about knowing your costs of operation before setting prices. A lot of companies have sold themselves into bankruptcy even with high-priced sales because their prices were lower than their costs.
Other companies set prices according to what the customer will pay. Again, if you don't know your costs of operation, how can you accept a price that the customer determines? Classic examples of this mistake can be found at many detail shops that do work for dealerships. Typically, a dealer will pay $65 to $75 per car for a full detail. How can you accept this price if you don't know your costs of operation? It isn't just that you might not make money. With prices that low you may lose money on each car you do.
So before setting any prices for services you need to know your costs of operation. Once you have these costs established, add on your profit. Using this information you can determine an hourly shop rate, which should be the basis of all pricing for your detail services.
The easiest way to determine costs of operation and hourly shop rate is to meet with an accountant or bookkeeper who can advise you. You can even contact the Federal government group called SCORE. This is a consulting group of retired businessmen who work free-of-charge to help small businesses like yours with just this type of information. You can find the local SCORE office in your telephone book under federal government listings.
It has been said that if price were the only factor in the consumer's purchasing decision, we would all be driving Yugos and eating at McDonald's. Obviously people want more than just the lowest price. Even those who are price-conscious want quality and reliability.
In my experience the motorist who purchases detail services is not really looking for price. Their first and foremost issue is need. They obviously come to you with a perceived need for some type of detail service. Next, the customer either doesn't want to or feels they aren't able to do it personally and is willing to pay you to do it.
Price is only an issue if you allow it to become an issue. Certainly if the customer has gotten a quote from another shop that is lower than yours you need to determine what the other shop is offering for that price. You must show the customer that you are giving them more for the price you charge. For example, the other shop may be using a quick and dirty one-step process that is usually done on wholesale cars, whereas you are doing a three-step correction, polish and protection process. If you always sell value, quality, reliability and the customer's need for the service, I can guarantee that price will not be a factor in almost all cases.
Should you post prices?
When I was first managing a detail center, we posted a service board with our prices and had our service menu on the counter with prices. This seemed to work OK, but then we realized that potential customers would look at the board through the window and leave. We were losing our opportunity to sell because people would check out our prices and decide not to purchase even when their interest indicated that they had a need.
After we took down the service board and removed the package prices from our menu, we found the customer would stay until we could talk to them. Their first comment, of course, was, "How much to clean, detail, or wax my car?" This opened the door for the sales pitch, which began with: "Let's go look at the car."
First, we would start a dialogue with the customer about the car and then very professionally and knowledgeably point out the detailing needs of the car. Next, we would substantiate the needs the customer may have already determined and point out additional needs they may not have realized.
If the prices had been posted or had we just given them a service menu or a verbal price quote, we would have lost this opportunity to sell the need and our professional knowledge.
One thing I must point out is that while we did not post prices on our five detail packages, we did post prices ala carte on individual services. These services were always priced on the high end to make a package have more value. And, let's face it, you can't make much money doing $25 carpet shampoos. But if a customer is insistent and only wants a carpet shampoo, then charge them at least $40. You have every right to set a minimum price.
We learned that customers having their engines cleaned were either going home to work on their own car, or a mechanic told them to clean it so he could work on it. Why didn't the customer do it? Other than some self-service carwashes, there aren't many places a motorist can clean an engine. At the time we charged $40, but today I would not hesitate to charge $50 for that service. The customer has nowhere else to go.
Estimate pricing is simple after you have established your hourly shop rate. When a vehicle comes in, evaluate its condition to determine what is needed and what services the customer wants. Then you can calculate the man hours to do it and multiply by your hourly rate. That is how auto repair and collision repair shops do business. In fact, these industries have books published that list the hours required to do just about every mechanical repair job and every collision repair job. Some detail shop operators are using this estimate pricing system quite successfully. But if a shop is absentee-owned, I would be nervous to leave the pricing of services to employees, especially the employees who aren't trained in sales.
To gain the advantages of estimate pricing and have some control over what an employee might charge a customer we developed a system we call "pseudo estimate pricing." The basic strategy is easy. As mentioned, we offer five basic detail packages designed around the types of services we found most common with our customers. We calculated the average amount of time required to do the work, taking into consideration the smallest passenger vehicles, largest passenger vehicles, good condition and bad condition and arrived at an average package price. These prices were never posted anywhere.
The average package prices are:
These are the prices the manager starts with when quoting a job. If a vehicle is a real "dog" and would take more time than allowed, he just adds on the additional time to the price. On the other hand, if the vehicle is in better condition and it appears the customer is price conscious, the price can be lowered or an additional service, such as an engine clean and/or trunk shampoo, can be added at no charge.
Another important point is that vans, sport utilities and Suburbans always carry an additional $20 to $25 for the exterior and the same for the interior on the average package price for that package.
By pricing this way, you put yourself in the same category with auto mechanics and body shops. Furthermore you force the customer to ask you questions which allows you to sell.
Keep in mind that whichever pricing system you use--posted or estimate--the key to success in this business is not going to be based on your prices. It will be the value, quality and consistency of your service.
Jolie Abraham is a former detail shop manager and currently works in sales and marketing for Detail Plus in Portland, OR.