THE LOW ROAD MYTHS PART II-THE PRICING MYTH CONCEPTION

When we left off last time, we discussed the reality facing shops that ignore their average repair order. The dangerous myth we’re combating is that shops can take the Low Road and still stay profitable.  The truth is, whether it’s ignoring profitability or ignoring pricing, shops can’t survive — much less grow — when they try and take the low road.

Let’s dig into part two of the Low Road Myth and find out what happens when shops ignore their labor gross profit percentage and their pricing! 

Reality #2 – Don’t Disregard labor gross profit percentage

Disregard for labor gross profit percentage will result in…

 

  • Out of balance labor costs to labor sales.  Decreasing or stagnant labor rates WILL result in lower labor gross profit percentage. This will lead over time to tech pay issues.
  • Much lower total gross profit dollars. Since labor gross profit is the largest segment making up total gross profit, overall gross profit will suffer.
  • Lower net profit.  If you can’t pay your bills with gross profit dollars, you will have to pay for it out of YOUR net profit.
  • Remember, your techs’ cost of living is going up just like your expenses are. At some point, they will demand a raise or may quit and go to another shop before you notice the issue.

The Pricing Myth Conception

 

The Low Road Myth is about more than just the dangerous belief that shops can ignore average RO and labor gross profit and survive.  Those misinformed beliefs often go hand in hand with misconceptions shop owners have about pricing.

Now, let me start by saying that I clearly understand that you can’t run a shop where you are the highest priced in town and expect to survive. But you will never be able to compete with the large chains that use a “big box” business model of low price and high volume.

The sooner we independent shop owners get it through our heads that we will NEVER be able to compete on price, the sooner we will realize that long-term there is ONLY ONE WAY TO SURVIVE.

When you look at reality, it’s easy to see why shop owners give in, give up and drop their prices (or don’t raise them when they need to): they cannot or are not willing to do what it takes to thrive in their market. It’s a real shame that anyone who claims to be an “expert” in this industry would encourage such behavior and wrong thinking.

It’s the same as with the profitability myth: pricing your services fairly doesn’t mean that you are gouging your customers any more than emphasizing average RO and labor gross profit means you’re a heartless jerk.

That’s the opposite of reality! Ignoring profitability and pricing yourself too low puts you, your shop, your employees, and your customers on the fast track to ruin!

Why? Let’s dig into the REALITY here and find some solutions to combat the DANGEROUS Pricing Myth-Conception!

Reality #1 – You Must Provide High-Value Customer Service

 

Most shops can’t provide the high value that better customers want. Because of poor customer service, inadequate service advisor skills, know-it-all techs that will not train or change, an unprofessional image, and a lack of other important customer conveniences

Shops have no idea how to provide a high-value product that customers recognize as far above “commodity auto repair” and as a great personal value to them. If you can’t provide this level of service, then low pricing is all you CAN offer to drive traffic.

There’s still more to be said about the low road myth — after all, these dangerous ideas are hurting shops every day — so stay tuned for next time when I’ll revisit the Pricing Myth-Conception, give you the REALITY we face when we price too low and offer you some solutions on how best to take the HIGH ROAD in your shop!

This blog is also posted on Motor Age