On-line Trade Show - Seminars
The Price Is Right
by Art Little
This article appeared in the May 2015 issue of Transmission Digest.
You can put a worn and damaged parts list down in front of 10 managers and ask them to work up a cost for the repair and you will get 10 different totals. How do you know when your pricing is right ? Are you losing money because you are not charging enough ? Are you losing jobs because you are pricing too high? As one of those 10 managers mentioned above, all I can do is tell you how I do it. I’m sure the other nine managers will not agree with me but, we will proceed without them anyway.
When I first enter a shop and before I start selling, I like to look at past individual sales amounts for the last year to get an understanding of the previous pricing policy. The next step is to find out what the market will bear in that area. When I get into the shop and start selling , I make a list of transmission types and I call the dealership on each transmission type as they come in and get a price before I work up my cost. The dealerships will set what the market will bear in any area I am working in. Within a month or two I have the list up to date with the most common 15 or so transmission types that this particular shop is working on. As a salesman I do not care what the other transmission shops are charging. They are not who I am competing with. I am competing with dealership prices. They set what the market will bear not local transmission shops. Now that I know what the market will bear I work up my prices based on that and make sure I am not leaving any money on the table.
What makes pricing confusing is every shop is different. Different marketing, location,reputation etc. Shops have different operating costs. A shop that pays 1200 a month in rent can sell for less than a shop with 4500 a month rent. Right? What if a shop only gets 4 jobs a week and their break even is 6,000 ? What if another shop gets 12 jobs a week and their break even is 6,000 ? Do they sell their jobs for the same price ? It seems the one with 4 jobs would have to charge more logically don’t you think? What if one has a builder that makes 1600 a week and another 1000 a week ? Does that change the way we price?
I had an old mentor tell me that pricing a transmission is like using monopoly money. You can make anything cost what you want it to cost. You can even give it away and not be hurt by it. It is monopoly money. We do not have to price our transmissions using parts manuals like Mitchells , All Data and Chiltons. Those are just pricing guides. We can charge whatever we want to. That is capitalism. It is the American way. So, as it turns out, it really is monopoly money like he said if you think about it.
So let's play monopoly. I think the key to pricing is to make your customers feel like they are getting a good deal and still make your desired profit margin during that process. Everybody wants to feel like they made the right decision, especially on a major repair that costs thousands of dollars. One way to do that is to develop a pricing structure that allows you to create value in your work, put a dollar figure on it and then give it back to the customer during the sales process if you need to in order to make him feel like he got a good deal.
Here is my thought process when I work up a price. First of all, having my dealer cost list , I know what the customer will hear if he calls the dealer for pricing. I feel like I can build a better unit than the reman they will buy at the dealership and give the same warranty to the customer. So, I want to make my starting price in that neighborhood with the same warranty when I work up the repair cost. It does not matter what the parts damage is to me nowadays because if it comes back I have to buy parts for it again and maybe again. If I have to live with it for 3 years I am going to use my monopoly money and charge what the dealer charges in my area regardless of the parts damage.
I start with a detailed list of parts and services. This is where the pricing guides come in handy. I list the torque converter price first then all soft parts, hard parts, a reconditioned valve body price, bushing, bearings,filter and fluid and then I total that. That is my internal parts total for the rebuild. Next I add labor time. Book hours with a dollar figure on the hourly rate. I total that up. That is my labor time for the transmission repair. I then add the parts and labor together and get my total parts and labor cost for the transmission overhaul. Next, I add a charge for flushing the cooler lines. I then add an auxiliary cooler and a transmission update service to the ticket.. The cooler makes the transmission run cooler and last longer. The updates are what modifications my builder does to it to correct what we know to be design flaws in the transmission. The updates and cooler make the transmission last longer. When you look at it , this is the definition of a custom overhaul. This is what we do. And magically, after the monopoly money is all added up, it turns out to cost about the same amount and has the same warranty as a reman at the dealer.That is where I start the sale .
If the customer has a price objection I have a lot of options. First , I always rehash the parts and labor again and explain how the updates and cooler make the transmission last longer and ask them if they want to do the job right. Because that is the right way to do the work as far as I am concerned.At this point of the sale, I want to give them another chance to buy quality before I start compromising the integrety of the repair.
Only then, If they can not afford it, I will start reducing the cost . It is not an auction. It is done logically and systematically. I look at the pricing and i can reduce the cost of the repair any way I want to. But when I reduce the cost of the repair, I also reduce the warranty. For example: If I take the $329.65 auxiliary cooler off the cost off the repair, I have reduced the quality of the repair so, the warranty reduces from three years to one year. If price is more important than warranty the customer buys the transmission and he feels like he got a good deal. If two years warranty is worth $329.65 to him he pays and keeps the warranty. Either way the customer feels like he made the right decision and he...got a good deal..
Let the customer win the small battles while you win the war. That is the idea. You can reduce the cost a little, take the warranty away and then, if the customer is still not happy, give him the warranty back and let him keep the reduced price. You always have to make the customer feel like he got a good deal and this pricing structure always allows you to accomplish that. Take off the cooler line flush just to help the customer out a little bit. Offer to do the custom updates for half price so he can keep the three year warranty. Give him the auxiliary cooler if he lets you do the general repairs he needs done. Do the general repairs ( that are priced separately) for parts cost - no labor if he approved the transmission work. I can go on and on with logical price reduction options you can give your customers to make them feel like you gave them a good deal but, I think you get the idea.
Managers who do not shop the local dealerships and work up detailed price quotes are missing the boat. This process puts you in a position to make the most profit you can make on each job. It doesn’t guarantee that you will. It just puts you in that position. It also puts you in a position to have some wiggle room if you need it and not hurt your profit margin too bad. None of this is possible without first finding out what the local market will bear and working up a detailed price list.
Some of you may be able to do that but just do not have the nerve to ask the customer for the money. Listen, if you know what the market will bear you do not have to be afraid. You have a better product for the money. The worst that can happen is that the customer says no. So what ? We have a way to reduce the cost of his repair, make the customer happy and still make an acceptable profit. You see, you can't lose because the old " monopoly money " pricing philosophy enables you to always make sure you make an acceptable profit margin and the customer always feels like he got a good deal and, you can sleep better at night knowing that the price always right every time.