Increasing prices is a hot topic these days among shop owners. The general feeling is that automotive repair shops have been undercharging what they’re worth for their services and repairs, making it difficult for shops to reinvest in their companies, maintain profitability, attract quality people, and pay their employees a decent wage. Surging inflation also factors into this discussion.
To complicate matters, many shop owners would like to increase their labor rates but feel that they can’t, claiming that an increase in their labor rate results in losing customers. So, the question is: Can auto repair shops simply raise their prices; is it really that easy? The answer is not as straightforward as some may think.
Some shop owners have done the math and set their prices according to what they determine is needed to earn a reasonable profit. However, these shop owners also know it takes more than just understanding their numbers. They identify and understand their ideal customer. They know that not everyone will become their customer, and they don’t worry about what other shops around them are charging. They price their services and repairs consistent with their business model.
As a former shop owner for over 40 years, I feel as an industry we have not been charging enough for the work we do. However, I am not a fan of raising prices without examining the issues. All boats don’t necessarily rise with the tide. Some boats may capsize. Establishing prices is a delicate balance between profitability and remaining competitive in your market. Although many repair shops may fall under the same umbrella with regard to what they do, pricing is not an arbitrary determination.
Every shop owner must do their homework, crunch their numbers, and set their prices accordingly. Shop owners must also consider the value they bring to their customer base. They need to consider the services and repairs they perform, which align with their business model. This means you cannot be everything to everyone. Maintaining productivity and efficiency is also critical to ensuring profitability. Your prices tell the story of your brand. I like to see it tell the story of quality, value, efficiency, and excellence.
Operating and owning a repair shop isn’t all about making a profit, but profit is needed for long-term success. Profit is required to provide for your family and allows you to pay wages that make your employees feel secure about providing for their families. Profit also enables you to reinvest in your company, which means you can continue to provide the best services and repairs for your customers.
As I mentioned earlier, pricing your services and repairs is a balancing act between being competitive and profitable. Ultimately, the customer determines if your prices are reasonable. If your customers don’t see the value in your services and repairs, they’ll be reluctant to pay your prices, whether or not you feel those prices are justified.
Another thing to consider is that labor rates and pricing differ by geographical area and business model. A shop that does highly-technical work—specializing in Mercedes, Maserati, and Porsche—is different from a shop that performs basic service work on Asian and domestic vehicles. Different business models dictate different price structures.
Lastly, if you fear you may lose customers by raising your prices, you’re not alone. However, what you charge may make the difference between success and financial failure. Understand your business model, then establish services and repairs that align with your model and the value you deliver to your customers.
Remember that not everyone in your market will become your customer. After doing your homework, you’ll know your ideal customer, establish the services and repairs you’ll offer, and determine your required profit margins. If a price increase is required, then only you should make that final decision.
