Standardize Your Pricing

In a 2018 Consumer Complaint Survey Report from the Consumer Federation of America, the automotive industry topped the list when it came to the number of consumer complaints. But why? With an already-ingrained stigma that auto repair operators are ripping customers off, pricing services incorrectly only adds fuel to the fire. If a service advisor is off by $10–$15, it’s easy to explain to a customer, but if a service writer is shooting from their hip on bigger jobs, it can cost you. 

“It’s important because that’s the customer’s perception of you; it’s not a great perception of the industry,” says Seth Thorson, owner of the two-location, $3.5-million-per-year Eurotech Auto Service in Minnesota, which has an average repair order of roughly $1,000, depending on the location. “They see the change [in price] as getting screwed over.”

Cecil Bullard, CEO of the Institute for Automotive Business Excellence, says some auto repair businesses struggle with standardizing their prices, but it’s a system that every shop should put in place.

At the end of the day, it all comes down to trust; the customer trusts you’re not screwing them over, your technician trusts you’re paying them fairly, and you as an owner can trust they will make the profit they need. This requires consistency and a true understanding of what goes into that price. 

Bullard and Thorson, whose shops see 300 cars per month, break down how to make sure your pricing correctly the first time.

Get customers to come in. 

Don’t give quotes over the phone. Thorson says if you have a business coach, they probably have already told you this. This is the first step in assuring you don’t give the wrong price. There are some exceptions. With a standard job, like an oil change, fluid flush, or a general diagnosis, prices are usually set in stone, so it can be OK to share these prices with customers before seeing the vehicle. 

Any other job price involving parts and lots of labor, however, should not be given over the phone. Thorson says any time a service writer does this, they are likely to make a mistake because the price of the job could depend on the vehicle and the condition that it’s in, which may not be communicated over the phone.

Consider variables. 

A one-size fits all price is hard to come by in automotive repair. Some surprising factors that make a difference? Correcting improper repairs and rust. Thorson says if another shop worked on that particular vehicle and didn’t put the parts back together properly, the technician has to correct the problem before dealing with the initial repair. Rust can also be a contributing factor in price, which Thorson says can be a 10–15 percent increase in price.

And, because Thorson’s shop specializes in European vehicles, parts prices change often; at one point, the price changed every 60–90 days. So, to avoid misquoting a price, Thorson has a 30-day price quote policy in place. When a diagnosis is made and an estimate is quoted, the service advisor is required to relay the policy to the customer and document that price. That way, a customer can’t get mad if they finally decide to get the repair and the price has changed.

Create a template. 

Having a template for your service writers to go off of will eliminate any confusion in prices. In addition to his straightforward jobs, like an oil change, Thorson has a menu/packaged-based pricing system for more complicated and price-sensitive items, like brake jobs, maintenance services, and some common suspension jobs. To come up with his pricing, he’s implemented the packaged pricing into his shop’s management system, Tekmetric. This is how it works: let’s say a vehicle needs a water pump, for example. After entering in all of the vehicle’s information, there is an option if the water pump needs a new hose or not, with each option leading to a different price. By clicking on one of the options, a service advisor can pull out an estimate on a product.

With this system in place, employees and customers have a fairly solid idea on the price. With menu or packaged pricing, it not only keeps prices competitive, according to Thorson, but makes it easier for service writers to communicate prices to customers. If someone comes into the shop, the price is there at one click of a button.

Understand your costs.

If you don’t understand what it costs to make the repair, you won’t know how your pricing will affect your business. The amount you mark up your prices can make or break your business. Bullard says if an owner doesn’t know how other outside cost factors will affect the cost of their prices, they are losing money without even realizing it. An owner needs to understand their costs so they can set prices and make the profit they need.

“You will be a slave to your business if you don’t have these numbers,” Bullard says. “Base it on the profit you need to make first, then determine your price. If there is a strict equation to follow, then everyone will price the same. If you aren’t following a process, at the end of the day, you’re going to have less margin, which will lead to less gross profit dollars.”

One of the factors in determining your costs is location. Bullard says multiple locations of a shop have different prices attached because of the different costs associated with that location. With this, a shop owner has to factor in that location’s rent, utilities, maintenance, and more to determine what price will lead to a profit.

Establish a training process.

After you understand your costs and create a template to go off of, you can create a training procedure that employees can follow and easily go back to so there’s no room for mistakes. Bullard and Thorson, who has a staff of 30, recommend creating a step-by-step training SOP for your staff to follow.

“By standardizing your procedure, you’re going to standardize your pricing to some degree,” Thorson says. “If you are doing it the same every time, that will standardize your pricing.”

To make sure all employees know the procedures like the back of their hand, employees go through thorough training on the shop’s procedures through the shop’s learning management system. Thorson says if an employee forgets the steps of a procedure, he can send them back to the training to get some more practice. And if an employee needs a little guidance, they can easily access the specific SOP through the system, too.

Your Ideal Pricing SOP

Not sure of the best way to create an fool-proof estimate? Cecil Bullard, CEO of the Institute for Automotive Business Excellence, breaks it down.

((Recommended Hours X 0.2) Labor Rate) + Part Price + Tax = Price

1. Find the price of a part—utilizing a parts-pricing app can help you find the correct price.
2. Factor in how long the repair will take. Bullard says to utilize your shop system’s labor guide, inputting the vehicle type, make and model for the recommended repair time.
3. Mark up from how long the job will take by 20 percent for miscellaneous costs, like shop maintenance, or “the brown bananas,” as Bullard likes to call it. For example, if the guide says a job will take two hours, it should be 2 hours X 20 percent = 0.4, which will equal 2.4.
4. Multiply that number by your shop’s labor rate, and add in how much the part will cost.
5. Add tax.