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Menu Pricing; Art or Science?
by: Jim Richter
I just finished up an initial round of Service Advisor training for a large dealer group and was surprised to see that not only did they not employ properly constructed Factory Based Maintenance Menus, they were not even aware of the benefits to both Service and Parts Operations, not to mention Customer Retention.
Maintenance Menus have been around for a long time, dating back to the days when there was a lot to do to a vehicle every 3,000 to 5,000 miles. Back then we adjusted engine valves and carburetors; replaced spark plugs, points, condensers and wires; and set timing and dwell almost on an annual basis. That was the gravy work that most technicians fought over. The only additives you used were things like motor honey to cut down the oil consumption and Marvel Mystery Oil to loosen up sticky rings and valve seals. Today that’s all gone away thanks to a combination of mandated technology to reduce emissions, and a race by the manufacturers to produce products with minimal maintenance costs. But is this last statement really true?
Close examination of the Maintenance Schedules in Owner’s Manuals reveals that there is still a lot of Preventive Maintenance recommended by all manufacturers, even the ones with onboard computer generated displays which alert the operator to a needed Lubrication Service and other related inspections. Unfortunately too many dealerships neglect the training of their customers, preferring to market a loss-leader Oil Change and hopefully up sell something else while they have the vehicle. That’s NOT what the factory specifies!
It all begins with F&I
Almost every store offers a Maintenance Package during the sales process, with the exception of some brands which include it in the purchase price. What better time to start training the customer then when this is being discussed? Most customers think they are buying a complete package when in reality it usually only covers Oil Changes and Tire Rotations, leading to some very unpleasant discussions in the service lane. Every dealership should have prepared point of sale materials which describe what is done at every service interval. These should be presented in F&I initially, and then at every visit to the shop regardless of what the customer is there for. We should always be talking about “the next service” so the customer isn’t the one to decide when they’re coming back, and certainly NOT just for an Oil Change! An educated owner will be much happier with you and give you better CSI ratings. Surprises result in bad surveys and reduced Customer Retention.
Pricing for Profits
I’m constantly amazed at stores I go into where the Service Manager has established pricing for Maintenance and Market Competitive work without even consulting the Parts Manager! This results in almost every repair order being manipulated to back into a set price, and very disappointing Gross Profit results on both sides.
- Menu Pricing requires price averaging, whenever possible, for parts so that a common price can be arrived at based on a sales weighted cost-of-sale and a target Gross Profit percentage for the entire population of each group of parts.
- Labor needs to be based on an average cost-of-labor for the tech's that will do the work, and a target Effective Labor Rate for the jobs. This will provide the proper Gross profit percentage here as well.
- Only after these calculations are made, including Shop Supplies, should you compare these prices to the market for competitiveness.
- Finally you can construct upgraded packages including aftermarket fluids and additional services so the customer has a choice, and we all know that given a choice most customers will pick something.
Constructing effective and profitable Maintenance Menus is a science which requires preparation in order to be successful. Remember, it’s the numbers that count most, not just the appearance. You can have the best looking 4 color brochures available, but if you haven’t constructed your pricing properly they will be a financial failure.
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