Auto Laundry Article on "Pricing"

mShu7 · Dec 5, 2008

Pricing detail services always seems to be a good topic of discussion whenever it comes up. I just found this article on Auto Laundry about pricing so I thought I'd post it here.

Auto Detailing - May 2007

Detail, Inc., Part X
Choose the Pricing Cycle that You Want
By Prentice St. Clair

This is the tenth in a multi-part series dedicated to the “business” of detailing. In last month’s column, the topic was image: what the customer sees when looking at your business. The line between “image” and “marketing” can be blurry — part of your marketing is your image. We discussed the importance of choosing an appropriate business name and colors, as well as perhaps a logo. All of these are applied to your signage, cards, and other business-related printed material in an effort to start branding your automotive detailing outfit.

We also discussed the importance of the look of your technicians, including their personal grooming habits and your uniform policy. Additionally, how the work is done is important: you must create a show for the customer. Fixed location operators need to have a clean and tidy shop, inside and out. Mobile operators must have clean vehicles and keep the work area tidy.

Creating and maintaining a good image will help to attract and retain customers. It will also help your customers feel more comfortable paying your price for your brand of quality detailing. The subject of this month’s column is price.

THE PRICING CYCLE

One of the major problems in the detailing industry is the lack of appropriate pricing, which leads to lack of profit, which leads to financial frustration. One typical scenario is that a guy decides to start detailing for a living but under-prices his service out of fear that the customer will say “no.” Then, after a few months of busting his rear end to make only peanuts, he quits. This leaves his customers thinking that “detailers are flakes,” which can have a long-term impact on the customer’s impression of the detailing industry in general.

Lack of appropriate pricing can have many other effects that tend to keep the operator pinned down. For example, without adequate income, there is not enough money to fund the purchase of new equipment or continuing education, both of which assist the operator in providing ever superior results, which allows the operator to charge even more for his or her service!

You can choose the pricing cycle you want — the one that leaves you frustrated and under-funded, eventually leading to closing up shop; or the one that consistently puts enough money in your pocket to fund your dreams and business expansion.

ORIGIN OF THE PROBLEM

Many individuals who desire to start an automotive detailing operation do so because they recognize the profit potential of such an operation. Unfortunately, far too often that potential is never met. In my discussions with operators from around the country, I have found three main mistakes in setting prices:

* the operator compares detailing income to a previous job’s hourly rate
* the operator targets customers who expect inexpensive pricing
* the operator sets prices based on the competition

“AS MUCH AS MY LAST JOB”

Some new detailers start a detailing business as an alternative to standard employment. It is a commendable endeavor to “break free” of the limitations of employment and “be your own boss.”

Unfortunately, these entrepreneurs often set their prices based on the idea that they just need to match or make a little more than what they earned at their last job. For example, a new operator who used to make $100 per day at a job might set the price of a four-hour detail at $50, so that two details a day equals what was made previously.

The problem with this approach is that when you “become your own boss” and begin to run a business, you have to pay much more than your own salary. There is also supply and equipment costs, insurance, licensing, operational costs, and taxes. All of these are subtracted from the cost of the detail and the remainder is the true profit. A professionally run detail operation can have operational expenses that average as much as 30 percent. Additionally, as much as 30 percent can go to pay the combined total of local, state, federal, and self-employment tax. So, in the extreme case, what ends up in the pocket of the operator after considering all of the expenses is only about 1/3 of the day’s take.

In the example I laid out above, the operator who endeavors to match his previous employment income of $100 per day, by performing two $50 details in a day, actually only ends up with about $35 in his pocket! The problem with this approach should be obvious.

The solution is to analyze the expenses and taxes that a typical detailing operation must pay, and adjust prices to cover those expenses, to guarantee the operator ends up with a decent salary. If you “do the math” in our current example, this operator should be charging $150 for the same detail, for which he currently charges only $50. If you are operating professionally and thus concern yourself with such things as licensure, insurance, education, and use of professional supplies, asking full price for a detail should be no problem. Most customers will respect the fact that you are a professional, with a number of expenses to maintain your level of professionalism.

“MY CUSTOMERS WON’T PAY THAT!”

A common complaint from newer operators is that their customers try to bargain down prices that are too low to begin with. There are several possible reasons for this phenomenon, but typically it is because the operator is not providing good value, and the customers are used to paying lower prices. I recommend that the operator analyze his current customer list to determine in which part of town most of his customers live and work.

Sometimes a newer operator begins by servicing vehicles for friends and neighbors, all of whom typically want the “super buddy deal” lowest price. The problem begins when these customers refer new business to the operator and the new customers expect to pay the same price as the referrer.

Another flawed approach is to advertise heavily in an area where potential customers do not have a lot of disposable income for such (let’s face it) luxuries like automotive detailing. In these areas, you have to keep your prices low otherwise everyone will say “no.” If you continue to offer such low prices, something has to give, and it’s usually the quality of the service. If you are in the habit of providing only basic service, it will be difficult to attract higher paying customers who expect greater value (e.g., higher quality).

The solution is to find ways to offer better value and higher quality service, as well as to find customers who have more money and expect more. With this approach, it is possible to earn twice as much money, working on half as many vehicles, and doing so with a relaxed, thorough pace that yields delighted customers and the personal satisfaction of a “job well done.”

With a new schedule of higher prices, you may lose some from your current customer base. This may feel like a bad thing but it is actually good. The loss of these people creates a void in your schedule that can be filled with higher-quality clients. It may take some time to transition from low quality, low price, to high quality, high price. In the long run, however, the transition is well worth the time it takes.

“WHAT ABOUT THE COMPETITION”

Another common approach to pricing is to determine what the competition is charging and either match or undercut their prices. My experience is that the competition is usually offering low-priced and inadequately valued service. Is this a good example to follow?

It is important to realize that matching the competitor’s price may not allow you to make a decent living, especially if the competitor is offering poor service performed by untrained, minimum-wage workers. If this is the case, you have to wonder about the type of customer that patronizes such a business. Do you really want customers who are looking for the lowest price? Or would you prefer to have customers that are willing to pay twice as much as the competition is charging, in exchange for excellent service and value?

Nonetheless, it is important to “know your competition.” I recommend visiting your competitor, and even chatting with him or her about the industry. Get their brochures and other information, and go home and analyze what the competition is doing. If nothing else, you can determine the things that your competitor is not doing, and add them to your services further increasing your value.

If you live in an area where the competition typically charges about $100 for a complete detail, there are ways to charge significantly more. First, you have to offer the absolute best detail for the dollar. Go the extra mile instead of rushing through the vehicle as fast as possible. Create a standard procedure list that yields vehicles that look as new as possible, every time. When you offer this type of service, you can attract the discerning customer who is willing to pay top dollar. When you do things that the competition does not do, you have earned the right to charge more.

Second, create a “service experience” that far surpasses anything that the customer has previously encountered. Show up on time, well kept, and prepared. Greet the customer with a smile, provide excellent results, and get the job done on time. Do something extra for free, thank the customer profusely, send the customer a thank-you card, and follow-up with a phone call to make sure everything is okay with the vehicle. These simple steps will “wow” the customer who is used to an operator that shows up late or not at all, is not groomed and forgot something, barely utters a grunt as a greeting, does a sloppy job, takes twice as long as expected, and demands payment without even a “thank-you.”

SUMMARY

To be able to charge higher prices, one must operate professionally, offer more than the competition, market to the appropriate customers, and take into account operational expenses. In order to make a decent living a professional detailer must price his or her services appropriately. You have two options: 1. providing low-quality, low-priced services to those customers who are not willing or able to pay for more, or 2 providing high-quality, value-laden service to those customers who have the disposable income and the desire to pay significantly higher prices. The latter choice typically yields higher profit.

Prentice St. Clair is president of Detail in Progress, a San Diego-based automotive reconditioning consulting firm. To contact him, e-mail Prentice@DetailinProgress.com or call (619) 701-1100.
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SSTG · Dec 5, 2008

Great article and oh so true.

krshultz · Dec 6, 2008

Boy is this timely - thank you for sharing it.

Buddy · Dec 6, 2008

Way to go, Thanks alot...:thumb:

mShu7 · Dec 6, 2008

No problem guys!

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