Discounting—Still Out There
Don’t sell yourself short. We can’t afford it!
One of the many obstacles of managing an automotive repair and service business profitably is too many competitors competing and promoting themselves by discounting parts and labour prices. One lesson I wish all shops that continue to repress our industry would learn is—the vast majority of clients don’t base their buying and spending decisions mainly on price.
Customers buy from someone they can trust; someone who shows them value in their purchase, makes them feel safe, saves them time and most of all, makes them feel they’re important and valued as a client. If you tick all these boxes, price is the last consideration for the majority of clients.
If you want to survive and grow, profit has to be an important factor. The cost of technicians’ wages is increasing as the pool of available technicians shrinks. The cost of keeping up with technology is increasing; training is expensive—but not as expensive as not taking training!
What that discount really means!
Shop owners must understand how significantly a discount will erode their bottom line. A 10% discount on selling price doesn’t cost you 10% of your gross profit—it actually costs you a staggering 33%! I wonder how easily a service provider would agree to a 33% discount in gross profit if they understood the result? Considering most shops that discount repeatedly are likely operating at only a 30% profit margin, the cost of discounting is even worse. If you’re operating at a 30% profit margin and discount your income by 10%, you’d have to double your sales just to get back to your mere 30% margin! As the math shows, discounting is a slippery slope leading to failure.
Apart from the economic downside of discounting, damage to your brand can be almost irreversible. Constant discounting will have an adverse effect on the perceived quality of your brand. Quality and price don’t exist as isolated concepts in most clients’ minds; most know a discounted product or service comes with expected or perceived lower quality.
When you continually offer discounts as a selling tactic, your customers will always expect constant and deeper discounts.
Damage being done
If you understand the damage shop owners are doing to themselves, consider the damage discounting is doing to our whole industry. I have often written about my desire to raise the level of professionalism in our trade. Shops that provide discounts regularly make it difficult for other shop owners to charge a fair and profitable price for their services. Lower prices cause lower profits, and lower profits lead to lower wages. This trend causes automotive technicians to be the lowest paid of all skilled trades and shop owners to have the lowest ROI!
Our shop needed a service provider to repair our overhead door and another to repair our tire changer. As a shop owner, it frustrates me that we paid much more per hour for these service professionals for their service than the hourly rate we charge our clients. Because there is no large group of other service providers within their sectors advertising cheap and discounted pricing for the services they provide, these service professionals can charge more.