Pricing Strategies
“Drilling Down”
Into the heart
of the Retail & Wholesale
Pricing Process!
Let’s get the Gross Up!!!
Thinking of Grocery Stores, Wal Mart, Costco and so forth…
We are inundated with advertising bombardments daily!
What is on Sale today isn’t necessarily on Sale tomorrow
Failure of Parts Pricing Process
When was the last time you changed your pricing scheme?
Dealership Parts Pricing Strategies
are as old at the Middle Ages.
Rarely changed, rarely reviewed!
Four Steps To Building An Effective Pricing Strategy
1.) Evaluation
2.) Investigation
3.) Implementation
4.) Review
“In Depth” Analysis of
Past Sales
An Accurate Evaluation
Getting an “Apples to Apples” Comparison?
Retail Escalators – The Matrix Table
Sample of a typical Escalator Matrix Table
If Cost is…..
Low
High
Escalate
Sign
%
0.01
TO
2.00
COST
+
150.00
2.01
TO
4.00
COST
+
140.00
4.01
TO
5.00
COST
+
130.00
5.01
TO
6.00
COST
+
125.00
6.01
TO
7.00
COST
+
120.00
7.01
TO
10.00
COST
+
115.00
10.01
TO
20.00
COST
+
110.00
20.01
TO
30.00
COST
+
105.00
30.01
TO
50.00
COST
+
100.00
50.01
TO
9999.99
COST
+
67.00
An Escalator Category
Certain Categories have different Escalation Percentages or “Mark Up”
Low
High
Escalate
Sign
%
0.01
TO
2.00
COST
+
150.00
2.01
TO
4.00
COST
+
140.00
4.01
TO
5.00
COST
+
130.00
5.01
TO
6.00
COST
+
125.00
6.01
TO
7.00
COST
+
120.00
7.01
TO
10.01
TO
20.01
TO
30.01
TO
50.00
COST
+
100.00
50.01
TO
9999.99
COST
+
67.00
10.00 “Low
COST to High”
+ Dollar 115.00
Each
20.00
COST
+
110.00
Value
is an Escalator
30.00 COST
+
105.00
Category or Group!
The Escalator Matrix Yield
In A “Perfect World” Scenario
Low
High
Escalate
Sign
%
Yield
0.01
TO
2.00
COST
+
150.00
60.00
2.01
TO
4.00
COST
+
140.00
58.35
4.01
TO
5.00
COST
+
130.00
56.54
5.01
TO
6.00
COST
+
125.00
55.57
6.01
TO
7.00
COST
+
120.00
54.54
7.01
TO
10.00
COST
+
115.00
53.48
10.01
TO
20.00
COST
+
110.00
52.38
20.01
TO
30.00
COST
+
105.00
51.22
30.01
TO
50.00
COST
+
100.00
50.00
50.01
TO
9999.99
COST
+
67.00
40.00
What you should expect percentage wise from each
Escalator category.
Evaluating Each Escalator Category
Focusing On The “0.01 to 2.00” Category
Parts Below Suggested Retail & Matrix
SACCT
REFER#....
PART NO.........
COST...
QUANTITY
T-COST..
T-SALE..
GROSS...
GPCT%
MATRIX
MGROSS
MPCT%
CP
116752
94109-14000
0.20
1
0.20
0.33
0.13
39.39
0.50
0.30
60.00
CP
115516
90471-PX4-000
1.36
1
1.36
2.20
0.84
38.18
3.40
2.04
60.00
CP
116623
90471-PX4-000
1.36
1
1.36
2.20
0.84
38.18
3.40
2.04
60.00
Parts Sold At Matrix
SACCT
REFER#....
PART NO.........
COST...
QUANTITY
T-COST..
T-SALE..
GROSS...
GPCT%
If Sold At
Escalated
Price
MATRIX
MGROSS
MPCT%
CP
116435
42753-SB8-661
0.69
4
2.76
6.92
4.16
60.12
6.90
4.14
60.00
CP
115360
96700-10055-18
1.03
1
1.03
2.58
1.55
60.08
2.58
1.55
60.08
CP
115321
91560-S84-A01
1.11
4
4.44
11.12
6.68
60.07
11.10
6.66
60.00
Some Parts in Each Category,
Under the Customer Pay Pricing,
have different pricing?
Summarizing Each Escalator Category
What where the “Overall” results in this Category?
Cost + 150.00% would yield a 60% Gross Profit Margin
GROUP
ESCALATOR GROUP
0.01 TO 2.00
DESCRIPTION
QTY
COST
SALE
GROSS
GPCT
PIECE PCT
AT OR ABOVE MATRIX
618
277.26
697.56
420.30
60.25
26.06
BELOW MATRIX AT OR ABOVE RETAIL
1131
623.87
1108.44
484.57
43.72
47.70
BELOW RETAIL
622
381.37
555.37
174.00
31.33
26.23
TOTAL
2371
1282.50
2361.37
1078.87
45.69
99.99
**26% Of this Category, by Piece Count, actually sold
at the escalated matrix price.
**47% Of this Category, by Piece Count, sold
Below Matrix, but at or Above Suggested Retail
If you change the Escalator
Value, which area above would
it affect?
Just for Fun, What if we bumped this Escalator?
Bumping the .01 to 2.00 Escalator by 10%
Cost + 150.00%
Cost + 160.00%
Current
Cost
Sale
Gross
Pct%
Future
Cost
Sale
Gross
Pct%
618
277.26
697.56
420.30
60.25
618
277.26
720.87
443.61
61%
An increase in Gross of $23.31 dollar wise.
An increase of 1% overall to 61% on these parts.
Examination of Each Escalator Category
It is in the details….
GROUP
ESCALATOR GROUP
0.01 TO 2.00
DESCRIPTION
QTY
COST
SALE
GROSS
GPCT
PIECE PCT
AT OR ABOVE MATRIX
618
277.26
697.56
420.30
60.25
26.06
BELOW MATRIX AT OR ABOVE RETAIL
1131
623.87
1108.44
484.57
43.72
47.70
BELOW RETAIL
622
381.37
555.37
174.00
31.33
26.23
TOTAL
2371
1282.50
2361.37
1078.87
45.69
99.99
You would want to know “why” these specific sales are being
sold below the escalated price!
Remember…. These Sales are all Customer Pay Repair Orders
Examination of The “Highest” Escalator Category
It only takes a small percentage of sales to spoil the Gross %
GROUP
DESCRIPTION
QTY
ESCALATOR GROUP
AT OR ABOVE MATRIX
50.01 TO 9999.99
COST
SALE
GROSS
GPCT
PIECE PCT
4
248.32
498.00
249.68
50.14
2.40
BELOW MATRIX AT OR ABOVE RETAIL
122
13301.21
22168.64
8867.43
40.00
73.05
BELOW RETAIL
41
6580.13
8606.89
2026.76
23.55
24.55
TOTAL
167
20129.66
31273.53
11143.87
35.63
100
The Good News
75% of Parts Sold Over $50.00 Sold at or above Retail
The Bad News
25% of Parts Sold Over $50.00 Sold at 23.55% Gross Profit
Summary of All Escalator Sales
Supporting the Theory that only 25% of Retail Sales are Escalated
GROUP
TOTAL SALES CP
DESCRIPTION
QTY
COST
SALE
GROSS
GPCT
PIECE PCT
AT OR ABOVE MATRIX
1175
7665
16754
9089
54
24
BELOW MATRIX AT OR ABOVE RETAIL
2789
29900
51050
21150
41
57
BELOW RETAIL
920
10446
13892
3446
25
19
TOTAL
4884
48011
81697
33685
41
100
This is very typical of most Dealership Customer
Pay Sales
using Escalated Matrix Tables.
The “What if” Scenario
Reality Versus Perfect World
MATRIX TABLE
QTY
PCT%
COST
PCT%
SALE
PCT%
GROSS
PCT%
ALL MATRIX
GROSS$
PCT%
.01 TO 2.00
2371
48.55
1283
2.67
2361
2.89
1079
3.20
3206
1924
60.00
2.01 TO 4.00
160
3.28
437
0.91
959
1.17
522
1.55
1050
612
58.33
4.01 TO 5.00
423
8.66
1793
3.73
3280
4.01
1487
4.41
4123
2330
56.52
5.01 TO 6.00
250
5.12
1389
2.89
2328
2.85
940
2.79
3125
1736
55.56
6.01 TO 7.00
211
4.32
1373
2.86
2519
3.08
1146
3.40
3020
1647
54.55
7.01 TO 10.00
233
4.77
2058
4.29
3681
4.51
1623
4.82
4425
2367
53.49
10.01 TO 20.00
769
15.75
9971
20.77
19038
23.30
9067
26.92
20939
10968
52.38
20.01 TO 30.00
164
3.36
4183
8.71
7027
8.60
2844
8.44
8784
4601
52.38
30.01 TO 50.00
136
2.78
5396
11.24
9230
11.30
3834
11.38
10792
5396
50.00
50.01 TO 9999.99
167
3.42
20130
41.93
31274
38.28
11144
33.08
33617
13487
40.12
TOTALS
4884
100.01
48011
100.00
81697
99.99
33685
41.23
93080
45068
48.42
IF ALL MATRIX
“What if” We Could have an Increased Gross by over 7% !
11383.11
What is the Point to this Exercise? Investigate
Understanding the Details of your Retail Pricing Matrix!
***
Identify those parts in each Escalator Category that are dragging down the gross.
•Is it due to a different price code?
•Is it because of a different labor type?
•It could be a source accounting issue?
•Are these parts menu or grid priced parts?
•Is someone overriding the sale price?
Review these areas of your Operation for pricing issues.
Checking Your Price Codes
Look at ADP’s OSPC Report or Reynolds 2565 Program
These two reports will show you how your price codes are being
used. With ADP, don’t forget to review both “Parts” and “Repair
Order” pricing.
Checking Your Labor Types (ADP)
The ADP “RLT” Report Labor Types can review Pricing Issues
Labor Type
Associated Price Code
With ADP, Price Codes in Service are driven by the Labor
Type.
Source Accounting Issues
OSSA and USA for ADP, Programs 2571 and 3636 for Reynolds Users
Check out the
STD Settings
with ADP and
Source Overrides
Review 2571 &
3636 Program
and review
Source
Overrides.
The Override Reports
The Override Reports can “easily” point out discounts and pricing issues
S=
Means they
overrode the
Sale Price!
ADP’s ROV Report… ADP Drive has Overrides in the Fast
Lane Drill Down Menu
Check with your
DMS Provider to
make sure you
have this report
available and
review it daily.
What is the Point to this Exercise? Conclusion and Action
Ideas to review after Investigation
***
Consider Some Alternative Ways to Increase the Profit Margin.
•Increase the sale price on menu priced items.
•Isolate low gross parts in a given source to track profit.
•Create a “sub” sale account if you are locked into these low priced parts.
Increase Gross Profits in areas where the gross is weak!
Pause & Ponder
The Service Station Mentality
When the wholesale cost of a
gallon of gas jumps up by 10 cents
to the Gas Station Owner, what
does the Owner do?
a)
b)
c)
d)
Worry that their Customers won’t
pay the extra amount.
Split the cost with the customer
and only raise their retail price by
a nickel.
Raise the price to insure they
maintain their profit margin.
Watch what other Competitors are
doing in their close proximity.
Pause & Ponder
The Answer is both “C” and “D”
With that Answer in mind, and
thinking as the Dealership Owner
If your supplier cut your discounts and return
allowance, would you absorb the cost and continue to
offer the same discounts and pricing?
If Your Answer is “NO”
How come Dealerships are generally doing the opposite of
practicing this?
The “Wholesale Sale” Syndrome
We are quick to change retail pricing, and willing to fight over wholesale pricing!
Fact Checks
* It takes twice as much energy and resources to generate profit
in wholesale as it does retail.
* The wholesale sale process should “always” be a compliment to
the retail sales process.
* All Wholesale Customers are “Not” created equally!
Wholesale Exercise
Two Collision Repair Facilities With a 25% Discount from Retail
Customer
12 MO Sales
12 MO Gross
Gross Pct%
12 MO Returns
Return Pct%
Accurate Collision
(Charge Account)
95,000
23,750
25%
11,400
12%
Cascade Auto Body
(Pays Cash on Delivery)
60,000
15,000
25%
2,400
4%
Questions to be asked????
• Which Customer above would you rather have?
• Do they both deserve the same discount?
• How do they pay their bills?
• Customer #1 has $2850 in Gross Profit Returns, Customer #2
has $600 in Gross Profit Returns.
Reporting Mechanisms to Review Customer Loyalty
The Ease in Which to Pull this Information from ADP
ADP’s PDA
(Parts Data Archiving)
Monthly Reports
Reporting Mechanisms to Review Customer Loyalty
Pulling this Information from Reynolds
The ERA “CUST.HIST”
File for 6910 or Query
Builder. ERA Ignite
might even have some
more robust reporting
for this?
Developing a “Wholesale Customer Loyalty” Program
Wholesale Customers are not created equally!
Thinking of Your Customers in 3 Levels, Such as a Traffic Light.
“Green Light Customers”
• Pay their bills on time or pay cash on transactions.
• Buy consistently from you, daily or weekly with decent volume
purchasing.
• Send very little back for credit.
The Highest discount you can give profitably is deserved
Developing a “Wholesale Customer Loyalty” Program
Wholesale Customers are not created equally!
Thinking of Your Customers in 3 Levels, Such as a Traffic Light.
“Yellow Light Customers”
• Are inconsistent in purchases, your are a secondary source for them.
• Buy erratically from you, do volume every 3 months.
• Have a high percentage return rate.
• Don’t buy in a large volume, but buy often.
• Slow to pay their bills.
Lower the discount given by several percent compared to your
Green Light Customers.
Developing a “Wholesale Customer Loyalty” Program
Wholesale Customers are not created equally!
Thinking of Your Customers in 3 Levels, Such as a Traffic Light.
“Red Light Customers”
• Are inconsistent in purchases, your are a secondary source for them.
• Buy erratically from you.
• Have a very high percentage return rate.
• Complain a lot or try to convince you they are a top notch customer.
• Slow to pay their bills.
Lower the discount given, again, by several percent compared to
your Yellow Light Customers.
The “25-10” and “30-5” Discount Rule Of Thumb
Thinking of Operating Expenses and Holding Costs in the Parts Department
If you give a 25% discount to a
Wholesale Customer and their return
percentage is higher than 10%....
OR
If you give a 30% discount to a
Wholesale Customer and their return
percentage is higher than 5%....
=
A Customer Who is
costing you Money!
The question begs… Are you ready to make the
time to take control of your Pricing Strategies?
In Conclusion, It Really Boils down to One Thing!
You should never have to make an excuse for making a fair Profit!
Focus on Your Profit Centers and Customer Loyalty
and the result will almost always be
happier customers and happier employees!
Thank You!!!!
It is always a “pleasure” to present to You!
Contact Information
Partsedge, Inc.
9820 Willow Creek Road, Suite 480
San Diego, CA. 92131
(800) 825-7562
[email protected]