Let’s talk family pricing for parts.
Family pricing for parts is a process of having maintenance parts selling at the same price. Now I’m sure I’ve got the attention of most service managers, and probably many parts managers are thinking of closing this article. But parts managers, before you close this article please allow me to explain how important family pricing can be to your business.
I’m sure as parts managers you would all like to see an increase in maintenance items sold on the service drive. Well, how do we do this?
We do this by having our parts prices for maintenance items easily remembered by the service advisors.
If the service advisor has to call the parts department every time he needs the price on a cabin filter, air filter, fuel filter, etc., it most likely won’t happen.
How often do you think they will want to hear “Parts Hold Please” during the course of a busy day in the service drive? Well, you know as I know, not very often. So how do we solve this?
We do this by pricing our maintenance items such as air filters, cabin filters, fuel filters, brake pads, etc., etc., the same price. But wait a minute! These parts aren’t all the same price. How do I sell a cabin filter that costs $12.00 at the same price of a cabin filter that costs $32.95? We do this by weighted price averaging. This is the process where you calculate the demand of these maintenance items at cost, then multiply them times the number of sales per a 12-month period. We then add up the total cost of each of the parts that are sold. Now we need to add up the total demand of the parts sold. Then divide the total cost of sales by the total demand to determine a weighted cost average of the total items sold during a 12-month period. Let me show you how this works. Let’s take six part numbers–say cabin filters.
|Part #||Cost||12m Sales||
The total weighted cost of $ 2286.50 divided by the total demand of 110 equals the total weighted cost of the above part numbers. This gives us an average weighted cost of said cabin filters of $20.79 rounded up.
Now that we know the weighted cost average of the said cabin filters we need to determine what our gross profit percentage needs to be. Since the retail price should be determined by a competitive analysis of independent repair centers in your area I am unable to give you an exact markup margin. But let’s say your market area allows you a 40% gross profit percentage. So how do we calculate this? We calculate this percentage by understanding that 100% is the sales amount. So to get 40% gross profit we need to take 100 minus 40 equals 60. So 100 divided by 60 equals 1.67. So 1.67 is our multiplying factor to our weighted cost to achieve a 40% gross profit margin. So now we take our weighted cost average of the above cabin filters. Since that weighted cost is $20.79 we multiply that by 1.67 and that will give us a weighted average sale price of $34.72. (You might consider rounding the price up to $34.75 or $34.95 because it is easier to remember.) Now we can charge $34.72 for cabin air filters and still obtain a 40% gross profit margin. This calculation is based upon demand of the cabin filters over the last 12 months, and so all cabin filters are at the same price.
Now as a former parts manager I believe I know what all of you parts managers are thinking. What happens when my demand changes? Well, unfortunately we won’t know what the demand is on parts sales year to year. The best thing you can do is recalculate these averages annually. Now I know that sounds like a lot of work. But let’s think about this for a second. How many more cabin filters do you think you can sell if your service advisors know what the price is for cabin filters? Do you think you could sell 20% more, maybe 30% more? Now think about your other maintenance item prices. Air filters? Brake pads? Wiper blades? Etc. I think you get the idea. So I believe it’s worth the effort.
The easier we make it for service advisors to sell maintenance items on the drive, the more maintenance items they will sell! And remember, the only way an advisor can sell more labor is by selling more parts that are needed for the services he gets paid on. So you definitely have a vested interest in helping the service advisors sell more services–which ultimately will sell more parts.