Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Thu Mar 20, 2008 8:51 am Post subject: Raising Prices?
Joe loved fixing cars, but he really didn't like managing his business. Over the years he had a few employees, but they never seemed to stay long. Now Joe stayed real busy, in fact the hours were starting to tell on him.
At one time he made a decent living, but now seemed to have a tough time making ends meet. Buying new equipment was out of the question, there was just no money. Joe realized he had to raise his service rate. The rate had been the same for 12 years.
Joe went to his accountant who confirmed he was losing money and had been living off his assets. He ask the accountant how much he would have to raise his rate to make a profit. The accountant worked out his cost and told him 18%.
Joe raised his rate by 18% but his business dropped off drastically. Now he was actually making even less money than before. In a short while Joe closed his business.
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Wed Mar 26, 2008 8:00 pm Post subject: Re: Raising Prices?
louis wrote:
Joe loved fixing cars, but he really didn't like managing his business. Over the years he had a few employees, but they never seemed to stay long. Now Joe stayed real busy, in fact the hours were starting to tell on him.
At one time he made a decent living, but now seemed to have a tough time making ends meet. Buying new equipment was out of the question, there was just no money. Joe realized he had to raise his service rate. The rate had been the same for 12 years.
Joe went to his accountant who confirmed he was losing money and had been living off his assets. He ask the accountant how much he would have to raise his rate to make a profit. The accountant worked out his cost and told him 18%.
Joe raised his rate by 18% but his business dropped off drastically. Now he was actually making even less money than before. In a short while Joe closed his business.
What things led to Joe's demise?
How might it have been handled differently?
Joe made several key mistakes, mistakes many auto repair shops may be making today. Doesn't anyone want to take a shot?
A long time ago I had lunch with the then VP of Finance for General Motors. Over the course of business stories he made a comment I've heard other top executives repeat; 'I hate accountants.'
Many good accountants can give you so-called key numbers and important ratios, but not be able to tell you a thing about how to actually make money.
Joined: 19 May 2007 Posts: 206 Location: Camp Verde, AZ
Posted: Wed Mar 26, 2008 10:44 pm Post subject: Re: Raising Prices?
louis wrote:
Joe loved fixing cars, but he really didn't like managing his business. Over the years he had a few employees, but they never seemed to stay long. Now Joe stayed real busy, in fact the hours were starting to tell on him.
Joe should have made one of three choices years ago. He could have gotten some management training and learned how to run his business. He could have hired someone to manage his business, so he could be a tech. He could have sold his business and went to work for someone else.
louis wrote:
Joe raised his rate by 18% but his business dropped off drastically. Now he was actually making even less money than before. In a short while Joe closed his business.
He should have been raising his rates gradually over the last 12 years, but he did not because he did not know the cost to run his business. An eighteen percent jump in his rate at one time, is too much.
_________________ David Wittmayer
Owner / Manager
Hansen Enterprises Fleet Repair, LLC
Camp Verde, AZ
www.hefrshop.com
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Thu Mar 27, 2008 7:06 pm Post subject:
Bud wrote:
I'll start the ball rolling with a true story.
A long time ago I had lunch with the then VP of Finance for General Motors. Over the course of business stories he made a comment I've heard other top executives repeat; 'I hate accountants.'
Many good accountants can give you so-called key numbers and important ratios, but not be able to tell you a thing about how to actually make money.
Hi Bud,
That's a good point, I think you are exactly right. Accountants are very good at accounting, they are not managers. There is a major difference. An accountant might answer questions about numbers in a business. Ask the wrong question, you get the wrong answer.
Joe asked, "How much he would have to raise his rate to make a profit." The answer was correct, to that question. It was just the wrong question. A better question might have been, "What do I do to make a profit," and an accountant may not be the proper person to ask.
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Thu Mar 27, 2008 7:16 pm Post subject: Re: Raising Prices?
Dave wrote:
louis wrote:
Joe loved fixing cars, but he really didn't like managing his business. Over the years he had a few employees, but they never seemed to stay long. Now Joe stayed real busy, in fact the hours were starting to tell on him.
Joe should have made one of three choices years ago. He could have gotten some management training and learned how to run his business. He could have hired someone to manage his business, so he could be a tech. He could have sold his business and went to work for someone else.
Hi Dave,
Any of the three might be better than the route he [and many other shop owners] chose.
Dave wrote:
louis wrote:
Joe raised his rate by 18% but his business dropped off drastically. Now he was actually making even less money than before. In a short while Joe closed his business.
He should have been raising his rates gradually over the last 12 years, but he did not because he did not know the cost to run his business. An eighteen percent jump in his rate at one time, is too much.
A great point! I think many shops fail in this regard. They seem to need a wake-up call to adjust their rate. They wait and wait and when they realize they must move, they make a huge jump.
I think people clearly realize that cost increase over time. Most do not mind a very reasonable increase to cover cost. Eighteen percent might shock anyone. Had Joe increased his rate by .75% every six-months I doubt anyone would care, yet the gain to Joe would have been much greater.
Thanks Dave, I appreciate your input. Anyone else see any faults in Joe's strategy?
Joined: 19 May 2007 Posts: 206 Location: Camp Verde, AZ
Posted: Thu Mar 27, 2008 10:50 pm Post subject:
louis wrote:
Hi Bud,
That's a good point, I think you are exactly right. Accountants are very good at accounting, they are not managers. There is a major difference. An accountant might answer questions about numbers in a business. Ask the wrong question, you get the wrong answer.
Is it that we get the wrong answer or is it that we do not want to hear the answer we get?
Communication is a two way street. We have to be clear when we ask a question. If we get the wrong answer, rephrase the question and ask again.
louis wrote:
Joe asked, "How much he would have to raise his rate to make a profit." The answer was correct, to that question. It was just the wrong question. A better question might have been, "What do I do to make a profit," and an accountant may not be the proper person to ask.
Thanks Bud, I appreciate the reply.
Many times we do not know what question to ask. I think this is because we do not know the type of answer we need. Given Joe’s background I think he asked the best question he knew how to and did the best he could with the information he received. Unfortunately it was too little (or too much) and too late.
By nature, most shop owners are independent. We do not ask for help easily. This can be a major down fall for us. We wait until things are an emergency before asking for help, then if it is not what we want to hear we ignore the advice. When we do ask for help it is usually from our peers, sadly they do not know much more than we do. It can become a case of the blind leading the blind.
_________________ David Wittmayer
Owner / Manager
Hansen Enterprises Fleet Repair, LLC
Camp Verde, AZ
www.hefrshop.com
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Sat Mar 29, 2008 7:37 am Post subject:
Hi Dave,
Dave wrote:
louis wrote:
Hi Bud,
That's a good point, I think you are exactly right. Accountants are very good at accounting, they are not managers. There is a major difference. An accountant might answer questions about numbers in a business. Ask the wrong question, you get the wrong answer.
Is it that we get the wrong answer or is it that we do not want to hear the answer we get?
It could be both. In this case I feel it was definitely the wrong question, likely asked of the wrong person. It's a lot like a client that ask, "How much is an alignment," when the problem is a vibration at 70 MPH.
If they ask that of the right person, they will likely get a lot more questions. Ask the wrong person and they will get "an alignment" and a vehicle that still shakes at 70 MPH.
Dave wrote:
Communication is a two way street. We have to be clear when we ask a question. If we get the wrong answer, rephrase the question and ask again.
The problem often turns out that the person asking does not know the difference in a right or wrong answer. Deming often said, "A man cannot dig himself out of a pit." The fact that Joe asked the question at all, suggest he has know [sic] clue how to help himself.
Einstein said something to the effect, We cannot solve our problems with the same thinking that created them. Ever have a client call and ask, "How much to turn off a check engine light?" They feel that is a perfectly logical question. I think Joe's question is on that level.
Dave wrote:
louis wrote:
Joe asked, "How much he would have to raise his rate to make a profit." The answer was correct, to that question. It was just the wrong question. A better question might have been, "What do I do to make a profit," and an accountant may not be the proper person to ask.
Thanks Bud, I appreciate the reply.
Many times we do not know what question to ask. I think this is because we do not know the type of answer we need. Given Joe’s background I think he asked the best question he knew how to and did the best he could with the information he received. Unfortunately it was too little (or too much) and too late.
I believe you are precisely right. Joe needs help and he does not know how to go about finding it. Also like a client in the same position, there are more than enough "sharks" out there that will sell him things until his money runs out, and never get close to the problem.
A great tech or a great manager are very valuable commodities.
Dave wrote:
By nature, most shop owners are independent. We do not ask for help easily. This can be a major down fall for us. We wait until things are an emergency before asking for help, then if it is not what we want to hear we ignore the advice. When we do ask for help it is usually from our peers, sadly they do not know much more than we do. It can become a case of the blind leading the blind.
Or hacks leading the blind. The vast majority of "help" available only makes things worse, in my opinion. Owning a shop or having worked in a dealership no more makes a person qualified to be a "consultant" than owning a stove makes them a chef.
One of the things I like most about business is the brutal reality of it. It accepts no excuse for long. Truly, it is as the law of the jungle. A person either finds solutions or perishes. Cruel, but ultimately fair.
"I didn't know," buys exactly nothing. "The economy is bad in my area," will not keep the doors open. I think this reality ultimately results in finding ever newer and more creative solutions. This ultimately benefits the client and the business. In the end, the manager MUST know or suffer the consequences.
You cannot post new topics in this forum You cannot reply to topics in this forum You cannot edit your posts in this forum You cannot delete your posts in this forum You cannot vote in polls in this forum
FAQ
Search
Memberlist
Usergroups
Profile
Log in to check your private messages
Log in
