It is easy to blame a single entity for stagnant pricing in our industry but that is the easy way out of a larger, more systematic problem. It was originally requested my column be based on my observations rather than my opinions (although I have been guilty on several occasions!) so I will address one of the systemic problems through my eyes based on an actual observation.
At a conference earlier this year, I witnessed a few glass retail personnel try to justify to an insurance representative the discrepancy in cash pricing versus insurance pricing. I have to admit to finding some humor to the argument that “cash jobs” should be lower-priced since insurance carriers (in some cases) influence a large block of business. So I turned to an industry friend to support my belief that a large “volume” influencer, or co-consumer, should get a better price than the cash customer. I was surprised to learn he was a proponent of the “cheaper” cash pricing model. Since he has more retail experience than me, I took this opportunity to be mentored and we began to trade e-mails.
It is impossible to address all the points of his “defense” in my limited posting, so I will break it down into several columns (although I can’t promise to run them concurrently). His first bullet point (or perhaps plain bullet!) was the extensive time it takes to process an insurance claim. No, I can’t defend this practice as it is ludicrous in a technological age to spend 15 to 30 minutes (yes, sometimes more!) to process one windshield. This is something that should change, particularly if all parties involved are truly committed to the actual customer! But as ridiculous as this process may be at times, it doesn’t raise the cost of processing an invoice if your customer service administrator is paid a full-time wage or salary. In other words, if your administrator is at work, performing a work function, you will be paying them regardless of the “kind” of work they are performing. The only defense for saying it costs more to process a claim is if you are paying your administrator overtime pay, or hiring more people, to process claims.
This isn’t a popular argument but it as an accounting reality. If your administrator is paid to work 40 hours a week, and you are paying them 40 hours a week, then you have incurred no extra expense regardless of their activity. If you have a trickle-down effect, where you have to hire an additional person solely for insurance claims processing, you may have a defense. But if you are carrying extra people, how can you afford to sell a cash “job” substantially less than insurance since you have extra overhead to pay?
Thursday, August 28, 2008
Wednesday, August 6, 2008
Markets (Typically) Dictate Price
I am amazed at the number of people that believe Belron US will raise “cash” prices for all to benefit. This seems to contradict all pricing realities in a non-monopolistic market, which defines the automotive glass replacement market. The exception, of course, is the perceived monopolistic system used for insurance pricing, but there is not enough blog space today to tackle that issue today.
Our industry suffers not from the lack of a pricing “leader” but from too many companies pricing below profit. To suggest one company will improve the industry for “all” does not account for the uneducated business principles they compete against. Historically, markets dictate price and this trend will not be disrupted in the short term until the majority of owners make better pricing decisions.
I do believe Belron US has the business savvy to improve cash pricing but only for the benefit of their company. It is not their job to improve YOUR bottom line. That is your responsibility. I can’t imagine them training their customer service representatives to say “If you don’t choose us, be sure you pay this same price to the company you do choose”.
If you are looking for answers outside your four walls you do not have control of your business. The old adage “Control what you can control” has never resonated louder. Don’t expect another company, big or small, to market on your behalf. That is not what they get paid to do.
Our industry suffers not from the lack of a pricing “leader” but from too many companies pricing below profit. To suggest one company will improve the industry for “all” does not account for the uneducated business principles they compete against. Historically, markets dictate price and this trend will not be disrupted in the short term until the majority of owners make better pricing decisions.
I do believe Belron US has the business savvy to improve cash pricing but only for the benefit of their company. It is not their job to improve YOUR bottom line. That is your responsibility. I can’t imagine them training their customer service representatives to say “If you don’t choose us, be sure you pay this same price to the company you do choose”.
If you are looking for answers outside your four walls you do not have control of your business. The old adage “Control what you can control” has never resonated louder. Don’t expect another company, big or small, to market on your behalf. That is not what they get paid to do.
Friday, July 25, 2008
Understanding How to Price Your Product
I was not surprised at the comments I received regarding my last article discussing how retail companies charge for mobile service. It has been my experience that most glass companies price on a “cost plus” scale. For instance, if a windshield costs $125, they will take this cost and add an upcharge to establish a price. For the sake of this article, let’s assume a hypothetical upcharge of $100 for a consumer price of $225.
For many, this upcharge stays firm and does not take into consideration any of the additional costs to installing the windshield including adhesives, moldings and/or clips. These are considered “Costs of Goods Sold” that determine your true gross profit. Let’s assume an additional $20 is required for this particle installation leaving a gross profit of $80.
Sounds great, doesn’t it? That is until your all your cost obligations come due including gasoline, automobile, salaries, tax, telephone and the myriad of other obligations your business assumes. Once you have subtracted these costs on a per per-unit basis, you are left with your net profit, although in many cases this is a net loss since the remainder doesn’t cover the bills.
If you do not know how to figure your costs on a per per-unit basis use this simple formula. Calculate your estimated monthly expenses and divide by the number of jobs you forecast (assume) you will be conducting. For instance, let’s say monthly overhead is $4,000 with a forecast of installing 40 glass units. This amounts to a per per-unit cost of $100 per job ($4,000/40). At this point that $80 we had left over isn’t quite as attractive considering we lost $20 when the entire math exercise is was complete!
The benefit of conducting this exercise monthly is to allow for increases (gasoline!) and decreases in running your business. If you don’t conduct this exercise, my recommendation is to avoid pricing on the “cost up” model unless you allow for plenty of margin for error. Many haven’t, which explains the decreasing number of operators in our industry.
For many, this upcharge stays firm and does not take into consideration any of the additional costs to installing the windshield including adhesives, moldings and/or clips. These are considered “Costs of Goods Sold” that determine your true gross profit. Let’s assume an additional $20 is required for this particle installation leaving a gross profit of $80.
Sounds great, doesn’t it? That is until your all your cost obligations come due including gasoline, automobile, salaries, tax, telephone and the myriad of other obligations your business assumes. Once you have subtracted these costs on a per per-unit basis, you are left with your net profit, although in many cases this is a net loss since the remainder doesn’t cover the bills.
If you do not know how to figure your costs on a per per-unit basis use this simple formula. Calculate your estimated monthly expenses and divide by the number of jobs you forecast (assume) you will be conducting. For instance, let’s say monthly overhead is $4,000 with a forecast of installing 40 glass units. This amounts to a per per-unit cost of $100 per job ($4,000/40). At this point that $80 we had left over isn’t quite as attractive considering we lost $20 when the entire math exercise is was complete!
The benefit of conducting this exercise monthly is to allow for increases (gasoline!) and decreases in running your business. If you don’t conduct this exercise, my recommendation is to avoid pricing on the “cost up” model unless you allow for plenty of margin for error. Many haven’t, which explains the decreasing number of operators in our industry.
Wednesday, July 9, 2008
Upward Mobility?
It is an interesting phenomenon to witness how our industry deals with rising petroleum costs. This is not the first time we have experienced it, but most price increases typically do not make it past the retailer. The manufacturers and distributors have little qualms in adding fuel surcharges, but why not the retailer?
For those advertising “free” mobile service, how free is it? With typical auto glass vehicles averaging no more than 20 mpg, how long can “free” be absorbed? Yes, it depends on your cost structure, but if you don’t react by reducing other costs it will have a major impact on your profits.
To remain profitable, you’ll need to cover your mobile costs or bring your customers to your store. After all, what are the true customer expectations? Having phoned several paint companies to treat my house, I wasn’t the least bit surprised to find several did not want to drive to my locale and several others wanted a quote fee (to later be applied to the job). Is this surprising coming from an industry that seemed to invent the free mobile quote? You bet it is.
When costs increase, you cannot operate in the “norm.” As stated in this column previously, you must raise prices or lower costs. So, who will have the courage to do so? I can’t wait to find out the answer.
For those advertising “free” mobile service, how free is it? With typical auto glass vehicles averaging no more than 20 mpg, how long can “free” be absorbed? Yes, it depends on your cost structure, but if you don’t react by reducing other costs it will have a major impact on your profits.
To remain profitable, you’ll need to cover your mobile costs or bring your customers to your store. After all, what are the true customer expectations? Having phoned several paint companies to treat my house, I wasn’t the least bit surprised to find several did not want to drive to my locale and several others wanted a quote fee (to later be applied to the job). Is this surprising coming from an industry that seemed to invent the free mobile quote? You bet it is.
When costs increase, you cannot operate in the “norm.” As stated in this column previously, you must raise prices or lower costs. So, who will have the courage to do so? I can’t wait to find out the answer.
Tuesday, June 3, 2008
Desperately Seeking Customer Service
One of my favorite topics is customer service. As a business consultant, I make note of practically every personal experience, whether or not it is for business purposes. It seems my expectations consistently outweigh the experience.
Tragically, many businesses have incorporated poor customer service into their business practices. In my opinion, most airlines fit this bill. How often do you expect a friendly face or better yet, friendly action, when your flight is delayed or cancelled? In an industry fraught with poor financial performance, why would customer service not improve? Are we seen as a single transaction as opposed to potential frequent fliers?
I will not pick only on airlines. Low to no customer service seems pervasive in our retail culture as well. I have a bad habit of thanking a clerk after I make a transaction. Why should I be performing this task? Isn’t it he or she that should be thanking me for providing security to their company and potentially their job?
I do not understand why businesses do not personalize each transaction. It can’t be cost because the businesses I seek a thank-you from are the same companies that spend thousands of dollars sending me mass mailings. The cost of a thank-you costs less, particularly when you incorporate it into your business culture. After all, what industry has an endless surplus of customers?
Tragically, many businesses have incorporated poor customer service into their business practices. In my opinion, most airlines fit this bill. How often do you expect a friendly face or better yet, friendly action, when your flight is delayed or cancelled? In an industry fraught with poor financial performance, why would customer service not improve? Are we seen as a single transaction as opposed to potential frequent fliers?
I will not pick only on airlines. Low to no customer service seems pervasive in our retail culture as well. I have a bad habit of thanking a clerk after I make a transaction. Why should I be performing this task? Isn’t it he or she that should be thanking me for providing security to their company and potentially their job?
I do not understand why businesses do not personalize each transaction. It can’t be cost because the businesses I seek a thank-you from are the same companies that spend thousands of dollars sending me mass mailings. The cost of a thank-you costs less, particularly when you incorporate it into your business culture. After all, what industry has an endless surplus of customers?
Thursday, May 8, 2008
When is a Contract a Contract?
I have had this discussion several times in the past two weeks and felt it worthy to make the central topic of my blog this week. It seems many in our industry are confused about existing contracts within our industry.
The most compelling example is that of the Automotive Glass Replacement Safety Standards (AGRSS™). I am often asked to explain what the AGRSS Standard is, to which I reply “Did you sign the State Farm® Offer & Acceptance contract?” It is not shocking that the answer is “yes” in most cases. What is shocking is that AGRSS clearly is defined in the State Farm Offer & Acceptance contract and not known by the inquisitive party.
By signing this contract you agree to “Perform all Jobs in accordance with applicable ANSI, Federal Motor Vehicle Safety Standards (FMVSS) and AGRSS™ published industry standards and procedures, and ensure that all services and products meet or exceed all such standards, and utilize applicable adhesives in full accordance with specifications for product use and safe drive-away times provided by the manufacturer of the adhesive system utilized by the Glass Company to perform the Job.”
Wow, how could anybody miss this? Yes, the contract is lengthy, but it is designed to protect the interests of all parties. It makes me curious as to what other portions are missed or forgotten.
Please note that I am not lumping all participants into this category but, at first glance, the number of AGRSS-registered shops found on the zip code locator of http://www.safewindshields.com/ is fewer than the number of participants on the State Farm program. It is true that you are not required to be registered with AGRSS to be a State Farm participant but you must perform all jobs in accordance with the standard.So, if you are on the State Farm program and you don’t know what the AGRSS Standard is, stop and read the contract. For this may not be the only subject you have to research. After all, a contract is “a legal agreement” according to my Webster’s II Pocket Dictionary. This should be all the incentive you need.
The most compelling example is that of the Automotive Glass Replacement Safety Standards (AGRSS™). I am often asked to explain what the AGRSS Standard is, to which I reply “Did you sign the State Farm® Offer & Acceptance contract?” It is not shocking that the answer is “yes” in most cases. What is shocking is that AGRSS clearly is defined in the State Farm Offer & Acceptance contract and not known by the inquisitive party.
By signing this contract you agree to “Perform all Jobs in accordance with applicable ANSI, Federal Motor Vehicle Safety Standards (FMVSS) and AGRSS™ published industry standards and procedures, and ensure that all services and products meet or exceed all such standards, and utilize applicable adhesives in full accordance with specifications for product use and safe drive-away times provided by the manufacturer of the adhesive system utilized by the Glass Company to perform the Job.”
Wow, how could anybody miss this? Yes, the contract is lengthy, but it is designed to protect the interests of all parties. It makes me curious as to what other portions are missed or forgotten.
Please note that I am not lumping all participants into this category but, at first glance, the number of AGRSS-registered shops found on the zip code locator of http://www.safewindshields.com/ is fewer than the number of participants on the State Farm program. It is true that you are not required to be registered with AGRSS to be a State Farm participant but you must perform all jobs in accordance with the standard.So, if you are on the State Farm program and you don’t know what the AGRSS Standard is, stop and read the contract. For this may not be the only subject you have to research. After all, a contract is “a legal agreement” according to my Webster’s II Pocket Dictionary. This should be all the incentive you need.
Monday, April 7, 2008
Glad to See Many Still Believe …
I had the fortune of being invited to speak to the NOVUS Franchising Group on March 8. I walked away from the event renewed about how opportunity still exists in the minds of the optimistic as well as the opportunistic. The event was named “Super Session” and it indeed lived up to its name. (CLICK HERE for related story.)
The “Super Session” included numerous events and seminars intent on improving one’s place in this industry. It was refreshing to see experts sharing their products, services and experiences and I was delighted to see there was no shortage of positive topics!
At this event, I was reminded of two attributes you find in successful companies: leadership and passion. While these attributes typically are married, on a rare occasion you may find one without the other. I was fortunate to encounter numerous leaders in San Antonio with unlimited abundance of passion. These two features do not guarantee success, but will certainly improve your odds. Try turning a ship when the crew and deckhands won’t listen to you!
I have been blessed in my career to be surrounded by people with these attributes. The challenges today are real and difficult to navigate. But the answer typically is found in those companies with zeal to win. And that begins at the top of the organization chart. You can’t delegate leadership!
I appreciate the fine people at NOVUS that provided me an education during my brief visit. The enthusiasm I took from the group and the event has not dissipated since I left San Antonio! And yes, I have booked my airplane ticket for 2010!
The “Super Session” included numerous events and seminars intent on improving one’s place in this industry. It was refreshing to see experts sharing their products, services and experiences and I was delighted to see there was no shortage of positive topics!
At this event, I was reminded of two attributes you find in successful companies: leadership and passion. While these attributes typically are married, on a rare occasion you may find one without the other. I was fortunate to encounter numerous leaders in San Antonio with unlimited abundance of passion. These two features do not guarantee success, but will certainly improve your odds. Try turning a ship when the crew and deckhands won’t listen to you!
I have been blessed in my career to be surrounded by people with these attributes. The challenges today are real and difficult to navigate. But the answer typically is found in those companies with zeal to win. And that begins at the top of the organization chart. You can’t delegate leadership!
I appreciate the fine people at NOVUS that provided me an education during my brief visit. The enthusiasm I took from the group and the event has not dissipated since I left San Antonio! And yes, I have booked my airplane ticket for 2010!
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