Menu pricing- retail, warranty or ELR

[ybarreros]

thank you all for this excellent site! New to the menu pricing game and trying to get a hangle on some basic questions.

When you want to set a fixed menu price for a dealership with service departments in different cities, do you use the differnt retail prices, warranty prices or ELR to determine a fair price across the board.

One shop for example charges almost 50% less than another!

[Richard]

I'd say you'd have to look at all 3, plus shop the competition to arrive at 'fair' pricing for the various markets.

[GENE WHITE]

I agree with Richard. You must be in the ballpark in each market area, not necissairly the cheapest, with your competition. Competition today is defined as anyone in the business of maintaining and or repairing the vehicles especially including older vehicles.

Your "door" rate will normally be too high for competitive priced maintenance services.

Your regular retail rate must then be set high enough so your Effective Customer Pay Labor rate including all competitive priced items (LOF included) is close to your warranty labor rate. This is the current benchmark.

[ybarreros]

Conceptually I agree, however when I talk to my peers about using ELR or warranty rates to price menu items, they think I'm crazy. They argue that menu items should be priced at door rates which is what the custoer would pay then discounted. They also don't agree with calculating the ELR using the workshops productivity to adjust the door rate for maintenance and menu items. They argue that productivity should only be associated with cost structures, not pricing issues!!!!!

[GENE WHITE]

If menu items are priced at your door rate then discounted:

1. It results in an inflated ELR.

2. The discount is usually shown in advertising therefore inflating gross profit at the expense of net profit.

3. This may cause you to over pay your technicians since you show a higher than actual labor gross profit to base their pay on.

4. The higher labor dollars, which are then discounted, reinforces our high priced image in the market.

5. When you set your competitive priced items to a competitive market price you need to have your "door rate" higher than normal to compensate and balance to your desired ELR and not play games with ELR by hiding some of it in advertising.

6. Many of these games (described in 5 above and cost shifting helpers to Other Salaries and Wages)are caused by the pay plan the manager is paid on.