As time marches on and the economy drifts on through the doldrums of a global recession, business owners in virtually every sector are constantly crunching numbers to make sure they’re in the black. The same goes for the owners and operators of oil and lube shops across the nation. With costs on a steady upward trajectory, sooner or later you’re going to have to increase what you charge to continue fielding a profitable business. So, how do you pull the trigger on higher prices without upsetting clients used to paying a certain amount for a specific service? After all, the last thing you need is to lose customers in the process of trying to increase revenue.
Rising Costs
Before we talk strategies for softening the blow to your clientele, let’s take a look at some of the driving forces behind the need to raise rates in the first place. There are a variety of economic factors that chip away at the profitability of oil and lube businesses.
Rising insurance rates, utility prices and labor costs are some of the primary sources of increased overhead. In particular, the price of labor has the potential to (if it hasn’t already) move rapidly higher in the coming years. There has been much talk in the political realm of raising the national minimum wage significantly. Recently, for example, New York state approved a $15 an hour minimum wage for fast food workers. The volatile nature of the labor market has the potential to wreak serious havoc on the books of small businesses of all kinds.
Regardless of what happens legislatively, many oil and lube shops already have to spend more attracting and keeping quality employees. Other costs add up, too, and the inevitable result is the necessity of incrementally raising prices on your customers. While no one likes to pay more than they’re used to, there are ways of upping your prices without rocking the boat too much.
Misconceptions
As you’ve probably experienced, many of your customers likely assume the cost of the oil is the primary expense associated with their oil change service. To them, it seems the current low price of oil should translate into cheaper oil changes. However, as you know, the low per-barrel price of crude doesn’t necessarily translate into significantly reduced costs to end-users. In addition, most customers don’t realize the material cost of the oil and filter represent a relatively small percentage of the shop’s overhead. Since there’s no practical way to counteract your customer’s false assumptions in this area, it’s a good idea to steer clear of raising the price of your basic oil change service if possible.
The oil change is what gets most people in the door. If you’ve been charging $29.95 and raise your rate to $36.95, there’s a good possibility some of your clients will jump ship for the guy down the street who charges $30.
Instead, begin by raising the cost of add-ons like air filters, transmission flush, wiper blades, etc. Most customers likely won’t even notice small markups on these items.
Communication
If the numbers tell you you’re losing money on your basic oil change and not recouping enough with add-on sales, of course, bump up your basic oil change price. Fortunately, there’s a good chance raising your price will cause the guy down the street to follow suit. However, the way you communicate your price increase to your customers is vitally important. The No. 1 thing to remember is no one wants to be surprised with a higher bill than expected.
There are a variety of ways to communicate to your customers ahead of time that your prices have gone up and avoid sticker shock when it comes time to settle up after their service. In the weeks leading up to your scheduled rate hike, blast the news across your social media pages. You do have a Facebook page and Twitter account for your shop, don’t you? If not, this would be the perfect time to bring your business into the 21 century. Social media allows unprecedented interaction between businesses and their customers, which gives you a platform to communicate with your clientele. Consider putting out something like, “Tuesday’s your last chance to get our standard oil change service for just $29.95, after that it goes up to $36.95.” Don’t be afraid to let your social media followers know why the rates are going up. Chances are, your customers will understand. Most importantly, they won’t be surprised the next time they go in for an oil change. After all, everyone appreciates a little honesty. This is also a good opportunity to thank your customers for their understanding and continued patronage.
Of course, you may not use social media, and even if you do, your messages won’t reach all of your clientele. So, for the first few months after your prices go up be sure to have your employees preemptively inform customers of the new rates before you start working on their cars. This is another chance to further the relationship with each individual by chatting a bit about the factors that necessitated the price bump.
Adding Options and Value
If you’re forced to raise your rates on both add-ons and your oil change, you can soften the blow to your customers by adding some value to your service. For example, you can add an inspection to your oil change service. If that’s already something your customers are used to, go ahead and bump the number of inspection points. Alternatively, you could vacuum out the front floorboards or wash their windows. These little gestures can go a long way to making patrons forget about the few extra bucks they just spent. If possible, create a lower priced option that — while still working financially for your business — gives those who shop on dollar amount alone a reason to come to you.
If you’re looking at the books and know raising prices will be a necessity, go ahead and make the move that’s best for your business. Months afterward you’ll wonder why you waited so long. Though it may upset your routine and customer base briefly, it likely won’t be as big a problem as you might think.
As mentioned, your competition will likely follow your lead.
Being honest, thanking your faithful customers and offering an explanation for the new premium will go a long way to easing your clients along. In the end, the price hike will be nothing more than a bump in the road, and it probably won’t be long before you have to do it again.
