High Demand Means You Should Increase Your Price—Not Your Staff
It’s undeniable that the diesel industry has grown in leaps and bounds over the past decade. However, while it may seem like diesel performance dominates the current landscape to industry insiders, it’s still considered an emerging niche in the automotive world. Case in point, anyone involved in this industry knows that most companies have less than 10 employees on the payroll—and that a lot of shops are even two or three-man operations.
As with any small business, working capital is tight and profit margins thin, which can make staff expansion considerably taxing on overall cash-flow. That’s nothing new, for any business. But it’s also nothing new for a customer base to stick with a quality product or service no matter what the price is. For this reason, and especially for a small company that manufactures a product that’s in high demand, a pricing increase should always be considered before a new hire.
Don’t get the wrong idea: expansion and upward growth of any business includes adding staff members. However, there is a time and a place for everything. Think about it. Your profit margins are already tight, but your products are in high demand. If you’ve reached your production capacity, raise the price of your hot commodity before you turn work down—and certainly wait to bring someone else onboard until you can better afford it. If demand fails to subside once you’ve upped your pricing, you’ll know your success is a more permanent condition than a momentary one—and the decision to add an employee to help with supply will be much easier, especially from a financial standpoint.
By the same token, if you run a shop that depends on drive-in service and a fair margin on the parts you install for the bulk of your profit, take a long, hard look at raising your labor rate before you bring in another tech. Statistics show that customers across nearly every type of industry rarely walk away from a quality product or establishment on account of increased pricing. In fact, data from the White House Office of Consumer Affairs shows that acquiring new customers is six to seven times more expensive for a business than retaining existing ones. Put simply, your long-time customers won’t go somewhere else.
Just like the manufacturing side of the industry, hiring and team building is essential for any drive-in shop to morph into something bigger. But if you’ve perpetually got 30 trucks sitting on the lot and no headway being made on a three-week service backlog, it may be time to raise your labor rate. Whether it’s going from $80/hour to $90, or $115 to $120/hour, your loyal customers will stay, and in short order you’ll be able to justify hiring and paying a good diesel technician what he or she is worth.
In a high demand situation, something has to give, be it price, service, or quality. It’s next to impossible to be able to offer the best of all three of those things in today’s highly competitive market. However, if you can manage to maintain the level of quality and service you’ve always been able to provide customers, retailers, or WD’s after making reasonable pricing adjustments, the flood gates of added profitability will open—followed by your ability to add good jobs to the presently booming economy.