- June 3, 2010 at 6:05 am #4343
I have been looking into an idea that I heard about from another shop owner a few months ago. I would like to get other shop owners opinions on how this concept could be implemented successfully.
I have been trying to research the implementation of this concept in the auto repair industry and finding any implementation of it has been quite difficult.
Here is the concept:
Offer prepaid automotive services for an annual membership fee of $XXXX. This fee would cover all maintenance, repair and diagnostic services. This all inclusive plan would cover all oil changes, flushes and any other maintenance service such as brakes and tires. It will cover all manner of repairs including emissions, suspension, exhaust, AC, cooling system, fluid leaks, etc. Towing services and car rentals would be included too.
Repair labor could be capped at 5 hours for a given job with the balance paid by the customer. The only exclusions to the plan could be engine, trans, diff, tcase replacements and any customer induced damage such as broken mirrors, tire blowouts and bent rims etc.
I polled 90 of my customers and the response was about 90% in favor of the concept.
I got the idea during a conversation with a Canadian shop owner who told me he has operated his business in this manner for 3 years. He has 1000 members who pay him $1000 per year. He doesn’t accept any work from non-members. He said his business has been more profitable and is easier to operate since implementation. He also says his customers are very loyal with almost no attrition.
The business owner I spoke with gave me his business card so we could talk in more detail and I lost the card and cannot track him down.
I can see a business model like this streamlining workflow (no estimates or waiting for customer approval) drastically reducing marketing expenses and perhaps even reducing rent overhead due to less need for high profile location.
I would love viewpoints that really think through the pro’s and con’s of this concept.
Christian Porter – Owner
- June 8, 2010 at 10:59 pm #8843
I have heard of this before , never followed up or heard much about the sucees or failure. Thier was an company offered free tires for life of car for a set fee – that went belly up. We had a used car dealer offered this concept when buying a used vehicle – went belly up. I would think it would take an attorney and several shop’s to make a contract then will it not make clients angry like several aftermarket warranty company’s. Will the clients bring in on time to keep up maintenance not to cause harm , I would think it would be wheel to wheel coverage to be a benifit to a client .
Would be nice to talk with the shop that was doing this.
- June 9, 2010 at 11:45 am #8844
Why don’t you check out Dealer Maintenance Programs which generally go for the term You own the Car and cap at 60.000 to 100.000 miles by make and model, Some Dealers have a Maintenance Package for used dealer brand vehicles with 3years / 30.000 mile expiration, only for the purchsing party. I am trying to get some of these customers back and allways hear the same thing-as soon as my Maintenance contract is up I will be back. Looks like some of the Dealers are doing a great job of upselling without aggrevating the customers.
If you come up with a program/plan which could work I would like to know about and work on getting lost customers do to new car sales back.
I had some Coupon Programms in the past which did okay but as time went on customers changed their “pre purchasing” habbits. Price allways seemed to be a major factor, that was the customer cost versus Value perception as well as the time it can be used.
Perhaps we are in need of a fresh approach and packaging for a Pre Purchase service Plan.
- June 11, 2010 at 3:26 am #8846
In order for this to work the price would have to be adjusted according to make and model,age and mileage.The concet is interesting but would take a lot of study and more data than one shop could accumulate to arrive at fair pricing.Enen with enough recent history you would still be trying to hit a moving target because newer makes and models do not have enough repair history.I also think that capping your revenue on January 1 would maske to too difficult to adjust for changes in expenses during the year.Looks like too many negatives to change the whole shop to it but might bear some fruit for a portion of the business.
- June 14, 2010 at 7:08 pm #8848
Talk to fleet managers in your area. What you are proposing is not uncommon in fleet service. Another wrinkle is to contract the labor and sell parts at a set cost plus. Make the cost plus percentage vary with total dollars spent. This keeps customers from cherry picking specific services at lower priced competitors. They pay a higher price on the rest of their work because they are not earning the best discount from you. On a monthly or quarterly basis each fleet is told what their cost plus percentage is until the next margin reset. Done right, you end up setting the appointment schedule instead of waiting for customers to decide when to get service. Higher profits for you and a lower cost for your customers is a win-win IF you have the needed mental approach and software tools. You have to create your projected work load and keep constant contact with your customers so you have zero down time and zero overtime.
In my shop we used to tell customers that if they came in when we told them to if was OUR FAULT if their vehicle broke down. In that case we would pay for the tow and the rental car. I had to deliver on that one time. A tech did not recheck the dipstick after an oil change, the pump lost prime and the engine seized about 20 miles after leaving the shop.
- June 15, 2010 at 2:48 am #8850
Like a couple replies mentioned, you’d need volumes of data to arrive at a viable price to you. Your shop owner friend conveniently had 1000 customers at 1000.00 each. That’s 1 million is revenue a year. Look in your customer database and determine how many customers spent $1000.00 with you last year, how many in 2008? Would it be advantageous for your customers who only spent $750.00? It may be to them for the peace of mind. I would be concerned you would only get the people with the high maintenance trouble prone cars. It is great in concept, like health insurance for your car, but how many of your positive responses would convert to “members.” Like any other risk pool, you have to have losers to pay off the winners. You need more people who only get $500.00 worth of work to pay for the ones who need four wheel brakes, a battery, alternator, water pump & timing belt, etc. Heck under that plan I would buy it for a year, the year my Subaru rolls 105K and needs a water pump, timing belt and front crank seal. After that everything else is gravy. And then the following year I would drop my “membership.” I’ve thought about trying to set up something similar, but as I’ve pointed out, there are too many opportunities to get taken advantage of. And if you’ve only got 20-50 “members” are the losers enough to make up for the winners and still return you your XX %?
- June 15, 2010 at 3:10 am #8851
I used to sell my used cars with a 90 day warranty.It always worked out but my shop became a repair shop for my used cars. I do a lot of extended warranty contracts in my repair shop and have found many are feeling the squeeze of the economy.Many have gone belly up.Many have lowered the hourly max payment to a unacceptable 65 per hr. I think fixed Prices would be very hard to figure out .
- June 16, 2010 at 12:40 am #8852
Thanks for the great feedback everyone. I found a lot of good input about this concept from your posts.
Here is what I have done since I made my original post.
As I stated earlier I had about 90% positive feedback from members of my shop facebook page. I have since presented the concept to 24 customers in the waiting room. The response has been overwhelmingly positive. In fact 16 people have committed to signing up immediately. I agree with the comment that not everyone who is interested will signup for the program but the amount of positive feedback is very promising.
I spent a fair amount of time going through numbers and volumes in my database. If I only include my profitable customers (eliminate single visit and “undesireables”) then the program seems to make good sense. Membership will be selective based on condition of the vehicle.
Over a 5 yr period my average customer spends close to $1200 per year at my shop. This number excludes large jobs that would be excluded by the plan such as engine or trans replacements. This figure includes all maintenance, repair and diagnostic charges.
The plan would offer these customers a meaningful discount for pre-paying for all of their normal car care for a 12 month period of time. The shop would be responsible for managing expenses for the next 12 months to ensure a good customer service experience and a profitable shop environment.
The discount is easy to justify for the shop through reduced overhead (marketing expenses, rent, inventory control etc.) and a completely revamped tech compensation plan. The techs would be compensated on how much profit the shop is able to maintain for a given week. So the more money the shop DOESN’T have to pay out in parts would equate to a larger payout to the techs. What a strange concept in our industry!
I am considering running a trial plan for 200 customers over the next 12 months to see how the customers like the program and how it benefits the shop. If it fails miserably then it would be business as usual 12 months later. If it works out then I would probably move toward a complete business change and limit the membership to a total of 1000 customers.
I would be happy to serve as the guinea pig to test this concept. I will report progress over time and let everyone know how things are working out.
- June 22, 2010 at 4:32 am #8854
I had conceptualized such a plan in 1994 which provided for the consumer to receive free labor and pay only for parts at our cost in a membership based program. The car was the member and any driver could come in for service (We have a lot of family members sharing vehicles). Provisions were that basic maintenance had to be performed at factory specified intervals. Membership fees would be based upon vehicle age and mileage upon initiation into the “club”. Most domestic and asian vehicles would be priced similarly. Europeans would cost more. British and Italians were not permitted Initial membership levels were for 1. Less than 30,000 miles, 2. 30,000 – 50,000 and 3. 50,000 – 75,000. Special admittance for those over 75K were on a case by case basis. Memberships would be for one to five years and would be eligible for renewal upon a comprehensive inspection. Collision related damage was not included. Non current membership dues were grounds for club termination or refusal of service. Payments could be made monthly, quarterly or annually. When customers would visit for service, oil changes were about $10, brake jobs $30, water pump and timing belt installed $50 and so on. Transmissions might still be $1000 – $2000, or whatever our cost was, but the labor would be free.
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