Here's how to use pricing matrix to increase gross profits
Auto makers' parts pricing uses the same dealer net-to-list percentages on the majority of parts.
It may differ somewhat between product lines. But within the same line, the percentage generally is the same, regardless of the cost of the part.
As an example, a water pump (cooling-system product line) that has a dealer net of say $100 would have the same dealer net to list-price percentage as a water-pump gasket carrying a dealer net of $1.
The main premise for creating a parts pricing matrix is to make a larger gross profit percentage from parts with a lower cost. In the above example of the cooling system product line, if the factory uses a 50% dealer net to list price margin, the water pump list price would be $200 and the gasket list price would be $2.
A matrix would focus on a creating a higher percentage of gross profit on the lower cost part (the gasket) while maintaining a competitive price on the higher priced part (the water pump).
In the example, the water pump could be left at list price or a small percentage above list price. The gasket on the other hand would have a considerably higher selling price compared to the normal list price.
Some dealerships may be reluctant to use a parts pricing matrix because of competition. The last thing they want is for the customer to call another dealer and compare prices. That's why the matrix focuses on maximizing profits on lower-priced parts.
In most instances, when the customer calls another dealer to shop the price, they're going to shop the major item, not the lower cost additional parts. A customer who needs a water pump is either going to shop for the price of the water pump or the price of the complete repair, not minor parts.
If the customer calls around to other dealers for the cost of the complete repair, most of the time the other dealer won't include the small parts in the quote.
The best technique for service advisors is to quote the labor and price of the main parts and inform the customer there may be some incidental costs. In the water-pump example, some of the incidental costs may include gaskets, seals, hose clamps, bolts and coolant.
Creating a Parts-Pricing Matrix
All of the major dealer-management systems have the ability to create a parts pricing matrix. Some of them can be a bit complicated. If the parts manager has some difficulty, get help from DMS provider.
The most common method for a parts-pricing matrix is by source and customer price code. Depending on how many sources and price codes are used, there can be a multitude of different scenarios. The chart below is an example of a single source and customer price code.
Captive vs. Competitive Parts
You may want to consider pricing more competitive parts at the factory list price or at a lower gross-profit percentage than captive (dealer-only) parts.
General Motor Co. andMotor Co. dealers may consider using a lower pricing structure on AC Delco and Motorcraft part respectively because of their competiveness. Parts that are used for special-service pricing may also need a different pricing structure.
Parts that need a large quantity per job may be another consideration for a lower pricing structure.
Say a customer needs eight spark plugs that have a list price of $9.95 each. Using the accompanying chart, the retail-selling price would be $12.44 ($9.95 × 125%) each. The total for eight spark plugs would be $99.52 versus $79.60 at factory list price.
When a matrix is created, different sources can be used to separate more competitive parts from captive parts, as well as any other parts that need to have a different or lower pricing structure. If the manufacturer uses product line codes, some DMS software has the ability to separate parts by the product line codes instead of sources.
With the possibility of so many scenarios with sources and pricing codes, it may be possible to miss some source and pricing code matches. For that reason, set up a default. When a part is invoiced, this will allow the part to be priced by the default if a source/pricing code doesn't match.
Once a part matrix is created and implemented, look at the historical gross-profit percentage for the parts department before and after matrix pricing. Depending on how the percentages are distributed, it's possible to increase the parts department's gross profit percentages.
Retail Matrix Source 1
|List from||List to||Mark|
|0.01||1.00||List + 85|
|1.01||2.50||List + 50|
|2.51||5.00||List + 35|
|5.01||10.00||List + 25|
|10.01||25.00||List + 15|
|25.01||50.00||List + 10|