You’ve heard it a hundred times: the MSRP prices you set at the parts counter simply won’t work as well online. It’s a different market, meaning you have to play by a different set of rules.
Most parts managers set a flat percentage margin for their parts, but it’s not an effective way to do things. The flat percentage makes your high-priced items way too expensive, and your small, cheap parts way too cheap. When your price is too high, customers can find somewhere else to buy. When your price is too low, you make a lot of sales, but you lose money on them.
The solution: a pricing table.
Not only is a pricing table (also known as a pricing matrix) easy to set up, but it’ll also balance out your prices and make each sale more profitable. With the right parts eCommerce solution, you can also set different pricing matrices by brand and part type.
Brand makes a difference.
The online parts market is too new to have established pricing guidelines, but we do know that pricing tables help dealerships succeed online. We also know that there isn’t a single end-all answer to the perfect pricing margins.
When creating your pricing table, remember that not all manufacturer brands are the same. Mercedes has a different customer base than Ford or Toyota.
That said, the pricing matrix for each brand will be different. In general, luxury brands can set higher margins than other brands, but besides that it’s up to you to find the ideal percentage.
How to create your pricing table:
Depending on your parts eCommerce provider, you might be able to create really complex or really simple pricing tables, depending on how much you want to optimize your pricing.
At the very least, your pricing table should have at least three tiers: low, mid, and high. Of course, a pricing table with even more levels can be more successful.
1. Figure out your current standing
If you’re not currently using a pricing matrix, what is your flat rate margin set to?
By looking through your top-selling parts, you can use this to figure out where your current margin succeeds and where it fails.
For example, if your low-priced items sell fairly well at cost + 20%, then that’s a good place to start. Customers are finding your prices to be acceptable for that range of items. The mid-priced and high-priced items, however, are too expensive at the 20% margin and likely aren’t selling as well.
2. Set your other tiers
Based on your findings, adjust your other tier prices accordingly. If only low-priced items are selling well at 20%, then you need to lower the percentage for mid-priced and high-priced parts.
According to this example, you might set mid-priced parts to sell at cost + 18%, and high-priced parts to sell at cost + 16%.
The exact percentages will vary, though. Finding the perfect pricing rule will take some tweaks on your part over time. When you’re first setting up the matrix, you may overshoot or undershoot the percentage in the beginning. That’s okay, since it’s easy to adjust the matrix so it will be better next time.
This is what a pricing matrix looks like:
3. Track the change and optimize
Like we just said, you probably won’t get the perfect price on your first try. It will take a few adjustments until you get it right.
That doesn’t mean you need to be in there every day, messing around with things. But every week or two, you should check on your sales numbers to see if they’re better or worse with your latest pricing table update, and then adjust accordingly.
If you’re working with a marketing agency, let them know that you’ll be experimenting with your pricing. They can let you know if your ads are working better or worse since the change.
Certain types of ad campaigns, like Google Shopping campaigns, are heavily impacted by how competitive your prices are. Google shopping campaigns list your parts side-by-side with the competition, so overpriced parts stick out like a sore thumb!
4. Optional: Create a separate tier for really low-price items
A lot of dealers get annoyed by the really cheap nuts and bolts that cost less than $10 or $15. The $1 bolts cost more in labor and shipping than they’re worth!
Because of this, a lot of dealers will create a specific pricing tier for these low-end parts to really raise the price and make the sale worth it. You can try setting this pricing tier to cost + 25% or maybe even higher. Feel free to set the margin to a percentage that makes the parts worth your time to sell.
If customers decide that the price is too high, that’s fine. In the case of these cheap parts, it’s not worth it for you to sell it if you’re only going to lose money.
This is something a lot of dealers forget: you don’t have to sell your entire inventory online! You can choose to only sell what is profitable.
5. Optional: Create different rules for parts vs accessories
For a lot of retailers, the cost of accessories is pretty low, making them a prime opportunity for profit. You’ll probably want to set accessory margins higher than the rest of your parts.
A smart pricing system (like the one available on the RevolutionParts eCommerce solution) will let you set different rules for your auto parts and your accessories. To create the pricing table for your accessories, you can follow the same steps.
Creating a pricing table only takes a few clicks with RevolutionParts, so it’s a surprise that it’s one of the biggest mistakes we see parts managers make when selling online. Spending just a few minutes a week can have a major impact on the success of your parts website.
Of course, some parts managers avoid a pricing matrix because the percentages we recommend sounds downright scary. You’re used to seeing a certain margin at the parts counter, so suddenly being told to price at cost + 15% instead of list price sounds like getting cheated out of your hard-earned profits.
Sadly, that’s how the online market works. Customers expect lower prices. If your competition is willing to offer those parts at a lower price, you’ll be quickly forgotten. But don’t despair, because you CAN still make a profit.
Since you’re not limited by distance when selling online, you can sell to people across the country—or even across the world!
Even though individual orders will be worth less, the sheer volume of sales will bring in the profit and turn your parts department into a team of superstars.