January 2009 - Feature
Playing the Pricing Game
How you price your products really depends on what your goals are. Veteran F&I manager provides his strategy for pricing F&I products.
By Jim Dirks
So, we’ll now add $300 to our average VSC sale. You’ll have to do some more math to determine how many VSCs are five-year, four-year, etc. Determine those levels, then reestablish your prices so that your sales average shows an increase of $300 across the board.
35% of $700 = $245
$245 / 40% = $612.50
$612.50 – $250 = $362.50
10% of $700 = $70
$70 / 25% = $280
$280 – $199 = $81 (We’ll now add $81 to the selling price for both our TW and TP products.)
Now comes the challenging part. You, the F&I manager, need to sell the value of these products and services. Monitor your penetrations over the next 90 days. Are they up, down, steady? What were they for the first 30 days after the change, the second 30, and the last 30? Did your penetrations trend upward as time went on? Did you find yourself becoming more and more comfortable with the new pricing, which means you’re more adept at selling it? I’ll wager you will.
So, a year later, what do we have? You are still selling 600 units per year, though your new back-end grosses look like this:
300 VSC sales at $630 avg. gross = $189,000 annualized gross
240 PPM sales at $612.50 avg. gross = $147,000 annualized gross
150 TW sales at $280 avg. gross = $42,000 annualized gross
150 TP sales at $280 avg. gross = $42,000 annualized gross
Total: $420,000 in annualized gross
Here’s the last bit of math I’ll show you. Using your pay plan, what happens to your income when your production climbs from $238,140 annually to $420,000 annually? On second thought, I’ll let you figure that one out.
Jim Dirks is a former F&I manager with more than 16 years of experience in the automotive and powersports industries. He can be reached at
jim.dirks@bobit.com.