Leftovers

The Science of Service Menus

A question I challenge many bike retailers to answer is how to get their star services to produce as much revenue as possible while at the same time giving customers more options to buy and a customized service.

The most successful answer I’ve seen executed is to offer four tune-up services instead of one. A menu of one means the customer has no choices. The customer has no way to buy more and the technician has no clear way to upsell the package. Having four tune-up services will appeal to the price conscious shopper, the lost shopper, and the price-is-no-object shopper. Here is an example of a four tier tune-up menu.

Tune-up Menu:

Level 1 Service: $230
Level 2 Service: $100
Level 3 Service: $70
Level 4 Service: $30

First I will explain the psychology of the pricing structure and then I will present ideas for what can be included in each service.

Retailers who are using this pricing structure have shown the most popular selling items on the menu will be Level 2 and Level 3. With the scale tipping just slightly toward the Level 3 Service. Level 1 takes roughly 10% of the orders and Level 4 takes only 5%. When compared to an $80 tune-up, we can break down the potential growth:

$80 x 100 sales = $8000

$230 x 10 sales = $2300
$100 x 40 sales = $4000
$70 x 45 sales = $3150
$30 x 5 sales = $150

The second scenario brings in $9600; a 20% growth. So why does this work?

First, Level 4 ($30) service will always be the worst seller. No one wants to purchase the worst option of anything. Level 4 Service is focused on serving the truly price conscious.

Level 1 ($230) will cater to those customers who have purchased high ticket items. If someone buys a $9000 bike they deserve the option to buy a more comparable service than someone who buys a $900 bike. Another way to think of it- when someone buys a Ferrari they understand that servicing the vehicle will cost more than the service on a Toyota. It is acceptable for many people that high ticket items equal high ticket service.

Level 2 and 3 ($100 and $70 respectively) are for customers who are not sure what they want. Notice the gap between these levels is the smallest price gap on the menu. The jump from Level 3 to Level 2 was $10 cheaper than the jump from Level 1 to Level 2. Since the majority of people buy in the middle, we want the middle to have options.

Below is a formula for creating a service menu using these pricing tactics. Start by taking the price of the most popular tune-up, usually between $50-$90 for US retailers, and replace that number with X in the formula below. From there multiply out each level and round out to the nearest 5 or 0.

Level 1: 3.25X
Level 2: 1.5X
Level 3: X
Level 4: 0.45X

Below is three example price structures using this formula.

In this example, if your most popular tune-up price is currently $70, your new menu would have a Level 1 service of $230.

Once the pricing structure is set, the next step is to define what is offered in each service. Here is a recommendation to start with.

Level 4 ($30)

Bike inspection
Bolt/torque check
Lube drivetrain
Inflate tires

In many ways Level 4 Service acts as a quote or estimate. The bike inspection is where the value of this purchase is. Many people who purchase this package will often walk away with an idea of what services need to be done the next time they return.

Level 3 ($70)

Everything in Level 4
Perfect braking
Perfect shifting
Wheel inspection and adjustment

The Level 3 Service is, as many bike retailers would define it, the standard tune-up. Notice that I stayed away from using technical terminology. Telling someone to purchase a “wheel true” can be confusing so I opted for “wheel inspection and adjustment”.

Level 2 ($100)

Everything in Level 3
Remove chain and cassette, clean with solvent
Complete wash, lust, and detailing

Since most people will be choosing between Level 2 and 3, the best carrot is kept in Level 2. Cleaning parts with solvent and offering a wash, lust, and detailing is a huge hook for people to make the jump. Many technicians have spent hours trying to get something to shift properly and when the customer saw the bike they were only excited by how clean it looked. A clean bike is something the customer can see, it makes sense to them. A perfect shifting bike is expected and can’t be enjoyed until after they leave the bike shop.

Level 1 ($230)

Everything in Level 2
New brake pads
New cables
New bar tape or grips
Remove brakes, crankset, and derailleurs- clean with solvent

In order to justify higher prices in the service area begin tying parts to the costs of service. New brake pads, cables, and bar tape or grips are key elements to making the bike work as if it were new off the floor. Someone buying in at this level expects a perfect machine in every way, and these are just the services that will achieve it. It is worth noting that the Level 1 buyer is also the buyer who is most susceptible to additional sales like a new saddle, new tires, or even a new wheelset. If a technician sees the opportunity, they should never be afraid to ask.

Want more? Take a look at Leading Out Retail. This book is a creative look at bicycle retail and teaches retailers simple strategies on how to increase profit through service, what the most important question to ask every customer is, and how to manage the dreaded Timmy Factor.

It's Crazy The Hours That Some Bike Retailers Keep

Should a retailer open their doors earlier or later? Open or closed on Sunday? Retailers are always testing their hours of operations but this may help end the trial and error.

Choosing hours of operations is based on a number of factors including the shopping preferences of customers, potential sales, and fixed costs of staying open. Managers also have to consider the willingness of their staff to work certain hours. Since cost of labor can range up to 20% of an IBR’s total revenue it is crucial that every hour a store is open, it is open for a reason. Either to manage customer purchases or provide a customer service which creates profit later.

To help bike retailers make a more informed decision, in May of 2012 I conducted a study that took a closer look at hours of operations for IBRs in the United States. I sampled hours from a hundred bike retailers from 17 cities in the continental United States and compared them to a hundred other sporting goods retailers in the same cities.

Cities sampled in hours of operation study: Los Angeles, San Francisco, Seattle, Salt Lake City, Tucson, Denver, Minneapolis, Des Moines, Kansas City, Oklahoma City, Austin, Chicago, Philadelphia, New York, Asheville, Atlanta, and Miami

Sporting goods retailers open earlier and close later than bike retailers in nearly all cases studied. The most common hours for a bike shop are 10-7 on weekdays, 10-6 on Saturday, and closed on Sunday. For sporting goods retailers the hours were longer in every instance: 10-9 on weekdays, 9-9 on Saturday, and 10-7 on Sunday. This begs the question, are sporting goods retailers providing a better service or taking potential customers from bike retailers?

With these results we learn that bike retailers are open 53 hours per week on average while sporting goods retailers are open 76 hours each week.

Opening earlier or closing later can prove fruitful though. Being the only bike retailer open in a city at 9pm might mean, over time, they will acquire new customers who would usually go to other stores but can’t. If an IBR has a ride that leaves from their store every Saturday at 7am, earlier hours on Saturday would allow them to provide pre-ride services and sell products needed for the ride. These small gestures of good will go a long way. Mellow Johnny’s in Austin, Texas opens their doors at 7am every day except Sunday when it opens at 8am. In a discussion with their manager I learned that business is generally slow in the morning. The customers that do stop by are generally dropping off their bike for repair before their workday begins and they are always grateful.

The study showed that Sunday was the most popular day for bike retailers to be closed with 32% locking the doors, compared to 11% of sporting goods retailers. If an IBR is choosing to close for moral or religious reasons, then by all means, I encourage them to do so. For other, smaller retailers closing down for one day a week may be helpful when attempting to save money. However, closing one day a week means being closed for 52 days a year, almost two months. Any retailer choosing to close one day each week will want to be absolutely sure they are making a smart financial decision.

According to the study the most effective, and possibly lucrative, hours of operation for bike retailers would be 11-8 on weekdays and 8-6 on the weekends. Of course this can vary from one location to another and whatever the hours of operation are retailers would be wise to prove the effectiveness by measuring traffic flow and sales.

Thank you for reading this far. If you found this content valuable, please share. Thanks - Donny

You can find more studies like this in my book! Leading Out Retail is a creative look at bicycle retail and teaches retailers simple strategies on how to increase profit through service, what the most important question to ask every customer is, and how to manage the dreaded Timmy Factor.

Bike Retail in Colombia

I've been in Manizales, Colombia for the past week working with staff from Specialized and retailers from all over the country. In our first session I led management training for SBCU, marketing, and sales leaders in Colombia, Brazil, Mexico, Uruguay, and Chile. The following week the same course was offered in Spanish to 10 retailers from Colombia.

During my stay I've seen a number of bike shops and have had some amazing discussions about the business in this market. It has been very, very interesting.

In Colombia, you will see everything from gorgeous concept stores to small cinder block rooms, no bigger than a couple of bathroom stalls. While I may be biased, I believe the Specialized Concept Stores in Colombia are the best shopping experience for riders. Each store is called Welcome, here are some images of the Welcome Specialized Concept stores.

In general the bike shops operate as they would anywhere else in the world. The biggest difference would be the value placed on service in bike shops. Culturally, service is seen as an evil needed to sell a bike, not a profit center for the business. For example take a look at how much of the total revenue comes from service when compared to the US.

Overall, the trip has been very enlightening. I hope to return soon.

Check out my book. Leading Out Retail is a creative look at bicycle retail and teaches retailers simple strategies on how to increase profit through service, what the most important question to ask every customer is, and how to manage the dreaded Timmy Factor.

Just Because You Count It, Doesn't Mean It Counts

The greatest trick the internet ever pulled was convincing the world it would be easy to do.

If you want to know the ROI on your Facebook, Instagram, or Twitter feed, if you want to know the value of an impression, or if you want to constantly recreate your social campaigns, I hate to tell you that you're in for a lot of work There is a fallacy that says the internet is easy. That once you start tweeting fans, admiration, and money start rolling in.

It' all a lie. There is no easy button. No one-size-fits-all aggregation tool. There is only hard work combined with a clear vision.

There is an ROI on social, but first you have to understand your marketing strategy for the entire business. You show me the marketing strategy for the company, I will show you the ROI.

Social is not fast. It takes time, dedication, and a continued effort to connect to people you don't know. If you can't add value to someone's life then you're time on social is going to e painful (Hint: adding value is not selling you product. Not yet anyway.)

If you liked this, please consider sharing. Thanks- Donny

Building Staffs' Identity

In retail if you can increase engagement between staff and customers the owners will have two ideal results. First, improved customer service and second, an improved connection between the business and the employee. In bike retail, when this is done well, the person working in the store will be come known as the bike shop guy/gal, people will know where they can find them, they will seek them out to ask questions, and any thought they have that relates to bikes will default to them and, by association, to your business. If your staff known for where they works, if their role becomes part of their identity, they are motivated to stay and to do right by customers.

Here are some steps to take with staff to increase their relationship with customers and the cycling community.

Put them in charge of the local cycling club or team
Have them to attend or lead group rides, races, and other events.
Ask them to lead clinics on coaching, bike repair, or skills training.
Have them to donate their time for trail maintenance.
Ask them to speak about cycling at a nearby school.
Have them manage the sponsorship relationship for a local triathlon.
Set up a coffee station during Bike To Work Week and ask that they run it.

As a manager you want to support anything outside of the bike shop that will support the growth of the cycling community. This is how you will develop social wealth in your staff and earn their dedication and hard work.

Can Bike Mechanic's Afford Anything?

From the outside looking in, being a bike mechanic seems like a pretty plush job. Loose uniform standards, get to work on cool bikes, no one is judging that neck tattoo, and you've got a discount on all the best stuff.

This all assumes thought that you have enough money to live comfortably outside of the bike shop. If not, then it can seem to be a thankless job. I have written about bike technician salaries before- but recently converted some of the research into a quick slide deck. Check it out.

Bike Mechanic Salaries from Donny Perry

If you share this slide deck with your favorite bike mechanic they will love you and think you're cool. No, really, they will. Better share it now! Thanks - Donny

How to Lose Half Your Business in One Easy Step

Walk into a Lululemon and you'll see 10-20% of their floor dedicated to menswear. I know Lululemon wants more men buying their clothing, as of January 2013 only 12% of their sales were to men. So what should Lululemon's first step be? My thought: they should be dedicating more of the store to men.

Retailers get caught in an anti-growth cycle. If the sales of last year don't show opportunity then big investment becomes too risky (especially in the case of a public company like Lululemon). Lulu sales to men are only 12%, so they dedicate 12% of the order and floor space to men, and surprise-surprise that year's sales to men don't top 12% for some reason. If Lululemon wants to attract more men, they're going to have to take a risk and dedicate more of their floor space and marketing toward men.

The reverse is true for many bike retailers. Dedicate 12% of the product mix and retail floor to women then don't be surprised when women's product sales don't break 12%. Sometimes, customers reflect the inventory- not the other way around.

To grow a women's market in bike retail we can;t be afraid to make some serious investments. In product mix, in floor space, in advertising, and in marketing. Women are 51% of the US population and control a large majority of household spending. In some major cities like Los Angeles, New York, and Miami the Gender Gap has flipped and women are earning as much as 19% more than men.

If a retailer is under-serving women, they are under-serving 51% of their potential market.

The first bike retailer that jumps on this, that dedicates 50% or more of their store to women (or even opens a women's only store) will win their local market. At the very least, every female cyclist in the city would visit once. For the right retailer, one visit is all they will need to win them over.

If you found this insightful, it would mean a lot if you shared it. Thank you - Donny

The True Definition of Bike Shop Marketing

Merriam-Webster defines marketing as “The activities that are involved in making people aware of a company’s products, making sure that the products are available to be bought, etc.” I would confidently say that this is the most boring definition of marketing I have ever read. Instead I believe that effective marketing- unlike advertising or branding -means only doing two things.

1. Maintain a positive connection with customers.

2. Be extremely helpful.

How do you maintain a positive connection? How are you being extremely helpful?

Thanks for reading. If you found this valuable, it would be great if you shared it. Thanks- Donny

Sales Per Sq. Foot in Bike Shops? Take A Guess.

If we were to center a microscope over brick and mortar retail what many people tend to find is that it’s a real estate game just as much as a retail game. If an IBR can earn significant dollars per square feet then they’ll have opportunities to set up business in a location with great traffic, parking, and amenities that facilitate a positive shopping experience. If they cannot earn the dollars per square foot then they’re blocked out of the prime locations and will work harder to convince customers to seek them out. This is how the phrase, “We’re a destination location” was born.

Sales per square foot is a popular metric used in the retailing industry and is simply the average revenue a bike shop creates for every square foot of sales space. Investopedia, a website dedicated to educating people on finances, investing, and more defines sales per square foot like this, “Sales per square foot is used by businesses and analysts alike to measure the efficiency of a store’s management in creating revenues with the amount of sales space available to them. The higher the sales per square foot, the better job management is doing of marketing and displaying the store’s products.”

Signature Cycles. It would be a safe guess to say they are outside of average for bike retailers.

According to the National Bicycle Dealers Association the average square footage of a bike shop in the United States is 4472 square feet. In a survey done by RetailSails, a retail and consumer goods consulting firm, they measured the average square footage of the nine most successful retailers in the US. They found that the average retail space of Apple, Tiffany, and Coach was similar to bike shops at just under 5000 square feet, the difference was how much those stores earned per square foot- and it was a drastic difference.

Apple was the runaway leader by far, earning $6050 per square foot nearly double over second place Tiffany & Co. The yoga-inspired apparel store Lululemon came in third at $1936 per square foot. And what about bike shops? Depending on their size a bike shop will earn between $100 and $250 per square feet. While most bicycles are more expensive than most Apple products, and require a highly knowledgeable and educated staff, they have the same earning power as a low-end department or a RadioShack.

It’s this kind of earning disparity that tells us bike retailers are clearly playing the retail game, not the real estate game. This means there will rarely be a bike retailer next to an Apple store, Tiffany & Co. or even a Lululemon. Most IBRs simply can’t afford to run a profitable business in those locations.

Since IBRs are playing the retail game they have to convince people to find them and when they do, the people working at a bike retailer have to win them over with an engaging experience, incredible product knowledgeable, and a rooted sense of trust with all cyclists walking in.

Thanks for reading this far. I know you're busy, but if you found this valuable it would mean a lot if you shared it. Thanks - Donny

When Bikes Ruled The World. A Trip Back In Time.

Imagine a moment in time when bicycles were the biggest topic for everyone to be talking about. It happened and greatly influenced bike culture today.

The greatest year to be a bike retailer in the United States was 1972-1974. These are the years many industry veterans refer to as the Bicycle Boom. Time Magazine said it was “the bicycle’s biggest wave of popularity in its 154-year history.” In the early 1970s there were approximately 15 million bicycles sold each year which, for the first time in decades, surpassed car sales. To create a sense of how big this boom was, seven million bicycles were sold in the US in 1970- and only 200,000 of those bikes were lightweight 3-speed or derailleur equipped bikes geared toward adults. The majority of bikes sold in 1970 were children’s bikes, approximately 5.5 million. By 1972 the bikes for adults grew 40x with sales breaking 8 million making it the first time since 1890 that nearly one-half of all bicycle production was geared for adults. The Bicycle Boom was so enormous that the US has yet to match those annual sales numbers.

We can give credit to the Baby Boomers for sparking such growth in the cycling during the early 70s. As many of the Boomers were in their early twenties they were seeking inexpensive transportation and a new form of recreation and exercise. Boomers also had an eye on reducing pollution and they saw the bicycle as their answer.

But the Baby Boomer’s weren’t the sole cause, it was a perfect storm of events as manufacturers in Asia were producing lightweight and affordable bikes for adults. Brands like Fuji, Miyata, and Nishiki are credited as the brands of the Bicycle Boom. They were so dominant that they caught US manufacturer Schwinn on their heels, unable to produce a bike that could compete on quality and price. This arguably started Schwinn’s 20-year demise from their throne as the brand of choice in the US.

National Geographic, May, 1973. Grove, N. “Bicycles are Back, and Booming.” — National Geographic, May, 1973. Grove, N. “Bicycles are Back, and Booming.”

The three largest US-based bicycle manufacturers still operating today were all born from the 70s Bicycle Boom; Cannondale in 1971, Specialized in 1974, and Trek in 1976. Many of the bike retailers in the country also began in the 1970s and the ones that were already in existence saw massive growth. Bicycles were in such high demand that bike retailers weren’t the only ones cashing in- department stores, gas stations, and small garage shops popped up like flies, selling whatever bikes they could get their hands on. Prior to the boom many bike shops were known as one-stop fix all service centers and you were just as likely to find a grease covered mechanic working on a lawnmower as a bicycle.

If bike retailers that started up in the 70s played their cards right, they rode on four more distinct waves in the cycling trends. They likely continued to sell lightweight, Asian-made road bikes in late 70s and early 80s. They expanded into BMX in early 80s but by the end of the decade were focused on the massive growth of mountain biking fueled by American manufacturers like Specialized, Cannondale, and GT. Mountain bikes would carry them through a good chunk of the 90s until 1999 when road cycling made a monstrous comeback on the coattails of Lance Armstrong’s Tour de France performances. As the 2000s came into focus many bike retailers could have also jumped on board with the growing army of triathletes.

From 1970 to 2000 IBRs grew from sales and service to true community hubs. People would walk into their neighborhood store, grab a magazine, and talk about the sport. Discussion bounced from newest bikes, to comparing technologies, dissecting suspension systems, and which riders were lighting up major tours. Club rides started at the IBR and when they finished everyone would grab a beer from the communal fridge. Everyone knew each other’s name and every store had a distinct club-like feel. If you were in the club, you were in for life. If you weren’t in the club, you were only a purchase and a bike ride away from earning the secret pass to belonging. It was a true subculture. Bike retailers were their own niche and the center of all cycling knowledge for their community.

If you read this far and found this article valuable, I would appreciate it if you shared it. Thanks - Donny