I spent six happy, beer-soaked years in college getting a business degree. Let me sum up what I learned for you in nine words: If you can’t measure it, you can’t manage it. You’re welcome! I just saved you a fortune in bar tabs and rent.
Wall Street measures thousands of business performance parameters: gross margins, debt to equity, payroll to sales, return on assets, etc. They hope to chart their way to success by picking the best-performing businesses. Owners and managers at every level in every business need to track and chart some numbers. Which numbers would work for charting paint and material (P&M) costs?
What to Watch
Called Key Performance Indicators (KPIs), Critical Profit Variables (CPVs), performance dashboard or any other catchy phrase you would like to apply, they’re the handful of numbers you need to keep track of your business performance. Remember to pick a handful, not a bucket full, of numbers that you have control over. As a PBE jobber for 28 years, I tracked five CPVs every month:
- Sales per employee (measures payroll, my largest business expense)
- Gross margin percentage (falling fast these days as paint discounting increases)
- Operating expense percentage (tracks total wages, rent, vehicle costs, utilities, etc.)
- Inventory turns (tracks how long stuff sits on the shelf)
- Days of A/R (how long to collect my money)
Five lonely math calculations will certainly not solve every business problem. But when one of them started moving in the wrong direction (longer days on the shelf, more days to collection, less gross margin), I could make changes to right the ship. Once the basic problem is identified, there are a textbook’s more math calculations to pin down where and how to correct it. Avoid going so far down some financial ratio rabbit trail that you lose track of the important day-to-day concerns in running any successful business, such as taking care of customers. Ounces of clearcoat per panel isn’t as critical as reducing cycle times or increasing customer satisfaction. So…fewer numbers on your dashboard, rather than many.
P & M Concerns
P & M costs are always a hot topic with collision shops. They were in 1970 when I started, and they are today. Formulas, ratios and numbers about the subject abound. Every paint company wants to show you some number proving their product excels – number of coats to hiding, number of ounces per panel, numbers of cars per gallon, solids content, mil build, flash times, etc. Sadly, the one number most shops stop shopping at is the discount from selling price.
Basic common sense applies with any offered discount; what you’ll pay at the bottom of the page is what matters. I could offer you a 40 percent discount on Brand A or a 30 percent discount on Brand B, which would you prefer? Smarty that you are, you ask, “Forty percent off what number?” before you pick. Well, the Brand A clear is $300 per gallon, so $300 – 40% = $180 your cost. Brand B’s clear is $250 a gallon, so $250 – 30% = $175 your cost. All the talk of big discounts these days often leads shops to ignore the obvious: paint manufacturer’s user price lists are different from brand to brand. Make sure you do this most basic math step and include the top line price, then apply the generous discount and see what you’ll pay – which is the only number that matters. Or is it?
What costs the most money in auto paint is the color documentation. The paint manufacturer’s cost to identify and match every new color in every variable, in every plant, on every vehicle is truly staggering. Choose a paint brand that offers the best color match and color tools even if it’s the most expensive stuff around. Quick color matches will make more money in any paint shop than cheaper primers, faster flash times or better-looking clears ever will.
Back to our Brand A and B clears, one for $180 and one for $175 a gallon. You got my earlier point by asking what price the discount starts from, and now you elect to save $5 a gallon on Brand B with just a 30-percent discount. But wait, the next most expensive thing in making auto paint is the resin that forms the paint film. More resin and less solvent (a cheaper component) make for a better coating. Clearcoat durability in our industry is about UV protection and final gloss. Higher solids make for fewer coats (time savings), better DOI (distinctness of image) and longer life span. So is there a dashboard number that would compare the A and B versions for resin load? Yes, it’s called “square foot coverage at 1 mil thick at 100 percent transfer efficiency”; a higher number means more resin solids. The $180 clear covers 680 square feet, and the $175 clear covers only 500 square feet. Now, I bet you want to spend the extra five bucks and cover 36 percent more square feet. Good call.
Track Numbers Monthly
The math and the decision about which brand of clear to use was probably made only once; other paint and material math should be charted frequently. Whether it’s cars per gallon of sprayable clear, panels per cup of catalyzed primer or liquid cost per flag hour, there are no shortages of things to measure in the paint shop. Here are some basic, average, typical, median (choose one you like) P&M numbers I watch.
P&M as a percentage of total shop sales (before taxes) should be somewhere around 5 to 7 percent of what the shop sells each month. I contend that you need 90 days of results before you have a dependable number. We carry so much work and inventory through the end of each month that one month of any expenditure in a body shop is suspect. To make my classroom examples easier to follow, I always use 6 percent of shop sales as the typical body shop cost for paint and materials. The top-performing shops can get under 5 percent, but they work really hard at it; everything is mixed over their smart scales and tied to an RO.
Another handy P&M gauge on your dashboard would be the shop’s gross profit on those sales. Gross margin or gross profit (same thing) depends on the same two variables we started with: your cost after discount and your selling price. I contend the typical shop sells about 9 percent of their ticket in P&M. So 9 percent sale minus 6 percent cost = 3 percent profit = 33 percent gross profit. (Gross profit % = sale $ – cost $ divided by sale $). In my experience, many shops are down around 25 percent gross profit on P&M, and the better players are around 40 percent gross. In my travels, I meet top-tier operators, and some of them are making 50 percent gross on P&M.
The shop at 25 percent gross writes a fair sheet but is pretty casual about tracking P&M. The shop making 40 percent writes a fair sheet and controls his P&M costs closely. The shop making 50 percent controls his cost in the same way and does not pay less for the product; he sells more refinish hours. If an 18-hour repair is typical and a better sheet has 20 hours total labor, the top shops write 22 hours on a similar repair and therefore raise their P&M selling price.
One more P&M measurement that might help you measure your shop’s results: I’m confident after 45 years that the typical collision shop paint and material bill is 70 percent paint (liquid of any kind) and 30 percent sundries (tape, sandpaper, filler, etc.). When comparing your shop to this benchmark, make double sure you’re putting the right items into this account. Lots and lots of shops mistakenly lump everything they buy from the PBE jobber into P&M.
The liquid part by my 70/30 math splits up like this:
How does your shop compare to this benchmark? If you’ll do the P&M math, you can establish a helpful benchmark (or three) to manage toward. If you can’t measure it, you can’t manage it. Ask your PBE jobber or paint rep for some paint shop benchmarks they suggest you track. Many top jobbers even have local databases that compare their customers’ results to others in that exact market rather than to national averages. Pretty cool. But until you measure how your shop is performing in several key areas, you won’t find much value in anyone’s benchmarks.
Don’t jump at the biggest discount or signing bonus check from a new paint line. If their stuff is so good, why do they have to give so much away? Compare your choices carefully; do some ready-to-spray math, some solids content math and some flash/recoat time math before you pick a paint brand partner. Find the brand that will hopefully let your shop both spend less and produce more. Track your P&M costs and profits each month with your own dashboard. What are those numbers? Ones you have some control over. You’d like to raise the door labor rate? Me too. Good luck with that. Track something you personally can manage, and then improve the results. Good business will accrue.