From Red to Black - BodyShop Business

From Red to Black

We lost more than $150,000 on paint and materials last year. The reason is because the old dollars times paint labor hours formula is outdated. The solution is invoicing.

We all know that part of running a successful body shop is making a profit on what we sell. Some things are considered part of the cost of doing business, while other things are considered our profit centers.

Our overhead items such as rent, utilities, equipment and insurance, along with employee benefits, are items I consider “costs of doing business.” Parts and paint we resell, however, are something we’re entitled to make a profit on. The problem is that many insurance companies believe that paint is something that body shops should only break even on. Worse yet, some insurers consider paint and materials to be part of our overhead, or expect us to add it to the cost of doing business.

Ask yourself these questions: Are parts something I should sell for cost or below cost? What if I adjusted my labor rates down to what I only had to pay my employees? Maybe parts and labor should be considered part of my overhead? Maybe because I purchased my property years ago and pay a low mortgage, I should pass those savings on to the insurers as well? You can see where I’m heading with this. We need to charge for paint and materials like any other business would.

Out With the Old

To determine what to charge for paint and materials, we all use a formula that’s outdated and, unless you’re in the business of losing money, needs to be gotten rid of. It makes no sense for us to keep using a formula that requires us to absorb paint and material price increases. Why do we have trouble collecting for body materials? Who said they should be included?

You need to treat paint and body materials just as you would any other part that you resell. We sell parts every day that have price increases and charge insurers the difference. Parts are never considered part of our overhead, and it’s absurd that paint and materials is something that could fall into the category of the “cost of doing business.”

For years, we never worried about what our labor rates were because we could always add more repair hours to balance out the deficit. Now we’re crying for labor rate increases because the old formula no longer works. We can no longer justify adding a couple of hours here and there to make up the difference. And body materials that we at one time were able to absorb with our paint material formulas can no longer be lumped together.

We charge $10 to $15 for materials for caulk and seal when a tube of sealer for many vehicles costs $80. Most primers and sealers are $150 or more a gallon, and masking tape is $4 a roll. Gasoline is at $4 per gallon and, since paint is petroleum-based, we’ve watched our paint bills soar over the last couple of years without any compensation. Something needs to be done, and paint and materials invoicing is the only way to guarantee you’re not going to lose money.

Typical Invoice Items

  • Sandpaper
  • Masking paper
  • Primer
  • Sealer
  • Caulking
  • Weld-through primer
  • Adhesion promoters
  • Hardener
  • Plastic car covers
  • Rubbing compounds
  • Filler
  • Sound deadener
  • Hazardous waste removal
  • Wash thinner
  • Paint can or cup
  • Reducer
  • Paint
  • Scuff pads
  • Disposable clean wipedown towels
  • Tack cloths

Crunch Go the Numbers

I do everything by the numbers. In fact, you might call me an obsessive number-cruncher. So when I looked at my numbers from last year, I found that we weren’t charging enough for paint and materials and, as a result, were in the red more than $150,000. I needed to do something fast because we were paying more for paint than we were able to charge. As far as the body materials, we were just giving them away and soon realized they could no longer be included. The formula we were using was broke.

This put me in a tough situation because I have agreements with several DRPs, and shops as a whole all used the same old $22 to $30 per paint labor hour formula. I contacted my paint company representatives and asked them to develop an invoicing program that would break down my cost per job. I told them I wanted all of the staple items listed separately. We know that a lot of related materials are used when painting a repaired panel, and I needed to see exactly what I was spending in detail.

My next step was to purchase a paint invoicing program and do a cost comparison. Once I did this, it was as if I had been awakened from a deep slumber or finally had the blinders removed from my eyes. The price difference was staggering! I was undercharging by at least 40 percent, numbers I was sure  the insurance companies wouldn’t believe. But how could they not when they were going to the gas pump and paying twice what they paid for gasoline two years ago just like everyone else?

One insurance company called me and said that it wouldn’t accept one of my invoices because it was too generic and requested a more itemized invoice to show the paint formula and all of the staple items individually. The original generic invoice I sent them was for $1,147, and the second itemized invoice they requested totaled out to $1,368. Despite the new invoice being higher than the original, the insurer paid it.

As we started invoicing our materials, the insurers we didn’t have DRP relationships with were put in a situation where they had to perform because they were faced with an invoice that couldn’t be challenged. As we continued to invoice our materials, we were surprised at the price for some colors. All paint is priced differently by color, so to lump it all together and charge by the labor hour no longer worked. Red is a more expensive color than black, and unless you want to stay “in the red,” you need to charge accordingly.

After receiving and paying several paint and material invoices, one insurer contacted me and asked if I would go back to the old formula if it was willing to raise its rate. I said sure, pay me $45 per paint labor hour and give me the right to invoice for all specialty colors, like pearls and three-stages. We eventually agreed on $40 dollars per paint hour, up from $26, and our relationship has stayed the same. By showing them the invoices, I was able to prove that the old rate was no longer working, and they were compelled to pay.

Respect Is Key

I firmly believe you need to pick your battles and show the insurers that you want to be fair but that “the door swings both ways.” You have to earn their mutual respect in a professional and businesslike manner and find some common ground. I never make demands but instead negotiate with them as a professional. I respect them for doing their job, and I expect them to respect me for doing mine. Just as it’s their job to save their company money, it’s my job to make my company money, and invoicing paint and materials has allowed me to do just that.

Sample Invoice: Big Money Gained

Using the old dollars times paint labor hours formula, a normal three-hour paint refinish of a repaired panel @ $30 per paint hour for materials = $90 total paint and body materials. Below is the invoice for the same three-hour paint refinish of a repaired panel for paint and materials.

(All materials should be marked up between 20 and 25 percent above cost. Your actual cost will vary slightly depending on your geographical area and your paint and material provider. I rounded some of the cost numbers to the next highest number. The bottom line is that you should check your individual invoices to create your own accurate shelf test.)

  • 3 sheets of 40 grit long board @ .80 each = $2.40
  • 3 sheets of 80 grit long board @ .88 each = $2.64
  • 3 sheets of 150 grit long board @ .60 each = $1.80
  • 6 sheets of 220 DA paper stick it @ .52 each = $3.12
  • 3 sheets of 320 DA paper stick it @ $1.39 EACH = $4.17 (see the difference in price from 220 DA)
  • 10 sheets of 320 blocking paper @ .36 each = $3.60
  • 1 roll of masking tape = $3.20
  • 3 coats of primer = 1 cup of Sherwin P27 ($164.56 per gallon) @ $7 per coat = $21.00
  • 15 feet of plastic car cover @ .40 per foot = $6.00
  • 1 quart of filler used in repair @ $28.00 per gallon = $7.20
  • 1 scuff pad @ .64 each = $0.64
  • 1 disposable towel for solvent wash = $0.24
  • 1 quart paint can = $0.85
  • 1 tack cloth = $0.76
  • 1 quart of paint (CODE # ? – price varies) = $39.00 (I used a low average paint price; some were as high as $129)
  • 1 quart of clear @ $175.36 per gallon = $43.84
  • 4 ounces of hardener @ $64.08 a pint  = $16.02
  • 4 ounces of rubbing compound = $0.75
  • Hazardous disposal = $5

Total to refinish a three-hour repair by invoice = $114.30 plus 20% markup = $137.16 (which is a $47.16 per paint hour undercharge if marked up 20%). Even if I remove the 20% markup, I’m still at over a 26% deficit. My cost for a three-hour repair is $114.30, and I was only paid $90 before invoicing. At cost, the difference is $24.30 on just three paint hours, which is $8.01 per paint hour lost at cost.

If you painted 500 hours per month at your shop, you would be undercharging $4,005 per month or $48,060 per year. Our shop produces 2,250 paint hours per month! So this number is huge for us. Do the math for yourself and you’ll be shocked at what you find.

Even if you sold your paint and materials at cost, you would still have a 26% undercharge. This means that by using the $30 per paint labor hour formula, you’re losing almost 26% on every bit of paint and materials you sell. If you add the markup back in, you’re losing about 46%, or undercharging by $7,860 per month by using the one-hour paint labor to $30 dollars formula.
Keep in mind that I’ve included all body materials as well as all sandpaper that would have been used to repair a three-hour dent and totaled three hours refinish time. I did this because many insurers think that this should be included and won’t allow a separate line for body materials.

It’s really easy to create your own formula with exactly what you use, but either way, invoicing is the only fair way to be paid for paint and related body materials.

Writer Lee Amaradio Jr. is the president and founder of Faith Quality Auto Body Inc. in Murrieta, Calif. His 32,000-square-foot state-of-the-art facility employs 65 full-time employees and does $7 million in gross sales. In business since 1979, Lee attributes his success to having a great team of quality people supporting him. Lee says that he “sees the handwriting on the wall” and believes that “now is the time for us to reclaim our industry, before it’s too late.”
He can be reached at [email protected].

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