How do most collision repair facilities calculate body materials on a vehicle, for example, replacing a truck outer bedside panel? Bonding panel adhesive, drill bits, weld-through primer, seam sealer, self-etching primer, welding supplies, etc. In the past, we have cost itemized to bill the insurance companies. Also, are the insurance companies required by law to reimburse body shops for this additional cost? Some insurers have stated these body materials are included with paint materials.
Thank you for your questions. Let me address these in the order you asked them.
How do most collision repair facilities calculate body materials on a vehicle?
The methods collision repairers use to determine their material costs vary. Most repairers simply fail to list or charge for “body materials” and therefore lose their actual cost and fail to earn profits.
Some repairers rely upon:
- The antiquated method of using the fictitious, fabricated and often inaccurate formula of “refinish material rate (in dollars) multiplied by published estimated refinish labor guide times.” This rate is generally determined by insurers prescribing them as “prevailing competitive pricing.” These values have little accuracy or legitimacy relative to true costs and reasonable profit structures. As an example, this “rate” is applied to all repairs regardless if the finish is white, silver or red and whether or not the colors can cover (as some may require more applied coats, requiring more mixed materials). Because “refinish materials” pertain to those materials used in refinish prep and application, “body materials” are not taken into consideration, so repairers tend to not list them and provide such materials at no charge.
- Some shops employ paint/jobber weight and measurement systems where the paint and materials usage is calculated at the time of mixing. These programs rarely if ever take into account allied or ancillary products such as razor blades, rags, sandpaper, disposable cups, liners, tack-rags and many other products used in refinish prep and application. These calculators and methods do not address body materials employed as necessary to bring a damaged panel to the condition (“new out of the box”) needed for refinishing.
- Some shops use programs that take into account all material and ancillary products (based on various things such as areas being refinished) that are based on actual costs plus desired mark-up. These systems provide the user with the ability to add body materials in the quantities used and accurate pricing with desired profit margins.
It’s important to understand what the difference is between paint materials (aka refinish materials) and body materials and what they entail. I encourage everyone to read and thoroughly understand the P-pages. As I tell my repairer coaching/consulting clients, “The ‘P’ in P-Pages stands for profit!”
Where the P-pages are mute on a point, it’s up to the businessperson to fill the gap and make their assessment based on their professional experience, training and knowledge.
A Thousand Cuts
The lack of charging properly for body materials can be a huge loss to a repairer over a period of time; it’s like “a slow death by a thousand cuts.”
To use your example, you have a truck bedside with a 1.0-hour dent. You get paid to repair and refinish it, and the small quantity of body materials needed may include a grinding disc, minor amounts of epoxy/catalyzed primer, body filler, several stages of sandpaper, primer/sealer, guide coat, masking tape, masking paper and car cover, etc., to bring it to the condition where the labor guide’s refinish times would then apply. Not a huge deal as you may lose $50 or so at full “retail” pricing and $25 in actual costs for unpaid body repair materials. Keep in mind that, at 10% net, $25 equates to the bottom-line net profit on a $250 repair.
Now consider replacing the same bedside and the many materials and quantities you would use, from spot-weld drill bits to seam sealers, while receiving the same paint and material allowance as in the 1.0 labor example above.
As to how to establish pricing, this is up to the individual repairer. They may elect to continue to give them away at no charge, employ the manufacturer’s suggested retail price (MSRP), use the “cost-plus” method, or establish resale pricing to achieve their desired profit margin. It’s not uncommon for service providers in other industries (e.g. plumbing, heating/A/C, lawnmower repair, etc.) to mark up materials 100% or more.
Repairers should charge for all incurred costs for body repair-related activities in a manner that allows for a reasonable return on their investment. Not billing for body materials would be no different than only charging for the actual cost of labor without markup.
Markup vs. Margin
“Markup” and one’s profit “margin” are calculated differently. The amount you mark up your materials doesn’t equal your profit margin percentage. Understand the difference so you can more accurately set your markups to make the profit you’re expecting.
Regardless of what method you use, you should make a reasonable return on all investments made. After all, this is why it’s considered your business rather than your hobby!
In the past, we have cost-itemized to bill the insurance companies.
I encourage repairers to prepare accurate billing and submit it to their customer. As a courtesy to your customer, you could submit your estimate and billings to the insurer. This brings up your other question.
Are the insurance companies required by law to reimburse body shops for this additional cost?
The only time an insurer would be responsible for a repairer’s billing is if, for example, a repair was performed on one of their own fleet vehicles. Otherwise, anything that a repairer does that involves the insurer is done as a courtesy to the repairer’s true customer. And the customer, as defined by most states, is the party who signs the repairer’s repair authorization/contract.
Note: one caveat to this is when a repairer has an agreement/contract with an insurer under a DRP, as there may be certain restrictions and obligations that preclude them from normal and customary business practices.
Some insurance companies have stated these body materials are included with paint materials.
Of course they have! Why wouldn’t they? The reason insurers make such assertions is quite simple…they often work!
In my 35-plus years in the collision repair industry as a shop manager, owner and industry consultant interacting with thousands of repairers over the years, I’ve learned that such assertions by insurers work due to the fragmentation and divisiveness of repairers and their failure to come together to discuss such issues. Many have learned what they know from the insurance industry. Consider that the educational sessions at large industry gatherings where training is offered are often funded or influenced by insurers.
Because repairers do not interact with other repairers in their market, they often rely on information from claims people who visit their shop for inspections. It often goes something like this:
“Hey Joe, you get around to all the shops in the area…what are shops charging to set-up and pull nowadays?” Or, “Hey Joe, what are insurers paying for body materials?” And of course, the insurer tells them what the insurer wants them to hear.
The simple fact is that most body shops are owned and operated by people who are great at fixing cars but not so great at running a business. So rather than rely on their own education and understanding, they look to others to advise them on how to run their business. As a second-generation body shop owner, I was once one of those people.
Insurers will gladly educate repairers on what they want them to hear and do. Repairers must take control of their own businesses and determine their own pricing as it pertains to their specific business in their specific marketplace and base their pricing structure on sound business practices – pricing that will not merely enable them to survive but thrive.
Determining one’s pricing is a balancing act. It must be competitive based on the level of services offered but provide sufficient profit to remain sustainable. Those who have lower overhead can offer lower pricing to entice a greater volume of work. Or, they may establish a higher pricing structure and do fewer repairs but at significantly higher margins/profit. Those who have high overhead will be compelled to know their true cost of operation and determine the profit margins needed to charge what is needed to cover their costs and earn a reasonable profit.