At first, this shop owner thought his problem was paint, but after working
with his jobber and accountant, he realized it was actually a sales problem.
Now he’s making good money on paint and focusing on improving other areas
of his business as well.
In the first installment of this series, Johnny kicked the dog because his mother yelled at him when his dad came home from work grumpy and fought with Johnny’s mom. Johnny’s dad, Bob, owns a paint jobber store and earlier that day, Hank, one of his body shop customers, told him that he can’t make money on paint. He said that if Bob couldn’t fix it, he’d start buying his paint from someone else.
So Bob went home grumpy, fought with his wife, who then yelled at Johnny – who then kicked the dog.
In the first of this three-part series, Bob decided to try to help Hank. He also decided he couldn’t offer Hank a discount; it simply wasn’t good business. So Hank and Bob reviewed Hank’s Profit and Loss statement, finding it so poorly formatted that neither Bob nor Hank could tell if Hank’s shop was really making or losing money on paint.
Working with his accountant, Hank reformatted his P&L, making it a management tool. Bob then showed Hank that offering a discount wouldn’t correct Hank’s profit problem. Bob suggested that Hank look at where the paint sales and cost numbers come from.
In part two of the series, we sat in as Hank discovered that many of the items he posted as paint materials are actually small tools or miscellaneous parts. Hank also found that many of the sales of the items he purchases from Bob are being posted to parts sales. Hank began working with his accountant to correct the problems.
Finally, Hank took a hard look at his estimating process. He reviewed an insurance estimate and added “not included” items from the P-pages, corrected some miscellaneous materials prices and found that the adjuster who wrote the initial estimate had missed some $750 on just one job. Hank decided to conduct P-page audits to improve his sales.
Now, we listen in as Hank and Bob meet two months after their last visit. Hank asked for some time to work with his accountant to see what would happen to his P&L with increased sales and a more accurate P&L.
Meeting No. 5
“Hey Bob, great to see you!” says Hank, in a rare good mood. “How are things out there?”
“Spotty” replies Bob. “How are you doing with your P&L project?”
“Great, Bob! Here’s my last month’s P&L.”
“Bob, look at what happened when I focused on improving my damage analysis procedures. My sales are up about 20%! I’ve been focusing on selling what we do here. Now, look at the new format for Paint and Materials.
“We’ve broken both sales and direct costs into three categories: Paint, Body and Miscellaneous materials. I’m losing on Body Materials, but I’m grossing 40.3% on Paint. Overall, I’m making a 33.1% gross profit on materials.
“And look at my parts! By getting paid for all of those expensive clips and little stuff, I’ve improved my gross profit percentage on parts from 12% to 17%. That’s huge!
“Bob, it all flows down to the bottom line. I netted over $8,500 last month. In fact, over the past two months, I’ve more than doubled my net profit dollars! I’m even sleeping easier now.”
“Hank, I am really impressed!” says Bob. “Just think, a couple of months ago you thought your problem was paint cost. Turns out, it was a sales problem. Now you’re making money, good money, on paint.”
Bob continues: “Hank, when we looked at your initial P&L , we couldn’t even tell if you were making or losing money on paint. Then you began working on the problem, reformatting your P&L to match that example I gave you. You also worked with your accountant to find out where the numbers in that P&L came from. You looked at how you sell Paint Materials and how they’re posted to your P&L. You fixed the items that needed to be fixed, and you learned to sell better through an improved damage analysis process. I’m very impressed.”
Click here to see the P&L statements
Says Hank: “I really appreciate the time and effort you’ve put into this with me. And I know I still have a lot to do. I was talking with my accountant, and he wants me to compare my performance numbers to the industry so I can see how I’m doing compared to other shops. He called it benchmarking. Do you know anything about that?”
“They talked about that in the seminar I held for my customers,” says Bob. “I think we’ll bring that one back. There are some other consultative services available through your paint company, too. You’re getting way out of my league, so I’ll see if I can get someone to come by for a visit. I’ll also sign you up for the seminar.”
Hank, now seeing dollar signs in his head, says: “Bob, I know I can do better. I think I need to improve my Gross Profit on Labor. I’m just not sure how. I know I can get more work out of this place. I just need to figure out how to get more people to come to my door and how to sell them once they get here. I’m thinking of adding on, and I’ll need some layout and design help. My accountant said I should look into a shop management system, too.”
“Hold on, Hank,” says Bob. “One thing at a time. We have seminars on marketing, sales and human resources. I’ll get the schedule for you. Your paint company can help with layout issues. They also can help with a management system. It also wouldn’t hurt you to go to NACE, check out all of that stuff at one place.”
“You know what?” says Hank. “A few months ago I thought I’d be better off just closing this place. I didn’t even have money for my mortgage. Now things are much better. I even opened up a 529 plan for my kid. By the way, you probably noticed that I paid your bill a couple of days early this month. I took the prompt payment discount. I had to get something out of you!”
“That’s great, Hank. When your business improves, mine does too. I think I’ll take my wife and little Johnny out to dinner to celebrate. I might even buy some milk-bones for Johnny’s dog.”
Life Imitates Art
This article is a work of fiction, sort of. Although Bob and Hank don’t exist, they do in a way. There are lots of Bobs out there and plenty of Hanks, too. While the labor rates are for example only and the story is fiction, all of this is based on the experiences of real shop owners, real jobbers, real estimates and real P&Ls.
Even though this series is finished, Hank has just begun his journey into profitability. He’s learning
that there’s more to the collision repair business than
With respect to improving Paint Materials Profitability, the first step is to define the problem in dollars and cents terms with a properly formatted P&L. Then, dig into the numbers to find the problem.
There are only two ways to increase profitability: Increase sales or reduce costs. Generally, increasing sales is much easier and faster than reducing costs.
But don’t ignore the cost issue!
Some quick tips:
• Maintain minimal inventory of materials on the shelf. Techs are more careful if they think you’re about to run out.
• Place price tags on the cans and boxes.
• Install a computerized mixing system and get training to run usage and mixing accuracy reports. Cost per mix should not exceed $18. Mix all materials on a computerized scale to track mix accuracy and mix per RO. Mix ounces per panel to effectively reduce costs. If you already have computerized mixing, review the features with your jobber or paint representative to make certain you’re maximizing the benefits of the system.
Computerized mixing systems have many features that provide the opportunity to track cost, accuracy and improved color match. But to take advantage of these benefits, everyone must be trained on how to use the system and everything must be mixed on the scale.
Computerized mixing systems can provide invoicing that may be used to negotiate materials sales “above threshold allowances for materials.” (That’s the politically correct way of saying, “Blow the paint cap!”) One word of caution: The information and pricing in your system must be correct, so update it quarterly.
• Re-dos and comebacks eat up valuable time and materials. Eliminate re-work through the implementation of written standard operating procedures. Work with your suppliers to make sure you’re using materials properly and efficiently.
• Review your inventory. I worked with one shop owner who had six types of 320-grit, 6-inch DA paper. Think about it. Why do we use 320-grit paper? To make 320-grit scratches.
By reducing the number of 320-grit DA papers from six to two, he received a $320 credit and reduced the inventory on his shelf. The money has to be somewhere, and in your checkbook is better than on a shelf! Review inventory quarterly and eliminate duplication of materials.
Invest in training for technicians and management, and reinforce training. A well-trained tech can be your best friend when trying to control materials usage.
And avoid “hand-me-down” training.
Sadly, some shop owners will toss thousands of dollars away in poor mixes, lost labor hours and wasted time, yet they won’t invest a few hundred dollars in training, which will ultimately eliminate the waste of those thousands and thousands of dollars. Don’t think of training as a cost; it’s an investment in your business.
Writer Hank Nunn is president of H W Nunn & Associates Inc., a collision industry consulting company. Nunn is a former shop owner, adjuster, technician and jobber store owner. He’s currently the lead facilitator and sales/marketing manager for DuPont’s SMART Seminar shop management training series. Nunn can be reached at [email protected].