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I Lost My DRP!

State Farm’s recent announcement that they’re testing a new direct-repair program and that they’ll be reducing the number of shops that participate has left repairers scratching their heads and pondering the same question: Is there life after Service First?

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Hank Nunn is a 35-year collision industry veteran. He is now retired.

Just when things seemed to be getting boring in the ol’ collision repair industry, State Farm puts the word out that they’re “testing” some rather dramatic changes to their Service First program. Things like, “We want a rate that matches your lowest rate. We want you to agree to do a few things for free. You know, like detail, total loss admin, lifetime warranty, little stuff. And oh, by the way, we’re going to audit you, and if you don’t live by our new rules, you’ll be removed from our program. We need to reduce the number of DRPs, and this is how we’re going to do it.”

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I probably don’t have that quoted exactly right, but it’s close.

The reaction in the collision repair industry has been interesting. Everything from “The sky is falling! How can they do this to us?” to “Well, if they want to match my lowest rate, I’d better just renegotiate my lower-paying DRPs or drop them.”

If you have a small to mid-sized shop relying on State Farm referrals for the lion’s share of your business, the new policy may be scary. Really scary. Especially if you just got word you’re no longer on the program. On the other hand, if you own a larger shop with no DRPs and don’t like State Farm (and SF probably doesn’t care much for you either), it’s no big deal.

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Most shops are somewhere in the middle of these two extremes, and they’ll scramble to try to keep the account. But what if you can’t keep it? What are you going to do if a substantial portion of your business comes from one DRP and that DRP (in this case State Farm, but it could be any of them) removes you from the program?

Now I could blow “seminar smoke” and point out that “the Farm’s” actions will have no effect on the industry as a whole. The same people are going to wreck their cars, and those cars are going to be repaired by somebody. And that’s a perfectly fair point of view — if your shop isn’t the one getting dropped or if you don’t do much State Farm work. It’s pretty easy for a trade magazine writer/consultant to say: “Don’t worry. It’ll all be OK.”

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But when it’s happening to you, all of that seminar smoke and consultant/writer “don’t worry” stuff does nothing to address your immediate problem. If you’re one of the hundreds, perhaps thousands, of shops getting cut out of the program, this is a big problem. Right now! So mister-consultant-know-it-all-trade-mag-writer, what are you gonna do about it?
That’s what this article is all about.

You’re not the first shop owner to lose a big account. And you won’t be the last. You can get through this.

First, take a deep breath. And get mad, really mad. Stay at the shop late. Beat up an old, abandoned total loss with a 5-pound hammer. Draw a target on a piece of sheet rock and throw a heel dolly at it until it’s nothing but dust. Scream at the top of your lungs about how unfair life is. Do these things alone because if anyone can hear or see you, you’ll really look foolish. And don’t drive yourself home if your tirade involved beer, margaritas or umbrella drinks.

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Once you’ve expressed yourself, get over it. It’s business. State Farm is doing what they’re doing because it makes good business sense for them to do it. You now need to make some good business decisions of your own.

It may feel personal but it’s not. It’s actually a marketing problem.

Remember Marketing?
Why did you get involved in a DRP anyway? Simply put, because they provide a relatively steady stream of work to the shop with a minimum of hassles. There’s nothing more beautiful to a shop owner than a steady flow of work. DRPs are one way to get that.

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Because I’m not foolish enough to blow smoke at someone who has just been throwing 90-mph fastballs with a heel dolly, let me get right to the point: Every business should have a marketing plan, a written document outlining who we are, where we are, what we are doing and how it’s working. The plan should tell us what new targets we have, how we plan to go after those targets and how we’ll measure our success.

Sadly, in our industry, we’ve gotten lazy when it comes to our marketing. Says one Texas multi-shop owner: “We’re lazy. With DRPs, all you have to do is grab another program and poof! You have more business. But it’s gotten harder lately. A lot of business isn’t even going to the insurance company. We have to re-learn how to market ourselves like we did in the 1980s.”

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Words of wisdom. We do need to re-learn to market ourselves. We need to create a marketing plan that doesn’t rely solely on that DRP that just walked out the door.

Now we don’t have time or space here to go into a step-by-step procedure for creating and running a marketing plan. Plus, marketing takes time. If you’d like information on creating a shop-specific marketing plan, visit www.amionline.org to check out the marketing seminars available to our industry.

Tactics to Implement Quickly
If you’re like most shops, you have no marketing plan and need something quick. We do have time and space to suggest a few tactics you can implement immediately to soften the blow of losing a major source of business.

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First, the concepts. Second, some suggested action steps. But please keep in mind that these action steps are only intended to buy time. We all need a good marketing plan.

Concept No. 1: We could do a better job selling.

Concept No. 2: We could write a better estimate.

Concept No. 3: The purpose of DRPs is to bring insurance customers to the door. It’s our job to convert that insurance customer into becoming our customer and salesperson. The shop spends more time, one on one, with the vehicle owner than anyone else. We can build from this. Focus on them. They’re still going to wreck their cars!

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Concept No. 4: There are other sources of work out there. Go get it!

Action Step No. 1: Sell better! What’s your current closing ratio? That’s the percentage of estimates that you convert into repair orders. Most shops close about 60% of their estimates. Good shop sales people can sell 75 to 80% of their estimate opportunities.

I recently sat in on a mystery shopping presentation. Twelve high-quality collision repair shops in a mid-sized U.S. city were “mystery shopped.” Of the 12, only three service writers asked for the job. And not one asked twice.

As an industry, we write estimates; we don’t sell. But we should.

When faced with the loss of a DRP or any source of business, we should sell like our business life depends on it! Because it does. Our ability to sell not only provides a roof over our family’s head, food and stuff for our kids, but it also provides all that for our employees and their families. Sell!

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Learn to sell better. Ask for the job, five times. Read a book on selling. Don’t be afraid to sell. Go to a sales seminar. The customer needs to have his car fixed. Get the job and fix it!

Action Step No. 2: Take the time to write a complete estimate – the first time. Get it all, even nuts, bolts, clips and miscellaneous materials, up front. Try to get the job first through selling. Then tear it down prior to writing the damage report.

BSB has been running a series on “lean production” called “Lean & Mean.” The first step in eliminating waste in the collision repair shop is to complete an accurate damage analysis prior to beginning the repair. This process, called triage by some and pre-repair management by others, reduces supplements and eliminates many of the issues that cause production to stop while a vehicle is in process.

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The added benefit of creating a more accurate damage report is an increase in your average repair order. Since you’re not their DRP any more, you can write what you need and negotiate from there. You no longer have to worry about the re-inspector telling you that your severity is too high.

Action Step No. 3: Convert your customer base into an effective sales force. Go back over last year’s ROs. Send a letter to every customer asking them to confirm their satisfaction with your work. Send a letter to every one of the lost DRP insurer customers. Explain that there has been a change in the relationship with the old insurance company but no change in your relationship with your customer base — and that you’ll continue to treat them as your customer. You’re the one who fixed the car. All that the insurance company did was write the check.

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And if you don’t do it already, institute an aggressive customer satisfaction indexing system. Build this concept into your day-to-day marketing activity. It’s called customer referral marketing, and it’s the most powerful, cost-effective marketing tool available today.

Action Step No. 4: Go after other business. According to a survey conducted by DuPont Performance Alliance, 30% of the non-totaled damaged vehicles in the United States don’t get repaired through the insurance industry. That’s a lot of work. Spend some time talking with those people, discover their unique needs and tailor your offering to match their needs.

You can also look to fleets, large and small, to fill the void left by a DRP.

Promote your business as the “non-insurance” alternative. Most DRPs require some concession, like a 10% discount on parts and labor. Budget that amount in for a good referral marketing strategy, and you could more than replace that lost DRP business.

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Sell, Sell, Sell!
Let’s look at an average shop in an average town.

Impact of increased close ratio on loss of DRP

Shop Avg Monthly Sales $100,000
Close Ratio 60%
Avg RO $2,000
Number of ROs 50.0
Number of Estimates 83.3
RP Volume $’s $20,000
DRP Volume ROs 10

This shop is doing $100,000 per month. That’s 50 units @ $2,000 each. They currently close 60% of their sales opportunities and have one major DRP, accounting for 20% of total sales.

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Make that had one DRP. The bad news came, and the DRP is gone. Time to act!

The chart below represents the shop without the DRP but with an improved close ratio. The shop owner decided to close more sales opportunities by asking for the job more often and presenting his shop’s value, demonstrating empathy and building trust with his customers.

Lose DRP, Increase sales skills

Shop Avg Monthly Sales $112,500
Close Ratio 70%
Avg RO $2,000
Number of ROs 56.25
Number of Estimates 75
Residual DRP Volume $’S $4,000
Residual DRP Volume ROs 2

The shop owner has increased his close ratio to 70%. While door traffic has dropped due to the lost DRP, the ability to close 70% of the remaining 75 estimates actually increased sales to $112,500. That’s a 12% increase post DRP. And this is achievable by simply selling better. It’s also important to note “Residual DRP Volume.” That represents past customers who came through the DRP, need service again and went directly to the shop. Some will.

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But we’re not done yet. Next, the shop owner decides to generate a better initial damage report.

Here we see the effect of improved damage analysis processes. The average RO increases 5%. Sales, post DRP, are now $118,125. That’s an 18% increase in sales after losing the DRP.

For this shop, improved production processes, a focus on reducing cycle time, and building and implementing a marketing plan will solidify these gains and provide the thrill of having a business dependent on satisfied customers rather than on one large DRP.

Lose DRP, Improve Damage Analysis

Shop Avg Monthly Sales $118,125
Close Ratio 70%
Avg RO $2,1000
Number of ROs 56.25
Number of Estimates 75
Residual DRP Volume $’S $4,200
Residual DRP Volume ROs 2

Is There Life After DRPs?
Losing a large DRP, or any large source of business, is emotional and potentially devastating to any shop. But it doesn’t have to be. Improved sales skills and improved damage analysis processes can be implemented immediately to offset a loss of a DRP or any major source of business.

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Long-term solutions involve creating and implementing a good marketing plan using many marketing tools and strategies to ensure a continuous flow of work to your business. In fact, there are many shops out there that have made the choice to leave DRPs as they’ve discovered that alternate sources of business provide increased profitability and increased security.

State Farm’s “test” may actually be a good thing for our industry. Sure, losing that big a chunk of business can be scary, but doing so will force many of us to become better marketers and reduce our dependence on direct insurance referrals.

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Writer Hank Nunn has been involved in the collision repair industry for the past 30 years. He’s worked as an adjuster, technician, shop owner and jobber. He’s done it all. Or maybe he just can’t hold a job? As president of H W Nunn & Associates, Hank has provided management training to the industry since 1989 and serves as lead facilitator, sales and marketing manager for DuPont’s SMART shop management training series. You can contact Hank at [email protected]

Comments?

Fax them to (330) 670-0874
or e-mail them to BSB editor Georgina K. Carson at [email protected].

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