If You Do It, Charge For It, Part II - BodyShop Business

If You Do It, Charge For It, Part II

Unless you're running a non-profit organization, you need to write complete estimates and charge for all materials used. You say it's not worth the time or hassle for the pittance you'll gain? Then how about making out that check for 40 grand to me?

Last month, we looked at how to increase profits on paint and materials by using proper estimating techniques and charging for all the materials you use when repairing vehicles.

Some of you might question why you should bother with such a trivial part of the repair process. After all, materials are generally only 10 percent of the repair bill. Why would an increase of 20 or even 40 percent of the amount billed be so crucial?

With utility rates rising, advertising rates increasing and virtually every other service we use going up in price – while our door rates remain fixed by insurers – it’s important to maximize our profits in all areas and profit centers. Our expenses are increasing, yet our income remains the same. Yet we’re expected (by some) to make it up through volume. But why not capitalize on the work we already have?

If original materials came to $200, a 40 percent increase in the amount of materials billed is only $80. And at 35 percent profit, that’s a net gain of only $28 – hardly worth the effort, right?

Wrong! First, these are materials you’re using anyway. So why give them away, especially to a party that’s part of a multi-billion dollar industry? You’re paying for these materials, and you’re using them. If you’re then giving them away, you’re losing twice. The first time is when you pay for them, and the second is the potential profits you lose when you give them away.

Not to mention that the $28 you’re losing is only on one job. Multiply that by 10 jobs per week and then by 52 weeks per year, and you’ll see you’re losing about $14,500 annually. Maybe even more. To see how much you’re really losing, add the $28 in lost profits to the $52 cost, multiply that by 10 jobs per week and then by 52 weeks, and you’ll see that you may be giving away more than $40,000. And that’s only at 40 percent more materials per invoice. And that’s only on materials. It doesn’t include the additional labor to apply these materials.

Let’s take a closer look at what I’m talking about by examining a few estimates:

Estimate No. 1 probably looks very familiar to everyone. Generally, this is how insurance appraisers, along with many shops, write. It shows basic procedures, parts and materials, but it doesn’t reflect all of the operations and materials the shop uses to repair this type of damage.

Estimate No. 2 is actually just a supplement that includes some of the “overlooked” items from the first estimate. The supplement is an overall increase of 24.6 percent. That’s $271 that was almost given away. And this isn’t additional work. It’s things that were being done for free! And that’s overall – including the labor used to perform these tasks.

Since this article focuses on materials, let’s examine that aspect separately. On the original estimate, the amount for paint and materials was $170.60. If you add in the materials on the supplement, that brings the figure to $246.60 – a 44.54 percent increase – again for materials you used anyway but didn’t charge for. All of these materials were being put on the customer’s vehicle free of charge. And this is a relatively small job. An average shop produces at least five of these a week. Multiply $76 in materials given away by five and then by 52 weeks a year. That’s nearly $20,000 annually that’s been slipping right out your shop door – with your blessing!

Let’s take it a step further:

There are only two materials invoicing systems out there that I know of – PaintEx and the Mitchell Refinish Materials Calculator. Both systems are paint code and paint manufacturer specific (we all know that red paint costs more to mix than white). Both systems allow for entering user-defined materials such as sandpaper, seam sealer, undercoating, etc. And both systems cost about the same. The only real difference is that PaintEx is the only product its manufacturer has, while Mitchell has other products like estimating systems.

As shown on Estimate No. 3 and the Materials Invoice, the materials for this job (including a user-defined profit margin of 40 percent) come to $395.65 – for an increase of $225.05, or 131 percent over the initial estimate.

“That’s ridiculous,” an insurer might say (some of you shop owners might even agree).

But the fact is that shops all around the country are using these systems and getting paid for their materials accordingly. In fact, some states have laws that prevent insurance companies from denying payment for materials if an invoice is provided (New York is one. See Circular Letter #16, 1997). Even without such laws, you, as an independent business owner, should price your products and services so they reflect a reasonable profit. Your profits shouldn’t be dictated by a third party.

Extreme? Maybe. But if you stop to consider that the paint manufacturers have an annual increase while the insurer reimbursement rate remains the same for two, three, four or more years, you’ll begin to see just how much you’ve been giving away.

Writer Patrick Yurek is the vice president of Collision Consulting LLC (www.CollisionConsulting.com). He has 22 years of industry experience and has held every conceivable position in a collision repair facility from sweeper to management. Among his credits are several PPG certifications and General Motors technical certificates. He was the president of the General Motors Service and Parts Managers Organization of Western New York until he relocated to the Charlotte, N.C., area, where he’s now manager of the Griffin Chrysler, Dodge, Jeep, Toyota, Pontiac, Buick, GMC collision center in Rockingham, N.C.

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