Is Your Paint Shop Profitable? - BodyShop Business

Is Your Paint Shop Profitable?

It's all in the numbers. By taking out your calculator and figuring how well you're doing on your key performance indicators, you can quickly determine where you're proficient in the paint shop and where you're just painting yourself into a corner.

You’ve hired the best people, you have the newest equipment available and you use the best paint in the industry. So why aren’t you hitting your target profit numbers each month? Your shop appears full, but are your profits as high as they could be? Focusing on a variety of key performance indicators (KPIs) will assist you in cross-checking your operations and provide you with tips on making your shop more profitable.

Step One: Labor Efficiency
To begin analyzing your paint shop’s productivity, one of the first KPIs to review is your labor efficiency.

Although many shop owners usually look to material items first when they analyze their business and try to cut costs, one of the best ways to improve efficiency is to review staffing to ensure they’re working at full capacity and utilizing all the necessary resources.

How do you determine your paint labor efficiency? It’s simple, since only two numbers are needed:

  • Produced paint labor hours (or paint labor hours sold),
  • Employee hours attended.

If you pay your technicians on a flat-rate system, the paint labor hours sold information should be available from your payroll system. It may also be found in your computer management system.

The employee hours attended can be found via your time clock. If you don’t use a time clock, this may be a little more difficult to determine. A good rule of thumb in that case is to base the number on the hours in your work week. For example, if a shop has 10 technicians who work 40 hours per week, the paint shop employee hours attended would be 400 hours (10 employees multiplied by 40 hours). Note that paint employees often attend for longer hours than normal. When it comes to numbers, don’t assume. Document when technicians are on the premises.

To calculate the labor efficiency, divide the paint labor hours sold by the employee hours attended and multiply by 100:

(Paint Labor Hours Sold ¸
Employee Hours Attended) x 100 = Labor Efficiency

Let’s take a look at a few examples of calculating labor efficiency.

Example 1: A shop produces 600 paint labor hours in a week. They have 10 painters, and each works 40 hours. The employee hours attended is 400 (10 x 40).

600 Paint Labor Hours Sold ¸
400 Employee Hours Attended = 1.5. Multiply 1.5 by 100 to get 150 percent Paint Labor Efficiency.

Example 2: A shop owner retrieves the paint shop employee hours attended through his shop’s time clock system. The total figure is 250 hours. His paint labor hours, which he obtained from his computer management system, are 500.

500 Paint Labor Hours Sold ¸
250 Employee Hours Attended = 2. Multiply 2 by 100 to get 200 percent paint labor efficiency.

How do you know if your paint labor efficiency percentage is on target?

“A labor efficiency percentage in the range of 160 to 180 percent represents an efficiently staffed organization,” says Ron Kuehn, director of business development for Sherwin-Williams Automotive Finishes Corp. “If you’re below 150 percent, your painters may be re-spraying cars at the end of the repair process due to dings and scratches created by the metal or detailing department. In addition, you may be overstaffed or have scheduled improperly. If you’re in the 200 percent range, you’re exceeding the norm – getting the most value from your employees. And most likely, the department is well-managed.”

Step 2: Measuring Paint and Material Expenses Per Hour
After determining a shop’s labor efficiency, the next KPI to review is the hourly paint and material expense. Why? Because the hourly paint and material expense provides a good overview of one key factor that affects the paint and material profitability of your shop: material expense and labor. By analyzing this KPI, shop owners can examine how well they manage their material usage and realistically observe how they compare to other shops – regardless of varying paint and material rates.

To calculate the hourly paint and material expense, the following numbers will be needed:

  • Paint and material expense,
  • Paint labor hours sold.

The formula is:
Paint and Material Costs ¸
Paint Labor Hours Sold = Hourly Paint and Material Costs Using the same numbers from the previous shop profiles, let’s take a look at a few examples of how to calculate a shop’s hourly paint and material costs.

Example 1: If a shop’s paint and material expense is $10,000 and the number of sold paint labor hours is 600, the hourly paint and material costs will be $16.67.

$10,000 Paint & Material Costs ¸
600 Paint Labor Hours Sold = $16.67 Hourly Paint and Material Costs

Example 2: A shop’s sold paint labor hours is 500, and the owner spends $5,000 on paint and materials.

$5,000 Paint and Material Costs ¸
500 Paint Labor Hours Sold = $10 Hourly Paint and Material Costs “Generally, an hourly paint and material cost figure should be in the $10 to $12 range,” says Kuehn. “If the figure is above $15, a shop has problems with excessive waste, theft, improper equipment setup or a high amount of re-dos.”

Step 3: Comparing Percentage of Paint Labor Sales to Gross Sales

The final KPI reviewed here is the percentage of paint labor sales to gross sales. This KPI provides a good number to monitor in reference to the thoroughness of your estimates. It’s also a good figure to review with your paint representative, since he or she may be able to recommend available training programs to help make your shop more profitable.

To calculate the percentage of paint labor sales to gross sales, divide your paint labor sales by the shop’s gross sales and multiply by 100 percent.

(Paint Labor Sales ¸
Gross Sales) x 100 percent = Percent of Paint Labor vs. Gross Sales

Here are a few examples of calculating the shop’s percentage of paint labor sales vs. gross sales.

Example 1: A shop’s paint labor sales are $15,000. Its gross sales are $100,000.

$15,000 Paint Labor Sales ¸
$100,000 Gross Sales = 0.15.

Multiply .15 by 100 percent to get 15 percent of paint labor vs. gross sales.

Example 2: A shop’s gross sales are $250,000. Its paint labor sales are $41,250.

$41,250 Paint Labor Sales ¸
$250,000 Gross Sales = 0.165.

This answer multiplied by 100 percent gives you 16.5 percent of paint labor vs. gross sales.

“The percentage of paint labor sales to gross sales should normally be in the range of 15 to 17 percent,” says Kuehn. “Dealerships should keep in mind that their percentage may be higher because they tend to replace more parts. If a shop is lower than 15 percent, further investigation is needed to determine why this KPI is below average.”

Common reasons can be:

  • Items left off the estimate (insides and edges of replaced panels, covering the vehicle);
  • Repairing luxury vehicles with high part prices; and
  • Additional profit centers that don’t require refinishing (mechanical, bed liners, etc.).

Why KPIs?
If you’d like to learn more about calculating your shop’s KPIs, check with your paint supplier to find out if they offer any training courses.

Why KPIs? Breaking down the collision repair process into smaller segments and really looking at KPIs allows shop owners to identify areas of process consistency and areas where their businesses may be lacking. The process is truly a learning experience and – if you act on the information you find – can make great improvements to your shop’s bottom line.

The information for this article was provided by Sherwin-Williams Automotive Finishes Corp. and Ron Kuehn, director of business development.

Don’t Forget!
When you begin calculating hourly paint and material expenses, remember to use an average of three to four months. Don’t start with a figure from only one month because the results won’t always be accurate due to fluctuations in inventory.

Formula for Success
Is there a secret to running a successful collision repair center?

Not exactly. Successful repair operators may vary in the way they conduct their businesses, but they consistently have a number of common traits. These include:

  • Painting a consistent number of vehicles daily;
  • Establishing production incentive plans with posted daily and monthly goals;
  • Establishing material incentive plans;
  • Effectively utilizing equipment, products and training for efficiency;
  • Accurately blueprinting the repair process;
  • Having written procedures in place;
  • Sharing a common focus between management and production staff;
  • Keeping production areas extremely clean; and
  • Having consistent, steady sales growth.

Not surprisingly, unsuccessful operations also have similar traits:

  • Schedule in Monday and try to deliver on Friday;
  • Try to improve profit margins via discount;
  • Have poorly maintained equipment;
  • Don’t train employees;
  • Have low employee morale and high turnover;
  • Write inaccurate estimates and don’t blueprint repairs;
  • Have dirty and cluttered production areas;
  • Have fluctuations in sales volume; and
  • Pay technicians on percentage of labor (instead of hourly). “Implying a shop owner can’t be successful because he pays his technicians on a percentage of labor isn’t accurate,” says Kuehn. “However, the most successful shops operating with the highest efficiencies and profitability don’t [pay on a percentage of labor].”

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