News: Consolidator Report
Paint shop profitability, or paint and material (P&M) profitability, is a small sliver of the gross profit pie – but it is an important one. If we are not profitable with P&M, then the stark reality is that we are donating material to the job. To put it in other words, we are paying to fix the car.
Some of the metrics we use to measure paint shop performance that help tell the story of P&M profitability are:
- Refinish hours per repair order (RO)
- Hours per booth cycle
- Booth cycles per day
- Painter efficiency
Obviously, every one of these metrics requires that we are measuring our performance. After all, you can’t manage it if you don’t measure it. We need to establish our baseline to give us something to measure improvement against. Long gone are the margins where all a shop needed to do was fix and deliver cars to make money, and even in those days, some shop owners really rocked it by paying attention to the business.
P&M gross profit is a fairly easy measurement: subtract what you purchased from what you sold, and divide the answer by what you sold. For example, you sold $5,000 of refinish revenue, and in the same time frame, bought $3,500 of P&M: 5,000-3,500 = 1,500/5,000 = 30% profitability.
Easy enough, right? Well, the formula is simple, but hitting a 30% number isn’t always easy. We can inadvertently skew the number of what we count as P&M fairly easily by thinking that everything we purchase from the jobber is P&M. It’s not, and it is prudent to have the jobber separate out the different categories on different invoices according to the various entries on your general ledger: shop supplies, safety, tools, equipment, maintenance, paint and material, etc. Just because a check is written to the jobber doesn’t mean it is all P&M; separate it out.
Another component on the P&M cost side is what we actually used, as opposed to simply what we bought. You might say, “If I bought it, I used it. No need to dig in further.” That may indeed be the case if you’re hitting 30% profitability, but if you’re not, breaking down the consumption side further to identify trends in usage may be well worth the effort. Where is the usage high? Without further examination, you will just be guessing. And what is high? Your paint manufacturer and likely your jobber both have that answer. Benchmarks of ounces-per-refinish hour of the various layers of product that are used on a repair – primer, sealer, color and clear – are available from them.
Additionally, comparing consumption to what we bought makes waste more visible. Repaints or overmixes will give us a higher-than-average number, and this clearly flags out as excess consumption, which leads us to ask why. It’s not good enough to answer, “Repaint” – we need to know why. Is it due to poor body work, missed damage, a scratch at reassembly or a color issue? Is there a pattern we can identify and improve upon? Not so obvious is the “One more coat for good measure” mentality that some painters have – when one more coat of color is applied to make sure coverage has been realized. Enough is enough, and more is wasteful. Utilize a check-hide sticker and a spray-out card to ensure coverage.
Refinish Hours per RO
On the sales side of the P&M equation, refinish hours per RO is, of course, tied to refinish labor on the estimate. It is not a bad idea to audit them on occasion and look for operations that will have to be performed to properly repair the vehicle but are missing from the sheet.
Another indication that you’re regularly missing refinish operations is how loud the painter is hollering. If you’re donating his labor, then by default you’re donating your material due to the odd system we have for P&M reimbursement, which is tied to the number of refinish hours. This is why we examine average refinish hours per RO – it gives us another place to look for improvement. Again, the paint manufacturer or jobber will have target numbers to aim for, as well as estimate training and guide lines.
There are other resources, too: DuckDuckGo or Google, the “Motor Information Systems Guide to Estimating” or “SCRS Repairer Driven Guide to Complete Repair Planning.” Both of these last two contain great estimating information.
How many refinish hours can we fit in the booth? That depends on the size of the job, how thorough the estimate is, how big the booth is, etc. It is also dependent on the painter’s habits and attitude. But mostly, it is dependent on management giving a realistic target to aim for.
Why does it matter? Typically shop throughput will be dictated by the booth and, in order to increase capacity, you will need to put more through the booth. There are only so many booth cycles we can get in any given shift, so the goal should be increasing hours-per-cycle. A good portion of this equation leads us back to the estimate’s severity – increasing refinish hours per RO.
To maximize booth cycles in a day, we may need to change a few habits. Are we doing any prepping or masking in the booth? If we are, then we need to stop it and do those activities in front of the booth, “staging” the vehicle, and only doing a final wipe, tack and spray in the booth.
As mentioned earlier, repaints need to be identified, both as a redo and the specific reason for it. You must track that data in order to create a viable battle plan to combat it and reduce the number of them. It will typically reduce down to one of three reasons: communication, carelessness or the painter.
Communication. A dent/scratch/chip that was supposed to get fixed, or anything else the customer has been “promised,” and that information didn’t make it to the technicians.
Carelessness. From a buffed and burned edge, to a scratch at put-together, to an incorrect part making it all the way through paint. Pay attention to detail!
The painter. I’m of the opinion that most times, the painter is responsible for redos. Bad body work, bad color, poor prep – the painter must stop the train and not paint that which isn’t ready! Frustrations and production pressure be damned, you cannot ever paint something a second time fast enough to be profitable.
The refinish hours produced in a day is probably the most accepted definition of painter efficiency. Produce 12 refinish hours in an eight-hour shift and we have 150% efficient. This formula includes the breaks and any stand-around waiting time. This is a particularly useful number when calculating capacity of the paint shop.
As a flat-rate/commissioned painter, I was only looking at the actual time it took to do a particular vehicle. I aimed to beat the time in half; a 10-hour job in five hours resulting in 200% efficiency. Obviously, this does not account for wasted time due to waiting for something. It did reflect my true efficiency without external influences.
If your painter does not already know what their efficiency is, then it is not a bad idea to track it and give them a goal. Baseline it first; you don’t want to give them an unrealistic goal, and you need to identify any external hindrances to the goal – waiting for parts, supplements, authorizations, etc. Observe and report.
There is more than one dart we’re throwing at the P&M gross profit target. Knowing what those darts are and what to aim for is essential. Your paint manufacturer and jobber have resources to assist you, so use them! Now, let’s compare productivity to pricing.
Discount vs. OMCAD
So many shop owner/operators can’t seem to grasp the relationship between pricing and productivity. The easy example is the guy who insists on Brand X masking tape because it is priced at 10 cents a roll cheaper than Brand Y –never mind that it is inferior and leaves an adhesive residue when removed that takes 20 minutes of labor to eliminate. If I may say, that is penny-wise and dollar-dumb.
But I’ll play along. Let’s say you’re spending the aforementioned $3,500 a month on P&M. Your superior negotiation skills nets you another 10% of discount. Wow! That is $350 a month, an admirable $4,200 a year.
Now let us presume we’re using the fastest products out there – the superior abrasives, adhesives and paint system that allows us to increase our productivity.
As I transitioned from the daily grind of flat-rate painter to my current role, my sensei mentor, Wally Sabati, was known as the “Numbers Guy” on Oahu. He coined the acronym OMCAD – One More Car A Day. Let’s calculate what OMCAD does for us.
I don’t know what your average RO is, but let’s say it’s $2,800. Grab your calculator and work this equation with me: RO x 5 days a week x 4 weeks a month x 12 months a year. $2,800 x 5 = $14,000 x 4 = $56,000 x 12 = $672,000. $672,000 a year? Yes, in the aggregate on average. I am aware this is hypothetical, but even if you achieved OMCAD just 10% of the time, it would give you $67,200. That is gross, of course, but even after you back out all overhead, you’re left with a sum that makes your 10% discount pale.
Whether you pursue greater discount or increased productivity or both, let’s get the P&M gross profit where we want it to be.
Carl Wilson has over 30 years in the industry as a painter and technical rep. He can be reached at [email protected].