What’s an hour of your time worth?
When most Americans go to work, they’re trading hours for dollars. But when most collision and paint techs go to work, they’re selling services. So why are most body shops still writing estimates in hours?
Commission or flat-rate paid techs don’t very often spend the same amount of time on a procedure that the estimating guides allow for that procedure. Some techs complete tasks in less time than estimated, while others take longer. The amount of time each individual tech spends completing a particular procedure is affected by a nearly unlimited number of variables.
Too many shop owners think the insurance industry can decide what they want to pay for repairs because they have the checkbook. I have a sign on my toolbox that reads, “No Free Groceries.” When I go to the grocery store, I have the checkbook in my hand, but I can’t tell them how much they’ll charge for a gallon of milk or a loaf of bread. If I want the product, I pay the price. There’s no negotiation involved. Why should body shops be different?
In what ways are we limiting ourselves by charging hours for our services? First of all, we may be undercharging for some procedures that could and should be worth more. After all, if a certain procedure is difficult to perform and/or a limited number of skilled professionals is capable of performing the procedure properly, its value shouldn’t be determined by the number of hours someone else feels is adequate.
Over the years, I’ve heard a story told several different ways about a company with a large and very expensive machine that breaks down. While the machine was down, the company’s production came to a complete halt. The company’s top mechanics studied the problem and tried for several days to repair the machine, but nothing they tried seemed to get the machine running again. Finally, the owner of the company called a specialist to come in and inspect the machine. The specialist showed up, looked over the machine for a few minutes, pulled a marker out of his pocket and placed an “X” on one of the machine’s components.
“Replace the part that I’ve marked and the machine will work just fine,” he told the owner of the company.
Sure enough, after the part was replaced, the machine was up and running again and production resumed.
A week later, the owner of the company received a bill from the specialist for $5,000 for services rendered. Fuming, the owner called the specialist to demand an explanation for such a high bill. “All you did was walk in, look at the machine for five minutes and put an X on it,” the owner said. “For that you’re charging me $5,000?”
“No,” the specialist replied. “I’m charging you $5 for looking at your machine and putting an X on it. The other $4,995 is for knowing where to put the X.”
In the same way, collision techs spend years learning their craft, honing their skills and gaining experience. When they perform their duties, should their fees be determined solely by the amount of time they spend (or someone thinks they should spend)? Or should their skills, training and experience also be given consideration?
More experienced techs who’ve seen procedure times decline over the years often feel they’re being punished for gaining experience and improving their productivity. Alex Veigl, a 45-year veteran collision repairman, once told me: “The faster we go, the more time they chop off the estimate. What paid six hours a few years ago now pays four and in a few years will pay two, but the cars have gotten more difficult to repair.”
Collision techs who produce one hour’s worth of labor for every hour of actual time worked are generally considered to be slow. Many shops expect their techs to work at a productivity rate of 120 to 150 percent, and some expect even more than that. In other words, techs are expected to produce 48 to 60 labor hours in a 40-hour work week. Some shops won’t even hire a tech who seldom produces more than 100 hours per week.
If techs are expected to produce this much work, doesn’t it seem silly to write the bill in hours? And is it any wonder that the quality of repairs produced by the “100-hour man” is sometimes questioned? A shop where techs complete more than two hours of work in an hour can easily be accused of cutting corners and/or overcharging for procedures.
A representative of one major insurance company approached a former employer of mine and demanded copies of each tech’s payroll records. When the manager refused and questioned his reasons for such a demand, the insurance rep insisted that the techs shouldn’t be making more hours than they’re spending at work. A few months later, the shop was removed from that company’s DRP list after several disputes about repair times. If billing in dollars instead of hours were a collision industry standard, would this situation still have occurred?
And what about time studies? If we set a price in dollars for a certain procedure, is it possible that the price could be determined by the value of the work rather than the number of hours a procedure should take, as determined by a third-party’s time study? A $250 procedure should be sold for $250, but if some shops want to sell the same procedure for $200 or for $300, that should be their choice. When billing in hours, however, if a third-party determines that a six-hour procedure can be performed in 4.5 hours, the techs are expected to work for less money than they made before the time study was conducted. For this reason, many techs will agree that we’re punished for increased productivity.
Are insurance companies justified when they expect techs to make no more hours than they spend on the company’s time clock? Can it be considered fraud when a tech makes 80 hours in a 45-hour work week? If so, a lot of shops are in trouble.
While the insurance industry continues to push for what it calls realistic repair times, shops maintain that the 80 hours produced in 45-hour work weeks are a result of technician proficiency. But how many other businesses can charge two hours for a procedure that will be completed in an hour or maybe less? If your plumber worked 45 minutes and billed you for two hours, you probably wouldn’t want to pay him.
On the other hand, how many techs would the collision industry have left if flat-rate techs were no longer paid for more hours than they spent at work? Call a shop meeting Monday morning and inform your flat-rate techs that they’re no longer allowed to make more than 45 hours a week, and you’ll likely see a disappearing act that rivals David Copperfield.
Some shop owners and managers are avoiding this issue by paying techs a salary. Salaried techs make the same paycheck every week, so the number of hours paid versus hours worked is never an issue. But if the shop is still billing the insurance companies at an hourly rate instead of charging a dollar amount for each procedure, the shop still stands to come under fire.
A small portion of the collision industry is making it standard practice to bill insurance companies in dollar amounts with no reference to the number of hours spent on a repair. Barrett Smith – owner of Brandon Paint & Body in Brandon, Fla. – has been doing it for several years, as are a lot of WreckCheck shops. As much as the insurance industry fights this practice, the shop owners are within their rights.
Though making the actual switch to charging by service rather than by hours is easy – most of the estimating systems can be set up to do it automatically – you’ll have difficulty getting insurers to make the switch. So be ready. Insurers don’t like estimates written in dollars because it’s not easy for them to dictate prices and control costs. They can’t say, “Why are you charging six hours for a procedure that you can perform in four hours?” Instead, the shop charges $250 for a procedure, and it doesn’t matter how long it takes. The justification is that, “We’ve determined that $250 is the price we need to charge to show a reasonable profit on that procedure.”
As difficult as it is for some to understand how a shop can charge in dollars instead of hours, it’s working for those who use this method. And if it works for some, why shouldn’t it work for all?
Writer Paul Bailey, a contributing editor to BodyShop Business, has been a collision repairman for 17 years and is an avid photographer and writer who maintains a consumer-awareness Web page in his spare time. He resides in Florida with his wife, Cathy.