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Shedding Profits

Fatten up gross sales by $20,000 a year and add mass to your techs’ paychecks too – all by focusing on and charging for what you do best: collision repair

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Author Patrick Yurek is the owner and president of Collision Consulting LLC (focusing primarily on DV appraisals – www.CollisionConsulting.com) and also owner of Arizona Collision Center in Tempe, Ariz. He has 35 years of industry experience and has held every position from sweeper to owner. Among his credits are several PPG certifications and GM technical certificates. He’s past president of the GM Service and Parts Managers Organization of Western New York and a court-certified expert witness. He can be reached at [email protected] or (480) 984-0800.

I remember reading an article a while back about diversifying your shop. Suggestions such as installing sunroofs and ground effects or spraying polyurethane bedliners were given. At first, this sounded like a great way to make up for our industry’s shrinking profit margins. But the more I thought about it, the more it made me worry. While this may be appealing for many shops, I questioned the reason for its necessity. Diversification should be a means of expanding a business when the service presently provided is maximized, not a way to keep a business afloat

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If you have all the work you need and consumers are requesting additional services, then diversifying might be a great idea. One way to gauge this is by considering if you’ll need to add personnel to accommodate a new service.

If, however, you’re looking to fill a void in profits and are scrambling to make ends meet, you may have deeper problems – and lack of diversification isn’t one of them.

Poor management, poor marketing and poor general business practices could very well be contributing to your problems. So, before expanding into another area, you might want to take a closer look at what’s happening in your current business. After all, if your business is failing, what makes you think you’ll succeed in another?

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In many cases, shop owners grew up in the trade. Most are former bodymen who seized an opportunity for ownership and have little, if any, business knowledge. In fact, shops regularly fail because they continue doing business as usual – without regard for the changing business environment. In some cases, merely changing the way things are done would’ve saved these shops from failure.

Problem is, these former technicians fully understand the repair process, yet they often lack fundamental business knowledge that can help them avoid having to close their doors. This same basic business wisdom also could make them extremely profitable.

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But profits aren’t something that merely happen. Many shop owners mistakenly believe that simply providing a service will earn them profits. This simply isn’t true. Each aspect of a business should be considered as a separate operation – and a separate profit center. Only by dissecting daily operations can you determine if an aspect of the business is a true profit center, one that breaks even or a chronic loser. Every aspect must be considered – from how you attract customers to how you deliver the vehicle.

I could easily write an entire manual on how to inspect and examine each area of your business. Since I don’t have that kind of space here, we’ll briefly examine most areas and, hopefully, still generate some thoughts and ideas for you.

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Marketing and Advertising: Just Do It!
When I ask most shop owners where everything starts, they commonly answer “the estimate.” That may be where the sales pitch begins, but it’s not where the entire process starts. The customer must first come to you. And this is where marketing and advertising play a major role.

Every dealership I’ve ever worked at has had the mistaken belief that the body shop wouldn’t survive without the dealership – that the sales department is what gets the collision customers in the door. If this were true, independent (non-dealership) shops wouldn’t exist. Based on that belief, however, most dealerships don’t advertise their collision repair services or, if they do, it’s extremely limited.

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Same goes for independents. Most independent shops I’ve worked for rely mostly on word of mouth to bring in new customers. While it’s true this is the most cost-effective means of getting your name to the motoring public, it’s very limited.

I’m not saying you should go out and spend every profit dollar you earn on advertising. I’m not even suggesting that you spend 25 percent on it. What I am saying is that you should look at what you’re doing as far as attracting new customers. If you’re not doing anything, could you benefit from some type of advertising? If you are advertising, are you using the most efficient and cost-effective methods? Are you possibly spending too much and not getting enough return on your investment? It’s just as bad to not spend enough as it is to spend too much.

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One of the most productive forms of advertising I’ve used was co-sponsoring a little league baseball team. The guy who owned the small, independent glass company we used had a son on a baseball team, and he mentioned that he was looking for a better deal on uniforms. The prices he was getting seemed out of line to him, so he didn’t have the money for the quality uniforms he wanted. I suggested that he find a co-sponsor – someone to share the bill with. We ended up becoming the co-sponsor, and I think we got seven or eight jobs because of it – not too bad for a $600 investment. Plus, it felt good to give back to the community.

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I also remember advertising on a local transit bus. It sounded great – a rolling billboard that was basically in our market area. I think it was something like $1,200 for four months (or maybe it was $1,800 for six months). Once the sign was on the bus, we closely monitored why our customers were coming in. We kept track for something like eight months, figuring that maybe the customers didn’t need our services at the time the ad was rolling around town, but perhaps they remembered our name from it. Not one customer mentioned seeing our ad on the bus. Talk about a losing deal.

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This isn’t to say that ads on buses are always bad, nor does it mean that sponsoring a ball team is always effective. The point here is to do something. If you have advertising that’s working, by all means, don’t stop. But perhaps you could do even better by adding something else to get your name out to the motoring public.

Do You Make the Right First Impression?
Let’s say the consumer has decided to come to you for an estimate. Can he get into your lot easily? Can he identify where he’s supposed to park for an estimate? If it’s raining, does he have to walk far to get to the door? If you’re in a snow-prone area, is the lot clear with ample parking, or does he have to trudge through knee-high drifts to get to the entrance?

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Of course all of this seems like common sense, but everyone here has been to a business where getting inside could’ve been easier if someone had just used some common sense. And it’s little things like this that can make the difference between getting the job and losing it to the competition.

Now that the customer has found his way to your door, what does he see? Is your building run down? Are there old, rusty parts sitting in view? Is the customer entrance clearly marked? Is the front door old and battered? Does it stick or does the handle bind?

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Once he’s inside, does it look like chaos? If you’re with another customer, does this one have a clean place to sit or is his only option an old, worn chair covered with last month’s newspapers? Do you have a restroom for the customer? Is it clean? What type of pictures do you have in the waiting area? What kind of picture is on your calendar? Nothing offends most women more than “girlie” calendars and pictures – even if the subject is fully clad in a one-piece bathing suit. These type of pictures have no reason to be in a workplace or business. Face it, women are a large percentage of your clients – more than half. No man I’ve ever known is offended by feminine decorations in an office or waiting area, but I can assure you that many women are offended by a “masculine” atmosphere.

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I know how important first impressions are – because I’ve worked at shops that have made good ones and bad ones. For example, I worked at a large single-line dealership that had the office set up in such a way that the customer had to come through the corner of the production area to get an estimate. Consumers would sometimes comment about the smell. “How can you stand those fumes?” was a common comment when the outside doors were closed. At first, I didn’t give it any thought, but then I began to notice that of the jobs we didn’t capture, the customers who’d commented on the odor were disproportionately higher. Obviously a bad first impression. If we didn’t care about what they were breathing, how much would we care about their automobile?

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Conversely, I’ve had customers comment on how neat and tidy our office was (mostly due to an extremely orderly assistant or receptionist). “Well, you can’t work effectively if you’re dodging junk and hunting for paperwork” was a great follow-up to this comment, leaving consumers with the impression that we were organized and efficient. I can only imagine what they’d seen at other shops considering that our office wasn’t all that organized.

Selling Your Estimate – and Your Shop
You’ve got ’em in the door and their first impression of your shop must have been pretty good – because they’re still there. Now what do you do? Hopefully more than hand them a piece of paper with a bunch of techno-jargon written in some secret code.

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Do you know your batting average? If your closing rate is less than 80 percent, my guess is that you’re not selling the repair to the customer.

Showing the customer what you’re going to do can be extremely helpful in getting him to choose you to repair his automobile. When you’re out in the lot taking notes, point to the parts and touch them with your hands. And don’t use terms like “R&I.” Explain that you’ll remove the mirror and then re-install it – and explain why this is important. Say that you’ll replace the bumper covering, or use the terminology “put a new one on.” Words like “broken” and “dented” are easy enough for anyone to comprehend. “The fender is only dented a little, so we’ll straighten it, but the bumper covering is torn and a piece is missing, so we’ll have to put a new one on” makes a lot more sense to a consumer than the Xs, RPLs or RPRs on an estimate sheet. And the time to explain what you intend to do is while you’re out at the vehicle with the vehicle’s owner.

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Also remember that most women don’t understand automobiles and are intimidated by men who shrug them off as if they’re unimportant and speak to them in shop jargon. Speak English. Be nice. Make them feel comfortable. Ask them if they have any questions. Likewise, many male customers I’ve dealt with don’t know the difference between a fender and a quarter panel. In either case, don’t talk down to your potential customer – simply explain what you need to do in layman’s terms.

While you’re actually writing the estimate (the perfect time for your sales pitch), spend a little time explaining that if they get 10 estimates, they’ll get 10 different prices. Tell them that your estimate may be higher but that it’s not a result of higher prices – it’s a matter of more thorough repairs and that you often do more to restore their vehicle to pre-accident condition than your competitors do. Make them understand that if they’re going to compare estimates, it shouldn’t be on a price basis. Rather, they should compare the quality and extent of the repair. I often tell potential customers that we can do it as cheaply as anyone can – if we do the same level of repair they do.

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Also keep in mind that some customers don’t want to be bothered with the details. Don’t force information on them. That’s a sure way to lose the customer. That glassy-eyed, deer-in-the-headlights look is a certain clue that the customer either doesn’t understand or could care less. Don’t waste his time – or yours.

I’d often tell customers that if they’d like, they could come back with any other estimates they got and we could go through everything line by line to see what the differences were and to compare apples to apples. You might be surprised what your competitors write if you actually sit down and compare sheets.

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If a customer does come back with an estimate from the shop down the road, go over the estimate with him and check all the items on your estimate that aren’t on your competition’s bid. Then go out to the car and show the customer the things that the other shop is doing differently. It’s funny how often low-balling occurs. When you explain to the customer that the only reason they wrote the bid low was to get him to their shop and that this other shop would end up supplementing their estimate to include the additional items – or worse, skipping them entirely – that customer usually ends up choosing your shop.

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“Mrs. Smith, we pride ourselves on writing a thorough and comprehensive estimate – as much as is humanly possible. By including all the parts we can see that are needed to repair your car, we have fewer parts delays and can get your car back to you sooner.” This is a great sales pitch for a higher estimate. Why? Because, generally, the customer’s No. 1 pre-repair concern is how long it will take to get his vehicle fixed.

Charge for Procedures, Materials and Labor
If you have plenty of traffic and are wrapping up the sale consistently but you’re still not making money, the problem is most likely in your repair and billing processes. Focus your attention on every aspect of the repair process to be sure you’re getting paid for what you do. Granted, if you could double your labor rate, your problems would likely disappear, but that’s not going to happen. Besides, a low labor rate might only be a part of your problem. Instead, focus on getting paid for procedures, materials and labor.

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1. Know your estimating system’s P-Pages and charge accordingly.
I’ve known shop owners who actually listen to insurance appraisers when they’re told R&I times are included. I also know of shop owners who don’t charge for certain procedures because the appraiser tells them that no one else charges for it.

One of the first rules to earning a profit is to know your business. And part of knowing your business in the collision repair industry is knowing the P-pages of your estimating system. Never take anyone’s word that something is included. Look it up. Be sure. The odds are that even if it is included, you’ll find something else that isn’t. (For more specific information, see the box titled 372 Items Most Shops Don’t Charge For.”)

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2. Make money on materials.
Another important thing to consider – and an area of many missed opportunities – is that if the operation isn’t included, neither are the materials. At one shop I managed, an insurance company appraiser’s supervisor came in to re-inspect a repair that one of his appraisers had written. The supervisor went through the sheet and asked me what the “Panel Bonding Kit” was for. I explained that we used panel bonding adhesive when we installed door skins. He then told me that materials such as that were included. In fact, according to him, so was the sound deadening pad (inside the door skin), the seam sealer (around the lip of the skin) and the expandable foam sealer (which adheres the door skin to the anti-intrusion beam). If I had listened to him, we would have given away some $50 worth of materials. But the fact is that none of these items are included. They must all be billed separately from – and in addition to – the paint materials.

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Consider a small job on a four-door car that needs the door skin replaced. On the estimate is 10 hours of refinishing time, which calculates to $240 worth of materials. For this example we’ll say that the shop makes 35 percent profit on paint materials. In other words, materials cost the shop 65 percent of the sale price. On this job, the paint materials cost $156, leaving the shop $84 profit (profit percentage = profit divided by sale price. Sale price ($240) minus cost ($156) = $84 profit. $84 divided by $240 = 35 percent).

If the manager/estimator doesn’t charge for the additional materials necessary to replace the door skin (bonding kit, seam sealer, foam, etc.), he’ll be giving away around $32.50 worth of materials at their cost. You have to realize that these materials are being used. Regardless of whether or not you charge for them, they’re going out the door on the vehicle. In this example, if the shop doesn’t charge for them, the material cost is actually $188.50 – resulting in a gross profit of just over 21 percent – a net loss of nearly 14 percent of gross profit. But by charging for these materials (assuming the same profit margin), the shop makes $101.50 instead of the $51.50 – nearly doubling their gross profit! And some shops wonder why they can’t make money on materials.

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Here’s how that breaks down:
$240 paint + $50 additional materials = $290 sale price.
Again, cost divided by sale price equals profit percentage.
$290 x 65 percent (cost) = $188.50.
$290 – $188.50 = $101.50 profit.
$101.50 Ö by $290 = 35 percent.
$290 x 35 percent = $101.50 profit instead of the $51.50 they would have made if they’d given away the materials.
Remember, the cost doesn’t change.

3. Charge for labor.
If the materials aren’t included, then neither is the labor for applying them. And giving away labor costs more money than many realize. Every minute a technician works on a vehicle should be profitable.

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Some managers and owners who pay their bodymen and painters on a flat rate (they get whatever hours are allotted on the estimate) say that it doesn’t cost them anything if production staff has to do something for free, if something is “thrown in.” What are they thinking?! Any time a production person isn’t earning profit, the shop is losing money. Take this to an extreme and you’ll clearly see just how erroneous this belief is: What if everything were thrown in for free? The production staff wouldn’t earn money so it wouldn’t cost the shop anything, but where are the profits? Exactly.

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Besides, why should the additional “free” work be borne on the backs of the very people who are directly responsible for the success of the shop? The better paid that a technician, bodyman or painter is, the happier he is. And the happier he is, the more productive he is and the more productive and prosperous the shop is. Employee turnover costs shops plenty, and a happy, well-paid production person is less likely to look for greener pastures. By a shop charging for all required procedures, not only can it retain employees and pay them better (more profit dollars allow for better salaries for secretarial and management staffs, too), it can also make more money for itself.

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Let’s go back to our example job. By charging for the additional labor to apply the materials (the bonding kit labor is a part of replacing the skin, but add .2 hours for the sound deadener, .2 hours for the expanding foam and .3 for the seam sealer), you add .7 to the job. At an average of even 50 percent profit on labor and a $36/hour door rate, the shop gains $12.60. Multiply that by 10 jobs a week, and the shop gains $126 a week – or more than $6,500 annual profit. If you could add a mere .7 hours per job and your techs average six jobs per week, that would result in an annual increase of more than $3,000 at $14 per flat rate hour, $3,276 at $15 flat rate and almost $3,500 at $17. Wouldn’t you like to give your staff a $3,000-plus annual raise?

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Another great example is “R&I Road Wheel.” This is probably one of the most commonly overlooked operations. It’s absolutely necessary on every quarter panel, and it should be charged and performed on every fender replacement. “Why on fenders?” some ask. Because the extra time spent working around the tire/wheel assembly is lost time. The minimum time that can be charged is .1 hour – six minutes.

How many fenders and quarter panels does your shop replace in a week? In a year? A million-dollar-a-year shop probably averages about 600 jobs annually. If only 75 percent of those jobs had a fender or quarter panel replaced on them, that would be 450 jobs at .1 hour each – 45 hours or one week’s labor. Forty-five hours at an average door rate of $36 means a lost gross income of $1,620. At only 50 percent profit, the shop loses a net profit income of $810. I don’t know about you, but $810 is worth a few extra clicks of the mouse for me. If that doesn’t convince you, maybe this will: The bodyman who earns $14 per flat rate hour would see an increase of $630 a year using these numbers – an extra week’s pay.

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Another one of my favorite examples is “Repair Pinch Weld Area,” when a vehicle has been clamped on the frame rack. This is a necessary procedure to prevent rust corrosion where the clamps bit into the metal. Let’s break it down:

.5 hour per side to repair clamp marks on both the inner and outer lip of the pinchweld area = 1 hour
1.5 hours per side to refinish and clearcoat the exterior surface = 3 hours
.5 hours per side to refinish the underside = 1 hour
(That’s 4 hours of refinish time.)
Add corrosion-resistant primer: $8
.3 hours per side to apply undercoating or blackout paint = .6
You’re up to a total of 5.6 hours of additional labor.
If your door rate is $36, that’s an additional $201.60 in labor on this one job. Add in the materials (at an average of $24 per refinish hour), and you add another $96 – plus the not-included materials of $8 and you’re up to $104 in materials. Not bad. You added $305.60 to the job – and did a better repair in the process.
If only 15 percent of jobs that come through the door need to be on the frame rack, a million-dollar-a-year-shop doing an average of about 600 jobs per year has 90 opportunities to make this money. Ninety jobs multiplied by $305.60 equals an additional $27,500 annually. If the shop retains only 50 percent of the labor and only 35 percent of the materials, this still amounts to more than $12,300 in additional yearly revenue. And not only does your shop make out better, but your technicians earn an extra $6,300 annually if they’re paid $14 per flat rate hour.
In these three examples, I’ve demonstrated how you can increase your shop’s annual gross profit by nearly $20,000 – and pay your production employees nearly $10,000 more per year. The best part: You don’t have to do additional work or find loopholes. You simply need to know your P-Pages and start charging for work you should already be doing. It’s not magic. It’s just good business sense. Which is why before you look at other ventures or add services to increase profits, you should be sure you’re maximizing the income from what you know and do best: collision repair.

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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 also the president of the General Motors Service and Parts Managers Organization of Western New York. Yurek can be reached by e-mail at [email protected] or [email protected] or by calling (704) 821-4190.

Make an Extra 6 Grand a Year and Give Your Techs a Raise
Job: a four-door car that requires a door skin replacement
Estimate: 10 hrs. refinish time/calculates to $240 of materials
Materials sale price: $240
Profit on paint materials: 35%
Paint materials cost for this job: $156
Shop profit on materials: $84
Monetary loss: $32.50 at your cost if you don’t charge for materials to replace door skin (bonding kit, seam sealer, foam, etc.)
Actual shop profit on materials: $51.50
Actual material cost: $188.50
Gross profit: Just over 21%
Net loss: Nearly 14% of your gross profit
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Now let’s say you charge for these materials …
$240 paint + $50 additional materials = $290 sale price.
$290 x 65% (cost) = $188.50.
$290 – $188.50 = $101.50 profit.
$101.50 ÷ by $290 = 35%.
(Cost ÷ by sale price = profit percentage.)
$290 x 35% = $101.50 materials profit instead of $51.50.

What happens when you also charge for the additional labor to apply the materials?
Let’s see …

Bonding kit labor: part of replacing the skin
Sound deadener: Add .2 hours
Expanding foam: Add .2 hours
Seam sealer: Add .3 hours
For a total of: .7 to the job.
Dollars gained at 50% labor profit and $36/hr. door rate: $12.60.
Dollars gained at 10 jobs per week: $126
Annual profit gained: $6,500

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If you could add a mere .7 hours per job and your techs average six jobs per week, that would result in an annual increase for your techs of more than:

$3,000 at $14 per flat rate hour;
$3,276 at $15 per flat rate hour; and
$3,500 at $17 per flat rate hour.

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