Boosting Buying Power Through Networking
A decade ago, Ron Reichen earned double-digit profits. These days, laments the president of Precision Body & Paint in Beaverton, Ore., just breaking even feels lucky.
Overhead costs constantly increase and reimbursements are nearly impossible to come by, Reichen says. His cost on paint materials, for instance, jumped 6.5 percent in February. Reichen sent letters to insurance partners to let them know, asking for a 6.5 percent increase in compensation. Not surprisingly, he had no takers. “Insurers say that’s a cost of doing business, and won’t allow us to pass that cost along,” Reichen says.
Because you can’t build more profit into the actual repair, your net profit has to come by lowering overhead, Reichen says. So it’s critical to purchase materials and other services at reduced rates.
Sounds good in theory, right? Turns out, it’s a practice that is possible: Teaming up with other repair operations in a shop network to make purchases can decrease your costs. Reichen saves about 3 percent annually on shop materials.
—Scott Biggs, CEO, Assured Performance Network
As a member of the Assured Performance Network, Reichen is able to buy parts, materials, equipment and even office supplies at discounted rates. Some purchases earn financial rebates, too. The network responsible for such deals is a not-for-profit cooperative buying group of roughly 3,500 shops across the country.
With the savings generated from rebates and discounts, Reichen has been able to invest in equipment and training for his shop—and add a few dollars to his profit margin. “This allows us to keep our doors open,” he says, “and continue to be competitive in the market.”
The collision industry’s multiple shop operations (MSOs)—like CARSTAR, Fix Auto and ABRA Auto Body & Glass—continue to increase their reach across the country. The buying power generated by their huge networks of shops is one element that makes their growth possible.
“Volume has always been critically important to purchasing,” says Scott Biggs, CEO of the Assured Performance Network. “Consolidators get huge price breaks and even investments from vendors, which helps fund their growth.”
That can be a big disadvantage to independent shop operators since most of them don’t have any way of obtaining that competitive edge.
In today’s market, independent shops have to be able to leverage that buying power to be competitive, Biggs says. Joining a larger conglomerate of shops provides that benefit—without requiring your shop to become part of a franchise.
How It Works
Through a buying group like the Assured Performance Network, shops have access to the lowest possible prices on many of the same products they already buy, Biggs says.
—Ron Reichen, president, Precision Body & Paint
Vendors offer discounted deals through the network because the organization leverages $20 million to $40 million worth of additional sales for the vendor annually in any given market and hundreds of millions collectively on a nationwide basis.
Joining the Assured Performance Network is free. No fees or royalties are required for membership. But shops do have to meet strict criteria and operational standards to become a member. The Assured Performance Network looks for operations that have been in business for at least five years, and that have the proper tools, permits, licensing and training. “We’re looking for the ‘best in class’ shops,” Biggs says.
For shops that make the cut, the benefits are great:
• Discounts. On occasional purchases—like equipment—shops get discounts of 20 to 30 percent more than what they can do on their own, Biggs says. When shops purchase repetitively consumed products—like parts, materials or paint—the discount is roughly 5 percent.
• Rebates. Through some vendor agreements, such as those with General Motors, shops get monetary rebates on top of the discounted rates they get from their jobber or dealer.
For example, the Assured Performance Network has a partnership with Enterprise Rent-A-Car. Through it, member shops receive a $1 rebate for every rental vehicle they put on the road, and for every day the car is being used, Reichen says. So if you have 20 rental vehicles on the road, your shop earns a $20 rebate that day.
Shop rebates are deposited into co-op account. Shop operators can request those funds as cash payouts, or use the money for marketing, equipment purchases, training or other business development purposes, Biggs says.
Reichen accumulates about $25,000 a year in purchase rebates. He most recently used the money to buy an $18,000 air compressor for his shop.
“I look at this as an equipment savings plan,” he says. “It’s kind of like getting some business improvements for free because the materials we purchase are things we would have to buy anyway.”
The Assured Performance Network website, assuredperformance.net, includes a list of vendors that have partnered with the network.
Details about membership criteria and application process are also available.
For shops on their way up, but not quite established enough for the Assured Performance Network, there’s a new group on the scene that offers similar buying power. OEM Brands Online launched in January 2011. The organization has partnerships with manufacturers of consumables such as paint and materials.
David Coffey, executive vice president of OEM Brands Online, says member shops save roughly 40 percent on every purchase made through the network because shops buy directly from the manufacturer.
Most shops spend about 10 percent of revenue on paint materials, Coffey explains. So if your shop does $1 million in sales, roughly $50,000 would be spent on paint and $50,000 on materials. Coffey says the network focuses on materials that are known commodities with multiple distribution channels. A shop can save 10 to 25 percent on paint and materials, he says.
OEM Brands Online also has partnerships with companies that reduce shop costs on health care, insurance, energy and waste management.
For example, the cooperative has a partnership with a waste management company that assists member repair facilities with implementing recycling programs, Coffey says.
That partnership helps shops get paid for recapturing aluminum, steel and plastics.
“We help shops find ways to cut costs of goods sold and to manage their expenses,” Coffey says.
Visit oembrandsonline.com to find out more information about becoming a member. You can also contact the company for more information about the products that can be purchased, and for a free cost analysis to assess how much money you may save on purchases.
Drop Costs, Derive Profit
Profit isn’t always just about your total sales volume. Yes, more work is a good thing, but there’s not always a direct correlation between the number of jobs you do and your bottom line.
Coffey says he recently met with a shop owner who increased annual revenue by 28 percent in 2010. But the shop’s overhead and costs of goods also increased. The result? Net profit stayed flat compared to the previous year.
“The shop did more work for less money,” Coffey says, noting the owner could have made a lot more money had he been able to control cost increases. Shop operators have to change their philosophy in the way they work, and the strategies they use to make a profit.
Many in the industry talk about raising profits by acquiring more jobs or charging more, Coffey says. But the top businesses in the industry raise profit by reducing overhead.
Bottom line: If your costs are too high, you are never going to make any money.
“It’s about doing business in a better way,” Reichen says.