Whether we like it or not, it sure looks like the inflation we have seen since Covid started in March 2020 is here to stay. Since then, paint costs have increased approximately 40%. Most insurers in my market in 2020 were paying $36 with the archaic calculation of a dollar amount for materials times each refinish hour per estimate. If we do the math, the current materials rate for my market would be $50.40. Most every shop in the USA has not seen anything close to a 40% increase from insurers since then. Here are a few things we can do to combat this wrongdoing, as the benchmark goal is a 50% gross profit for paint and materials.
National MSOs are receiving approximately 65-72% off list price at the corporate level from paint manufacturers. Otherwise, MSOs’ costs range from 28-35%. Independent shops collectively still hold more market share than the MSOs. So, the paint manufacturers still need us, even though individually we don’t need the truckloads of paint one national MSO may need. The best way to start negotiations is just to pick up the phone and talk with your local jobber. I just went through our negotiation process, and it was well worth the effort. Competition is fierce between jobbers, and don’t be afraid to shop around. I am not in favor of upfront dollars by signing a contract, but in some cases it may be worthwhile. Just be aware of the income tax ramifications in the future and if you sell your shop or switch paint lines mid-contract, you will have to buy your way out. A fair discount with no contract is usually the ideal scenario. I have even seen independent shops create a co-op and approach different quality paint lines for the best service and discounts as an organized group of shops as would an MSO.
As a rule, if we are spraying waterborne basecoat, we shouldn’t need to mix more than 2 ounces per refinish hour on an estimate. For solvent basecoat, its 2.5 ounces per refinish hour. For clear, we should be able to stay within 2 ounces per refinish hour. Also, some jobs will take more, and some will take less. Example: For a bumper-only tri-coat replacement, it can be nearly impossible to get enough coverage at, say, 5.3 refinish hours, or 10.6 ounces of color vs., say, a mailbox down the side of car. Be sure your mixing scale is tied directly to your estimating system so your painters know how much paint they must work with when they enter the RO. AGAIN, this is just a rule or average, and it’s best to just reach out to your specific paint company for clarification of their recommended usage. Lastly, estimate quality can make or break these formulas!
Lack of proper estimating knowledge
This is one of the biggest problems in the industry for overall business profitability. I am still shocked when I am working with some shops on just how pitiful their estimates are. We must write on average of at least 10 refinish hours per estimate. Most management systems will tell us our average, but if not, just track your RO’s every month in Excel and make a graph to see what you’re averaging and trending going forward. As an industry, we love to point fingers at insurers on why we struggle with profitability. Well, that can be a valid point, but many shops owners simply do NOT understand their numbers. Most paint manufacturers offer estimating training, so if you need help, reach out to them. I see different shops working on the same cars and their average refinish hours per estimate can range from 7.5 to 15.5 refinish hours. For the 7.5-hour shops, don’t expect even a “Thank You” card from an insurer.
Materials rates and invoicing
If your shop uses Open Shop in CCC or downloads an estimate, the insurer has already put in its rates. Be sure to change the rates to your rates each time. Make them change them back, it’s your shop, not theirs. Never, ever, stop pushing daily for higher rates. So many shop owners just get mired in the day-to-day by working in their business and not on their business. When it comes to P&M calculators, obviously they can be an anecdote to insurer paint caps. They can also be helpful for invoicing on specific estimates. But be very careful not to let this be a Band-Aid for poor estimating. In those cases, we lose the refinish labor that should have been on those estimates.
Profit & loss statement
Many times, I will ask a shop if they are making money on P&M. Most always they say, “Yes.” Then when I see their P&L, their first line says, “Gross Sales” and no details of sales/COGs categories. These shops are just running blind and operating off their checkbook. If this is your case, reach out to me and I will connect you to some folks who can help you with this crucial component.