“We’ve cut about all we can. I’m really not interested in cutting more until insurers start paying us more.”
A very successful – and frustrated – shop owner shared those sentiments with ABRN nearly 15 years ago. They undoubtedly were shared by a number of operators who had driven themselves to exhaustion going lean and paring their businesses to the bone to strip away any unnecessary labor and wasted resources. Then the Great Recession of 2008 – 2010 arrived, and many of these same successful shops found themselves poring over budgets looking for areas to cut to compensate for steep drops in business. During the 2020 COVID pandemic, shops returned to this scenario, once again looking for fat to slash.
The lesson here: There always are expenses that can be cut, especially when shops need to pull their businesses out of the red. The question for operators is where to cut and when, even when times are good and they’re trying to grow.
Fortunately, there are lots of good answers to this question provided by experience, successful operators and consultants. Use the following seven steps to help guide your search for places where your shop can reduce costs in the never-ending journey to remain financially healthy while preparing for an uncertain future.
Step 1. Set a detailed budget.
Yes, there are still plenty of shops that need to do a much better job of tracking their costs and profits, says former shop owner and current consultant Paul Marino. “They throw too many of their costs into the same bucket or two – utilities, labor, materials,” he explains. “You’re best friend when you create a budget is plenty of details. Which specific utilities cost what. Which tools for what area of your business did you purchase. Who is receiving training for what and why.”Marino says shops would be well served to work with an experienced accountant familiar with collision repair who could upgrade how they handle their books. “We can’t have owners and managers who budget based on some general numbers floating around in their heads. Large multi-million-dollar companies track where every last penny is going. That should be our model,” he adds.
Step 2. Set benchmarks.
When it comes to creating a budget aimed at trimming fat, you’ll need two items: the budget numbers you believe your shop should use and input from someone outside your organization who can provide additional perspectives. Darrell Amberson, president of operations for LaMettry’s Collision in Eden Prairie, Minn., recommends working with a 20 Group and examining the benchmarks other owners use to measure their businesses. “You might be spending 15 percent of your budget for administration when 12 percent is the preferred number,” he explains. “You need to look into that and find out why your number is high. There could be inefficiencies or redundancies that need to be addressed.”The same kind of focus can be placed on other areas such as paint and materials. Amberson says shops can work with their paint vendors to drill down into their numbers and determine why they’re exceeding industry benchmarks. Labor costs also says be heavily scrutinized. Amberson says this can be a particularly troublesome area for some family-owned shops. “For a family business, the inclination may be to pay everyone very well, but you have to look at whether this is sustainable,” he says.
Step 3. Reduce mistakes.
Some of your highest costs, maybe your single greatest one, might go well beyond what your budget intended. Mistakes costs shops a lot of money. Domenic Nigro, owner of Nigro’s Auto Body in Philadelphia, says some of the costliest mistakes are made in the paint department as a result of overpouring. Whether they’re in a hurry, haven’t been trained properly or simply aren’t aiming for accuracy, painters can waste plenty of finish by not properly weighing it.Amberson seconds this point. He notes, “It may cost several hundred dollars to remove a barrel of waste, but it costs thousands to fill it.”
Along with wasted finish products, shops can lose lots of money on re-dos – the product of poor applications. Wade Wright, owner of Wright Way Collision Repair in Albany, Ind., says his business stresses making sure undertones are used correctly so the shop doesn’t use too much base or clear coats.
Step 4. Invest wisely.
Wright recommends paying more for higher quality paint materials. He notes that while you’re paying more in the short run, you’ll end up with better, more mistake-free jobs that won’t need fixed. “We sometimes have our own vendors recommend we use primers, but we won’t do it. A better primer means a better job without the flaws that less expensive products may create.”Nigro says the same approach should be taken with tools and equipment. He notes that higher quality products are more efficient and therefore produce a better return on investment. If you’re curious what this has to do with cutting costs, consider that by spending wisely you’re not wasting opportunities to produce more revenue. Missing revenue opportunities is waste as well.
When it comes to paying for tools and equipment, Amberson says budgeting well in advance and paying in cash has benefits since it allows shops, in some cases, to get better deals. Taking this approach a step further, he suggests checking your costs for tools, equipment and parts against what other shops are paying. You could be missing out on discounts and better pricing that other shops are benefitting from. For his part, Wright works with multiple parts vendors to find the best prices. It involves some additional administrative costs, but he says the effort is worth it in savings.
Step 5: Don’t make “dangerous” cuts.
While you should look at every area of your business for potential cuts, make sure your short-term cuts don’t create long-term problems. Amberson says marketing and training often are prime targets for cuts since some owners looking for quick savings in areas that don’t immediately impact operations. The downside is the negative effects these cuts produce in the near future. “There are ups and downs in the business cycle,” he explains. “I tend to be an optimist so I think things will get better, and it’s important to be able to recapture business when things get better. You don’t want to endanger your future”Cutting training can have significant deleterious effects if doing so costs you I-CAR Gold Status, which can cost your shop certifications and its place in DRPs.
Where should you cut then? Amberson suggests looking at “must have” technology and other expensive purchases that may be nice to have but haven’t yet proven their value. He says that recessions and other down times have shown shops there are some items they can do without and still function without issuess. “Sometimes you learn you were actually running a bit fat,” he says.
Step 6. Focus on profitability.
Nigro holds a belief, shared by others in the industry, that instead of looking for costs to cut shops should instead be focused on efficiency and ROI. “There are places you can cut, but costs are costs,” he says. “I think more about increasing revenue and about raising the quality and value of what I do.” This approach actually does its part in cutting fat since it removes wasted effort. Looking to make the most of potential revenue is comparable to losing weight at the gym by using the equipment the right way and making the most of a workout.Nigro boosts revenue, for one example, by getting the most from his estimating systems. He notes that CCC offers a line that allows shops to request payment for collision repair materials, some other systems do not and a factor that many shops may be missing. He also uses products like 3M’s Collision Repair Materials Planner (CRiMP), a free digital tool that helps shops get reimbursed for 3M repair materials by itemizing each and detailing the amount used. “I provide documentation for what we do so we get paid more,” he explains. “That’s what repairers should be doing. Right now shops get paid on what they know instead of what we do. We need to be paid based on what we do.”
If you’re questioning again what this has to do with reducing costs, Nigro explains that you’re losing money if you aren’t being paid as you should. Essentially, money is going out the door that could be recouped.
Step 7. Turn to the experts.
Getting some assistance is a part of any cost-cutting effort. Amberson notes that shops that aren’t part of 20 Groups can get some of the same assistance from consultants. He also says consultants sometimes offer a fresh view of an operation and can see waste and other issues that busy managers may be missing.Nigro declares that learning and getting expert guidance from industry leaders is one of the keys to running an operation successfully. “We’re fortunate to have industry leaders who are spectacular. We need to listen to them,” he says.
Indeed, ignoring this kind of help and the other resources available to shops may be the costliest, most unnecessarily wasteful path repairers can take and one you need to avoid.
