Building an MSO from Scratch

Dec. 30, 2010
John Cole gambled almost everything he had to start his own shop. Four years later, he’s at three locations and nearly $8 million in sales.

The first six months he was a business owner was an anxious time for John Cole.

He had left a job he’d held for years as body shop manager at the largest Chevrolet dealership in upstate New York. He had borrowed against everything he owned, right down to his personal savings, and spent all his time renovating a building in Albany, N.Y., that would eventually be his shop. He had lots of bills, only a few employees and not enough business. Worst of all, he had learned in January that his father—a trusted business partner—had been diagnosed with Stage IV lung cancer.

But by the end of Cole’s first full year, he had made the leap from employee to owner, and transformed his shop into a revenue-generating machine. He cleared just over $1 million, and put in place at set of standard operating procedures (SOPs). In May 2010 he bought two more shops in Saratoga Springs and Ballston Spa. And although he misses him, Cole knows that his father, who died when the shop was just getting off the ground, would be pleased with his success.

Aiming High

Cole now has three shops and $8 million in sales. His most profitable location is still his first—Albany, a 15,000-square-foot, $3 million-plus shop where eight techs repair an average of 140 cars a month. His Ballston Spa location, a 17,000-square-foot shop with the same number of techs, was at about $2.5 million in sales when he bought it, and it was close to $3 million at the end of 2010. He thinks it might go higher this year. And the Saratoga Springs location, which is 9,800 square feet in a dealership, is a $2 million shop.

“This was his vision,” says Josh Jewett, manager of the Saratoga Springs location, of his boss. “He was never going to be just a mom-and-pop shop. He wanted size, volume and multiple locations, and he made that happen in three years.”

The Albany location is situated at the confluence of three cities, where he could capture the most business the most easily. But his success comes from more than location. Cole had more than 25 years of experience in collision repair shops, including 17 years as a tech and another eight-and-a-half as a body shop manager. He used that experience to set up the most profitable shop he could imagine.

Paying for Performance

Based on his own years as a tech, Cole rejected the payment plans that hadn’t motivated him, opting instead for a true flat-rate system. His techs are all “A” techs who earn a flat rate. “If an A is qualified to be productive and quality-oriented, he’ll find a home here,” Cole says. “He’ll make more money, and the shop is going to grow because of the quality he can produce.”

The Albany store started out that way, but the flat rate is a new development at the Saratoga Springs and Ballston Spa locations. “Everyone in the shop from body to paint to detail was on a team, and they were paid based on their hours and what was produced,” Jewett says.

“Under that method, a guy who wasn’t doing a great job would become mediocre, and the guy who was really talented would be too.” When techs did great work and were dragged down by other people’s failure, they didn’t want to work so hard the next time around.

Cole doesn’t want to reveal too much about how his approach to the flat rate works, but in the end, he says, it frees everyone to make more money by working harder and more efficiently.

“Let’s say the insurance company and you agree on a figure for a Toyota Camry for 20 hours,” he says of his pay strategy. “A good A tech might be able to complete that in 15 or even 14 hours, but he’ll still get paid for the 20. An hourly guy might be tempted to stretch it out to 16 or 17, and you have to pay a floor manager to make sure he’s producing.”

Cole says that the techs at his shops are motivated to work hard and efficiently, and it shows in the numbers. At Albany, the average cycle time is 4.9 days. At Saratoga Springs and Ballston Spa, both of which were averaging close to 13 days when Cole took over, the average cycle time is 5.0 and 4.6 days respectively.

Cole separates the vehicles into drivable and nondrivable categories, so those numbers are an average of both categories of hits. Cycle time on drivable vehicles is 2.9 days, calculated from Monday to Sunday.

Touch time is in good shape, too. At all three locations, he’s getting almost 4 hours of touch time a day, calculated from Monday to Sunday. Albany gets 3.7, and both Saratoga Springs and Ballston Spa get 3.8.

Prior Planning

Using lessons learned at the dealership, lean management principles, and his own trial and error, Cole wrote SOPs for all aspects of his business.

“We try to anticipate whether there’s going to be a problem with paint even when the car is still days away from the booth,” Cole says. “If it’s going to be difficult to qualify the color, we don’t wait until the end to find that out. We want it to go right through with no missed parts, no paint problems, no codes we can’t clear at the last minute.”

Here’s how Cole keeps the momentum on the shop floor going strong:

• Classifying vehicles. When a vehicle comes in to one of Cole’s shops, it’s classified as either drivable or nondrivable, with the heavier hits that require more work going into the nondrivable category. While the two categories of cars don’t have different processes, Cole tracks them that way so that he can assign work more efficiently. “If we’ve got one guy with three heavy hits, and another with three drivables, it doesn’t make sense to give the first guy another nondrivable,” Cole explains.

• Assigning one tech to each car. The tech assigned to the vehicle follows that vehicle through the repair process, staring with a careful discovery process, performed with the estimator, to create a detailed repair plan. None of the shops has a dedicated teardown tech; instead, to avoid the delay and confusion that sometimes comes from having one person tear down and another build back up, the tech who tears down the car is the one who repairs it.

• Solving problems before they become problems. To save time downstream, the discovery process often takes more time than it does at most shops. The idea is to make a plan that’s so detailed, it anticipates problems ahead of time and addresses them long before the last minute. For example, if the left fender is damaged, the tech will also take apart the left front door so that everything damaged is visible. That makes blending easier later on, and it also allows inspection of everything that might need to be ordered, all the way down to the clips.

• Inspecting everything. “You can take off a molding and think it’s going to be a simple job, but often the clips on the back side are one-time-use,” Jewett says. “It’s the same with the [clips for] insulation underneath the hood. So wherever the damage is, we check to see if they’re broken on the front end. And we check them all, so that instead of doing a generalized estimate for all the clips, our estimate shows that five out of 12 are broken.” That makes the repair plan complete, Jewett explains, but it also helps to gain the trust of insurance companies. They know the estimates include every detail about what really needs to be repaired or replaced.

• Making all DRPs happy. The SOPs are written in part based on Cole’s experience and in part on what his insurance companies want. But Cole spends a lot of time tweaking the processes so that they meet all of his DRPs’ requirements as well as maintaining quality and the paperwork involved. “Each carrier has idiosyncrasies: State Farm wants it one way, Nationwide another, Allstate still another,” he says. Repairing every car in a way that meets every DRP’s requirements keeps the process standardized and the carriers happy.

• Tracking progress to communicate with carriers. Cole maintains many DRP relationships, and those relationships bring in the lion’s share of his business. The two new locations had a lot of contracts with insurance companies already, and by being able to show what he was already accomplishing at his Albany location, Cole was able to keep those contracts and build more volume without needing to market them extensively. “When we were able to show insurance companies our cycle times and customer service indicators, it showed we were a good business partner,” Cole says. “Insurance companies grade shops off of numbers, and if you can show consistently what you’re able to do, eventually they’ll give you a shot.”

Having succeeded this far, the temptations of expansion are on Cole’s mind. But he knows that he’s done well so far by focusing on his existing operations. So whatever plans he has for new locations, he always thinks about continuously improving the processes at his current ones. He makes sure that he visits at least two of his three locations every day, and he never misses an opportunity to tweak a process if inefficiency shows itself.

“We’re always asking, ‘How can we eliminate waste? Why did that technician take so long to finish that? Did he have to walk too far; did it take too long for a part to get from there to here?’ There’s always a way to be better.”

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