Proper compensation begins with understanding your costs, defining a
reasonable profit, knowing what charges your estimating system includes in each repair procedure,
determining which additional charges you can be paid for and the best
way to go about collecting your fair earnings.Being in business is expensive. You incur costs before you even open
the door. It costs money to get work done. It costs money to find new
customers. It costs money to retain customers. There are also costs of
capital, employee turnover and public relations. The list may seem endless
and overwhelming.But let's put this in perspective by reviewing a few business basics
and then looking at ways to get paid for the work you do. Remember, your
basic mission as a business owner or manager is simply to recover your
costs with a reasonable profit margin.In the collision repair industry, we do this by serving the motoring
public. We serve this market by helping people through the trauma, expense
and difficulty involved with collision damage. We outlay money to get the
work done and we collect money for the parts, labor, and materials needed,
plus enough profit to stay in business. Or do we?Are You Getting Paid for the Work You Do?Because for every vehicle, the direction of impact and the extent of
damage is unique to every repair job, we need to price each repair
individually. We cannot price our work as if collision repair is a
manufacturing process, where each operation is predictable and repeatable.
This means each repair must be divided into individual tasks and then
priced separately according to local, competitive pressures. Getting paid
for everything you do can be quite a challenge. In order to receive proper
compensation, you need to know the following:What are your costs?What is a reasonable profit?What charges are included in each estimating system's procedures?What additional charges can you reasonably expect to be paid for?What is the best way to get paid for these items/operations?What are Your Costs?You have direct costs, fixed costs and variable costs.Direct costs are incurred when paying for parts, materials or sublet
operations that will be billed as itemized charges. Direct costs are
recovered with a markup when resold, and this markup amount contributes
toward your gross margins-sales minus direct costs.Fixed costs are always there, even if there are no cars to repair.
Fixed costs include rent, property taxes and cost of capital. Cost of
capital is money you have tied up in the business, such as tools,
equipment, office furniture and computers. If the money was borrowed, your
cost is the interest on the loan. If it is your money, you are giving up
any alternative income it could be earning invested elsewhere. Fixed costs
are usually recovered with gross margins.Eye on
ProfitA survey of more than 2,000 collision repair shops revealed the
following statistics: Overall Respondents Top 25% of Overall
RespondentsBody Labor Productivity Ratio160.7% 187.2%Refinish Labor Productivity Ratio162.6% 192.8%Parts Sales as Percent of Overall Sales 42.2% 63.2%Gross Profit Margin on Parts Sales 27.3% 28.6%Gross Profit Margin on Labor Sales 59.8% 66.2%Gross Profit Margin on Materials Sales28%44.56%Gross Profit Margin on Sublet Sales 18.2%32.75%Overall Gross Profit Margin40% 48.1%Monthly Sales per Square Foot $15.31 $25.75Monthly Sales per Estimator$95,548 $127,526Source: CollisionWeek, November 2000Variable costs increase as work is done. Variable costs include labor,
utilities and body materials. Variable costs are usually recovered through
a charge per labor hour and also contribute to your gross margins.Know your costs. Know which operations cost you how much. Know how your sales recover each cost and
contribute to your gross margins."This industry has turned into a business," says Tom
Prescott, owner of The Body Werks in Holly Hill, Fla. "You have to
know what you are doing and where you stand financially at all times. If
you don't think it's important, take notice that the best, most successful shops constantly monitor production
efficiencies, gross margins and other financial targets."What is a Reasonable Profit?Each business has investors that have put capital and/or equity at
risk. They expect a return on their investment at least equal to
alternative investments with similar risk. If profits are too low,
investors will find other, more lucrative business opportunities. If
profits are unusually high, additional investors will be attracted,
increasing the number or size of shops in that market area. The increased
competition will tend to reduce gross margins and profits. This is the
natural flow of supply and demand in a true market economy.Know what profit you can reasonably expect. Of course owner-operators
must also factor into their rate-of-return additional benefits, such as salary, health coverage and job security.
Finally, knowing your costs and expected profit, you can calculate your
gross margin and sales targets. This is where you sharpen your sales
tools, including your knowledge and use of estimating systems, to hit
those targets.Included ChargesOne important key to improved profitability is more thorough and
accurate estimates. Following your estimating systems' procedures and
collecting for all the not included operations you perform is the most
obvious way to maximize your margins. But it is not quite that simple.First, "not included" operations are listed as such because
they are not always needed. That is, they are not always performed every
time in every shop in all of North America. Other operations, such as
glass clean-up, are too variable to substantiate a fixed and reliable
labor amount.Second, procedures vary among the information providers. Each has a
slightly different list of "included" and "not included" operations for each type of part replacement.Third, computer-assisted estimating programs have different levels of
automation to work with, different user decisions to make and different
printouts to understand. You may know your estimating system well, but do
you know the other ones? Because you work with estimates from each of the
three major estimating systems, you need to have some knowledge of how
each one works.Even though memorizing all procedures for all information providers may
be nearly impossible, you must be familiar with each to ensure that you
are being paid for everything you do. The full list of "included" and "not included"
operations-procedure pages-can be purchased from each information
provider. They are also helpful with providing training materials. It may
be in your best interest to have a copy of each on hand as a reference.You may also want to create a "job aid" for your estimators
to use when writing or reviewing estimates. This could be a simple
one-page summary of not included operations for a few commonly replaced
panels. The Automotive Service Association (ASA) has produced a laminated
booklet with this information, and it is available for a nominal charge by
calling (800) ASA-SHOP.You also need to be familiar with each computer-assisted estimate
printout. While you should be the most familiar with your own system, you
also need to understand the other computer systems. Learn all you can.
Question everything you do not understand. The estimate writer should either know the answer or be
able to find the answer.Know the P-pages. "Knowledge is power, and power is money,"
says Chet Elia, owner of Elia Auto Body in Reading, Pa. "You must
have a way to look up procedures for each of the estimating companies. Do
your homework, and take a little time when writing your own estimates to
right click or look up not included items. It pays."Additional ChargesWhat additional charges can you reasonably expect to be paid for? There
are considerations for local competitive pressures, as well as for
long-term relationships with various insurance companies. Know what works
in your market area.Some market areas may consider an included operation as part of the
hourly labor rate, while another market area may charge for the same
operation as a separate line item on the estimate. Operations that are not
paid as an estimate line item must be absorbed by the labor rate.Neither method of recovering costs is wrong, but only if that decision
is reflected in the local, competitive labor rates. As more operations are
considered part of the labor rate, pressure increases to raise those
rates.Compensation-Collecting SkillsWhat is the best way to get paid for these items/operations? Here is
where our free market economy comes into play. You must be competitive and
profitable when deciding which additional operations or not included items
should be added to an estimate. Remember, there are also different
personalities, objectives and priorities to work with when determining a
final repair cost for each vehicle."When we don't agree with an insurance company regarding labor
times and operations, we will ask them to send us P-pages on the specific function so we can come to an informed
agreement," says Nick Verona, president of East Rockford Collision
Center in Rockford, Ill.Negotiating
BasicsConcentrating on some basic negotiation points may help before you
engage in any advanced studies. Negotiating basics include the following:1. Agree on mutual goals, such as, "We want this to be a quality
repair."2. Start with areas of agreement, such as, "We need to replace this
fender."3. Stay objective. Keep personalities out of it. Focus on facts.4. Know where you have room to move (tint color, road test).5. Be prepared to walk away. Some jobs just aren't worth it.6. Keep long-term goals in mind, including, "We want this customer
to be happy."7. Respect different priorities and objectives.8. Make sure everyone wins.There is a smorgasbord of skills involved, including technical
knowledge, communication abilities, and negotiation skills. Each plays a
different part in taking control of your sales and gross margins.Technical knowledge is essential when selling your services and
justifying your charges. There simply is no substitute for sound technical
knowledge; knowing what needs to be done, how to do it and where to prove
it. Your industry supplies some help here. There is a wealth of technical
documentation available, but it may take some effort to find it.Recommended refinishing procedures are available through your paint
supplier. For most newer models, vehicle-specific repair instructions are
available from the vehicle manufacturer. General repair procedures are documented in
I-CAR classes. I-CAR also has Uniform Procedures for Collision Repair
(UPCR) available onits Web site (www.i-car.com). The UPCR is an industry-
supported documentation of proper repair procedures for many common
collision repair operations. These authoritative sources could certainly
help support your position when there is a disagreement about repair
procedures.Of course, receiving payment for proper procedures implies that you
will do what you say you will do. To substantiate your repairs, you may want to document the repair file with receipts,
measurements and photos.The ability to communicate is important for conveying your ideas to
another party. You need to be able to say the right things and to say them
to the right people. Poor writing is the easiest way to start an argument.
When our estimates are not written clearly and precisely, we invite
confusion or suspicion from the customer, the insurance company or our
technician."Our vehicles today are much too complex for the word 'repair'-i.e.,
'put back together' or 'get working again,'" says Boyd Dingman, owner
of Dingman's Collision Center in Omaha, Neb. "Repair may be a fine
term for fixing a lawn mower, but a vehicle is much more complex and
"repair" may apply to collision damage, as well as rust, door
dings or paint problems on the same panel. We need estimates with precise
wording for customers, insurance people and our own staff. When I have a
technician come into the office to ask what is included in the repair, I
know we have used too broad of a word."Poor speaking is the easiest way to lose an argument. Speaking well and
using an intelligent vocabulary takes constant practice. This may be a lot
of work, but it can help formulate thoughts into clear ideas, complete
sentences and succinct arguments. There are self-help books and videos
available, but for long term improvement, you need constant practice and
feedback. Toastmasters International is one group that can be helpful. For
more information, visit the organization's Web site (www.toastmasters.org).
Through local club meetings, Toastmasters may help you build the skills and
confidence you need to sell your services with higher gross margins.Speaking well but to the wrong person is also ineffective. Arguing
about insurance company policies to your local field adjuster will fall on
deaf ears because he or she does not have the authority to make changes.
Know where your argument belongs. You may need to speak to the field
adjuster's supervisor or branch manager. Larger issues may need to be
addressed at even higher levels or be best accomplished through a local or
national shop association.Negotiation skills are also important for getting what you want. Of
course, the other party also needs to get what it wants. This is all
possible with effective negotiating. There are many books, videos and
public courses on negotiation techniques. Any of these are a good start,
but they are useless without practice. Fortunately, in the collision
repair business, we have the opportunity to practice negotiating everyday.Getting paid for the work you do requires effort. It involves knowing your costs, gross margins and
sales targets. It involves knowledge of each estimating system being used.
It involves research in your market area. It involves technical knowledge,
communication abilities and negotiation skills. Getting paid for the work
you do is essential to remaining profitable. Remember this statement,
which was overheard during the 1997 Boston Marathon, "Everyone has
the desire to win, but only champions have the desire to prepare."Estimating
System Quiz Check your knowledge of the industry’s primary computerized estimating systems by answering the following questions:1. If required, which one of the following is included in ADP's labor
for radiator support replacement?a. R&I horns
b. R&I engine mount
c. R&I fuel vapor canister
d. R&I coolant reservoir tank2. If required, which one of the following is included in Mitchell's labor for door panel replacement?a. R&I glass
b. R&I mirror
c. R&I sound deadening
d. R&I clip-type molding for base model vehicles3. If required, which one of the following is included in Motor's labor for fender replacement?a. R&I battery
b. R&I bumper
c. R&I mud guard
d. R&I splash shield4. Which of the estimating systems include "bag vehicle" in their refinish labor?a. ADP
b. CCC
c. Mitchell
d. All of the above
e. None of the above5. Which of these automated estimating systems can automatically apply clear coat to interior sheet metal panels?a. ADP
b. CCC
c. Mitchell
d. All of the above
e. None of the aboveProcedure Pages To order a copy of each information provider’s procedure pages (P-pages) call the following numbers:ADP’s Reference Manual—(800) NOW-4ADPMitchell’s Guide to Professional Estimating— (800) 238-9111 Ext. 8508Motor’s Crash Estimating Training Guide— (800) 4A-MOTOR
b. R&I engine mount
c. R&I fuel vapor canister
d. R&I coolant reservoir tank2. If required, which one of the following is included in Mitchell's labor for door panel replacement?a. R&I glass
b. R&I mirror
c. R&I sound deadening
d. R&I clip-type molding for base model vehicles3. If required, which one of the following is included in Motor's labor for fender replacement?a. R&I battery
b. R&I bumper
c. R&I mud guard
d. R&I splash shield4. Which of the estimating systems include "bag vehicle" in their refinish labor?a. ADP
b. CCC
c. Mitchell
d. All of the above
e. None of the above5. Which of these automated estimating systems can automatically apply clear coat to interior sheet metal panels?a. ADP
b. CCC
c. Mitchell
d. All of the above
e. None of the aboveProcedure Pages To order a copy of each information provider’s procedure pages (P-pages) call the following numbers:ADP’s Reference Manual—(800) NOW-4ADPMitchell’s Guide to Professional Estimating— (800) 238-9111 Ext. 8508Motor’s Crash Estimating Training Guide— (800) 4A-MOTOR
About the Author
Bruce Burrow
Bruce Burrow has been in the automotive repair business for more than 30 years, and he has been ASE certified since 1974, currently with ASE master certification in collision repair. He has worked as a technician, shop manager and dealership service director. Burrow was a senior trainer for one of the information providers, and he is currently a certified I-CAR instructor. In addition to running an esti-mating seminar for the Automotive Management Institute (AMi), he is a freelance consultant for the automotive repair industry.
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