Driving customer-paid business

Jerry Fratcher doesn't hesitate when asked if he has more customers asking about paying for collision repair work themselves.

"Oh yeah, a lot more," says Fratcher, now in his 21st year of owning Fratcher Auto Body in Roseville, Calif. "I think part of it is the economy, with people wanting to avoid filing an insurance claim that will raise their premiums. We also find a lot of older people don't want to turn in a claim because they're afraid they're going to get dropped."

"People are afraid to use their insurance, and we see more even brand new cars driving around with damage that people won't call their insurance company about because they don't want to get dropped or have their rates raised," Burton says.

The tough economy has more motorists not carrying insurance, some shop owners said, boosting the customer-pay market. But like Fratcher and Burton, Bill Edleman, owner of Big E Auto Rebuild in Seattle, says his shop is seeing a "considerable amount" of customer-paid work even among the insured.

Whatever the reasons, many shop owners have reported increases in customer-paid work in recent years. An informal survey among 30 shops at one industry event bears this out. The percentage of customer-paid work these shops performed ranged from a low of three percent of their total sales all the way to 30 percent. Overall, that 30 percent had seen a year-to-year increase of three to five percent.

So is this increase in customer-paid work a good opportunity for your shop? And if so, how can you capture more of it?

"On the one side, they can be more cost-conscious and likely to say, 'Don't do this, this and this, but just make the light fit,'" Burton says. "On the other side, it's more profitable. You don't really have to give the (parts or labor) discounts to the guy who walks in off the street."

Second-generation shop owner Jeff Smiley of Smiley Body Shop in New Castle, Ind., says customer-paid work can account for as much as 30 percent of traffic to the shop's door in some months.

"The average ticket is much smaller, but the work is much faster, and you can use teams of lower-skilled labor because the bulk of this work is minor," he says. "We used to turn it away because it was seen as troublesome. But it can be a really good honey pot."

The shop owners also say there's less administrative time and headaches on customer-paid work: fewer photos and less required documentation and complete control over the repair process, including what parts are used. There's no delay in receiving payment as there can be with insurance work; the customer pays in full when the job is done.

On the downside, however, shop owners say capturing customer-paid work requires better sales skills on the part of the estimator. It also can require more time to review the estimate more thoroughly with customers paying for repairs themselves since they're less understanding about possible hidden damage.

Even past satisfied customers of your shop may become more of a "shopper" when they pay for repairs, and they may become more demanding or particular or "easier to lose." While discounts aren't required, price-sensitive drivers may be looking for a bargain or partial repairs – all of which can affect the shop's reputation if quality is compromised.

And while insurance company checks rarely bounce, customer pay work may come with collection issues.

Shop owners also said that because customer pay work tends to be smaller jobs, it can sometimes be less profitable. But if a shop doesn't have enough work to keep its employees busy, less profitable work may be better than the alternative.

GET IT RIGHT THE FIRST TIME. Careful estimating is one of the keys to making customer-paid repairs work for your business. Although you're not as restricted on the rates and procedures you can bill for, "supplements" are not something you should count on with non-insurance work.

"If you write a customer-pay estimate, you don't want to lose customers because you were inaccurate and end up having to charge them more," says Shawn Merritt of Sureway Collision Center in Puyallup, Wash. "I've seen other estimators who, for example, were not as good about calling to check on parts prices for those jobs to make sure they are current and correct."

Edleman of Big E Auto Rebuild agrees.

"It's really important to write those estimates as carefully and thoroughly as you can," he says. "Even though we always tell them that a supplement is possible, no customer is really impressed with that second phone call. It's really important when you're working directly for a customer whenever possible to get it all on that first estimate."

OFFER FINANCING OPTIONS. Shops say one of the most effective ways to attract and sell customer-paid work is to follow the lead of other retailers by using customer financing.

Offering 90-days-same-as-cash financing has become an increasingly effective marketing tool the past two or three years, according to Michael LeVasseur, the vice president and chief operating officer of Keenan Auto Body, which operates seven locations in Southeastern Pennsylvania and one in Delaware.

"We're financing both the people who have a hard time pulling together their deductible amount and also the people paying for a job themselves," LeVasseur says.

He says the application process is simple and quick, either through an online application at the shop's Web site or through a keypad at the shop similar to a credit card processing machine.

"We're getting approvals within minutes," LeVasseur says. "Four minutes, I think, has been the longest wait."

The shop then gets its money from the finance company within two days.

"Another good part about it is when a customer qualifies, they get a credit card, a Keenan Auto Body credit card," LeVasseur says. "That credit card is approved for a certain amount of money based on their credit rating. So they might just need $500, but their credit card might be approved for up to $1,000."

That credit card can become an ad of sorts for the shop that stays in that customer's wallet.

"We hope that will encourage them to use us again," LeVasseur says. "It's also good for up-sells. They can use it if they want to get a spoiler or they want to get another dent fixed that's not covered under their insurance claim."

As with the Wells Fargo program, CarCareOne financing decisions are very quick, and on approved financing, the shop can have its money within 48 hours.

Gary Boesel of Alpine CARSTAR Auto Body in Aurora, Colo., has used the CarCareOne program for several years.

"It's a tremendous selling tool when customers come in and don't have their $500 deductible," Boesel says. "We've had customers use it when they had $2,400 worth of damage and they didn't want to go through insurance. We see a lot of activity with it especially later in the year when the holidays start coming and money is short for people."

Boesel says just less than half of customers who apply for the financing get approved.

"Often the people who want to apply are the ones whose credit is already extended," he says. "So you can look at it two ways: Fifty percent of the people don't get approved. Or 50 percent do, and we get those jobs. I'll take that 50 percent."

The customer receives a CarCareOne credit card – in Boesel's case a card branded with the CARSTAR name – that can be used for vehicle service, parts, tires or anything sold at the more than 11,000 participating CarCareOne businesses nationwide.

What will a collision repair shop have to spend to offer 90-days-same-as-cash or other financing to customers? Fee structures vary. Some of the programs have a flat monthly fee or minimum usage fee, and all have a per-transaction fee, generally a percentage of the financed amount is usually similar or perhaps a point or two more than if the customer used a credit card. But Boesel and LeVasseur point out the programs are designed to help shops capture jobs for which customers may not have a credit card or an alternative way to pay.

So are such expenses a good investment for collision repair shops? Shop owner Boesel thinks so. He's seen an uptick in the market for customer-pay work as well as more customers carrying $500 and $1,000 deductibles. Being able to offer financing for these customers, he believes, gets him work that other shops won't be able to capture.

"If there's a customer who comes in and says, 'I probably won't get it fixed because I don't have $500,' or, 'I didn't realize I'd changed to a $1,000 deductible a couple years ago," then we can tell them we have some options," Boesel says. "It's another selling tool, and it works."

LeVasseur says Keenan Auto Body promotes the 90-days-same-as-cash on the company's Web site, which he said also allows people to apply online if they don't want to run the risk of being embarrassed if declined should they apply at the shop. It's proving successful enough that the company is thinking about offering longer financing.

"Because the amount of customer-paid work we're seeing has increased so much, we're thinking about offering financing for a year," LeVasseur says, adding that it wouldn't be something they promote but would have available as another sales tool at the door. "Now we would have to give up 8.9 percent to offer that, but if it's a job we were never going to get unless we did this, it may be worth it."

GET BACK TO OLD-FASHIONED SELLING. Clark Plucinski, executive vice president True2Form Collision Centers, which has 40 locations in four states, says Boesel has the right idea using the term "selling tool" when talking about customer-paid work. Plucinski says True2Form has seen customer-paid work grow from about 5 percent of total sales to well over double-digits, at times as much as 30 percent, and the key to doing that is "selling."

"We need to be prepared to sell to the customer instead of just taking an order," Plucinski says. "Like much of the industry, we hadn't been doing very well at that. In part because of direct repair programs, we've been trained over the last 10 years to take the order, not to sell the job. Selling at the door is now a major component in our marketing strategy."

Plucinski and others say it comes down to another key management technique: "old-fashioned selling." Give estimators and your front-office staff the tools they need to "ask for the keys," not just start a claims-handling process.

Examples: Develop customer testimonials and before-and-after photos; explain how the shop's warranty may be better than that offered elsewhere; use videos or charts and photos to offer a virtual shop tour or explain the repair process or show samples of good and bad repair work; install dual computer monitors that allow the customer to watch their estimate being prepared; and play up the shop's community activity and awards.

And remember that not everyone in your office will be good at using such sales tools. Consider posting signage in your office that will encourage you employees to "sell" by prompting customers to "ask about our warranty" or the other benefits of doing business with your shop versus one up the street.

MAKE MEASURED DECISIONS. As with all decisions about what types of work to go after, start the process by making sure that attracting customer-paid work makes sense for your shop. Have the management system or other tools in place to make sure it is profitable work for your business and that it fits with your production capabilities and marketing plan. Make sure you are tracking how much of it you are doing so you can determine if your efforts to attract more are effective. And most importantly, make sure your front office staff knows what they will need to do differently to make this business a key part of your business.