A shop owner on the East Coast recently hired me to work with his estimators. He was concerned because he felt the three estimators were performing at different levels. He was trying to decide whether to replace one or two of the "under-performing" estimators, or if they just needed additional coaching or training.
The shop owner was, like many others I see, comparing his estimators based on their average repair order amount. Of the three estimators, "Joe" had the highest average RO, about $400 more than "Bob" and almost $600 more than "Nancy." The shop owner felt Bob and Nancy weren't writing sheets that were as good as Joe's.
Although I think it's okay to track average RO, when I'm working with a shop's estimators I don't find it a very useful figure to use for comparison. Parts prices alone can really skew the average. The estimator with one or two jobs on high-end vehicles with $1,200 headlights is likely to have the highest average RO, but that doesn't tell us anything about the overall quality of his or her estimates.
That's why, when working to help estimators improve, I prefer instead to track their labor hours per job. I compare their average body labor hours, their average paint labor hours, their average frame labor hours and their average mechanical labor hours.
So let's say I set benchmarks for each of those numbers. I want an average of x hours or more of body labor, x hours or more of paint labor, etc.
Then I can look at Bob's stats and see he's averaging exactly the number of paint labor hours per job that I've set as the benchmark. I know he's writing really good paint labor estimates. But then I find his average body labor per RO is two hours under the benchmark I've set. Now I know he needs some additional coaching in that area.
I think comparing labor hours creates a more even playing field from which to compare your estimator's performance, and pinpoint the areas of the estimate for which they need more coaching.
But tracking labor hours per estimate doesn't just help with helping estimators improve their performance. Think about how the differences in estimates also impact your technicians' apparent performance. Tracking technicians' efficiency is a good number, but it's also affected by estimator performance. If you're a painter working from sheets written by a good estimator, it's a lot easier to look efficient than if you're working with an estimator whose sheets have a lower average number of paint labor hours.
So two painters might work equally efficiently, but one is going to look like a better performer. That's why tracking labor hours per job by estimator is important. It gives you the opportunity to improve your estimator's performance in targeted areas, and helps ensure you are comparing your technicians fairly.
How do you set the benchmarks for estimators? You can look at industry averages as a starting point. For a six-month period in 2012, for example, the Big Three estimating system providers reported average number of paint labor hours per estimate that ranged between 7.2 hours and 8.9 hours. Keep in mind those are averages, which can vary by state. You have to decide whether you want your shop's estimates to be average, below-average, or above-average.
I recommend tracking your own shop's numbers, and then working to improve them, no matter what they are. Most management systems will allow you to get a report on these numbers by estimator (as well as by insurance company).
One sidenote: People sometimes ask me for some guidance on what kind of labor split it takes to generate good gross profit. As a rule of thumb, I suggest a 30-20-10 breakdown. See if your estimates average 30 percent body, frame and mechanical labor; 20 percent paint labor; and 10 percent paint materials. (The other 40 percent will be parts and sublet.)
As I said, it's just a rule of thumb, but I think you'll find that if you can hit those percentages on your estimates overall, you'll generally make sufficient gross profit. In my next column I'll offer some tips on getting to those percentages if you're not already there.
Mike Anderson, a former shop owner, currently operates COLLISIONADVICE.COM, a training and consulting firm. He also acts as a facilitator for DuPont Performance Services' Business Council 20-groups.
If you have a business issue or question you'd like Mike to address, email him. [email protected]