It’s interesting when I ask a shop owner if they know what their gross profit is. Many will say, “Sure do.” Then after some conversation the truth surfaces and unfortunately, many have no idea.
Our gross profit is what is left over after all the work we have completed less our Cost of Goods Sold (COGS). COGS equals all our costs associated to repair the cars: Paying out for technician labor, parts, repair materials, paint & any sublets etc. We should be striving for a 50% gross profit as a rule, but unfortunately many shops are in the 40-42% range. Here is the trouble with the latter: If these shops have an overhead expense in the 35% range, that means there will only be a 5-7% net profit left over at the bottom! We will discuss how to lower overhead as a % of gross sales in the coming months.
How can shops move their gross profit closer to the 45-50% range? The easiest and the most effective way is with better estimating. I have reviewed quite a few different shops’ estimates in the past twelve months. It just blows my mind how many shop owners don’t understand what good estimating looks like. They pay for estimating software and just think clicking on parts to repair or replace is all they can charge for. I heard a statement some years back that I will never forget: “I don’t mind going home tired or I don’t mind going home hungry, but I will not go home both tired AND hungry.”
There are so many shops that do countless operations for free and never take the time to document and charge for them. I can hear what some of you are saying right now, “Greg, it’s all good and nice to add stuff to our estimates, but then we have to get the insurer to pay for them!” Well for starters, if you don’t ask for something you for sure won’t get a call from the insurer stating, “You missed clean & retape of the door side molding and I added it to your supplement.”
Let’s just look at a quarter panel only replacement. For decades prior to proper estimating knowledge, my uncles and I did a ton of work for free by not charging for it. We would just accept the insurer’s quarter panel replacement estimate for approximately 40-45 hours. After gaining knowledge of how to properly charge for all the not included operations, my staff now understands anything less the 75-80 hours to install a new quarter panel is an utter failure.
Here are just a few things that are NOT included in an LH quarter panel replacement with a fuel door: Research & print OE procedures; Safety inspections per procedures; Disconnect & reconnect electrical components; Reset electrical components; R&I LF & LR door; Make sleeves if recommended by OE; Destructive test welds; Pre & post scans; Seam sealer; Cavity wax; Structural foam removal & replacement; Structural adhesive; Expansion foam; Panel bond adhesive; R&I wheel; Torque wheel to specs; R&I rear seatbelt; Color tint; Protect interior for welding; Roll back carpet; Dress welds; Feather/prime/block; Remove stone guard; R&I rocker molding; R&I trunk interior including carpet; Remove old urethane from rear glass and quarter glass R&I; R&I headliner; R&I LH roof airbag; R&I quarter vent; Multiple test fits; R&I fuel door; R&I fuel filler pipe; R&I exhaust shield; R&I spare tire & jack; R&I rear rebar for rear body panel refinish; Setback wiring harness for taillamp & dogleg interior area; Setup/measure/body pull; Repair and refinish of pinch welds; R&I trunk lid; R&I trunk & door opening weatherstrips; Repair & refinish for each of these components due spot weld removal and welding: inner rocker, outer wheelhouse, inner wheelhouse, trunk gutter, tail lamp pocket, rear body panel, floor extension and fuel pocket; Detrim and blend of trunk lid and LR Door; Refinish of entire LH aperture & new quarter backside; Mask door, back glass & trunk openings, hinges, labels & striker; Denib & buff.
This is NOT an exhaustive list, but maybe something here will make us think the next time we need to replace a welded-on panel. Please understand, you can’t just add these not included operations and expect to get paid from an insurer. We must DO them along with adding great photos (over 50% of shops need training on how to take good quality photos), material invoices, OE documentation AND line notes for each one! We are in full control of our profitability.