Materials as profit center

CCRE sponsor-member Bob Collins, Wreck Check Assessments of Boston, presented the seminar - "Making Materials A Profit Center." With many years invested in the collision repair industry, Collins convincingly detailed how far from reality the antiquated dollars-times-paint hours "multiplier" system (that most all shops still use) is in a failing attempt to account for paint and materials. The same insurer reps who once insisted they would pay for everything used in repairs - if we would just itemize them, now tend to balk at recognizing any other means of figuring paint and materials. Why not, the multiplier- system shorts shops of unbelievable amounts of reimbursement. And the multiplier system gives insurers an incentive to further deflate the number of hours involved in refinishing operations (such as "blend-in-panel"). Each time they can cut a few tenths or time units, it also cuts out some more legitimate reimbursement for refinish materials, using the bogus "multiplier" formula.

Collins used numerous quotes from paint manufacturers, collision trade publications, and the like warning that paint-related prices will continue to increase, since refinish materials are directly tied to the ever-increasing price of oil. Examples include DuPont Performance Coatings which late last year increased the price of their paint products 12-25%.

For the past 15 years, my shop has yearly monitored an approximate overall 7-8% per year increase in our cost of PPG paint products. Yet shops are not even close to being compensated for these huge increased costs through the "multiplier" system that is tied to an hourly labor rate that won't even keep up with inflation, and a "book" hours/operation that only tends to shrink monthly.

Options to the multiplier system

Collins made a very strong case for accurately "cost accounting" [actual costs of materials plus "markup"… you are entitled to markup, you know] the paint and materials we use in each operation, using commercially available software. How each of the three most common commercially available cost-accounting paint and materials programs (PaintEx, Mitchell, and ComputerLogic) figure prices was examined, as were typical examples of how many tens of thousands of dollars the average shop often unknowingly leaves on insurers' table annually through continuing to rely on the multiplier system. Collins also showed how to calculate collision repair material kit prices for major panels being replaced - valuable information when calculated ahead of time saves time when cost-accounting using one of the commercially available cost-accounting systems. Knowing true costs of your figures can be used quite effectively to compel vehicle owners to pay what insurers refuse to pay, or receive a limited paint warranty [only insurers would expect shops to fully warrant something that was never paid for].

Job Costing, team-taught by CCRE Board member Steve Behrndt and wife Barb proved the foolishness of shops that have no idea whether they are profitable or not in each repair. Pointing out that "the significance of knowing the exact amount of income your shop receives on each and every repair order is as much, if not more important, than having frame specifications, achieving color match, etc."

The Behrndts explained the differences between gross profit and gross sales, true costs vs. operating costs, how to determine your shop's and employees' true labor rates, the pros and cons of automated job costing, and the like.

Advantages of job costing include tracking the labor tasks performed by every employee, tracking all part invoices to assure you were paid for every part used, and that you received your agreed-upon parts discounts from vendors, accounting for sublet parts, materials and procedures, proper mark-up, verifying that sales tax is input properly, and that items not used are returned for credit promptly.