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Tuesday, 30 September 2008 10:00

Amaradio--Fix Your Bottom Line

Written by Lee Amarado, Jr.

When I was a kid I used to love to get ice cream at 31 Flavors—the best, most expensive ice cream around. Normally our family would go to Thrifty Drug Store to get double dips for ten cents each. 31 Flavors was a real treat with more choices Plus, their ice cream was so expensive, we rarely went there.

    I remember waiting in line at both places and it seemed that business was good. People have different tastes. I could taste the difference between the two ice creams,but my brother and sister didn’t care where it came from as long as they got a double dip. I would settle for a single dip if we could go to 31 Flavors.
    The sole business of 31 Flavors was making and selling premium ice cream— their only product. Thrifty was in the drug store business and ice cream was sold to bring customers into their store.
    It would be a mistake for 31 Flavors to compete by lowering the price of their higher quality ice cream to match Thrifty’s. While both companies sold ice cream, they were in two entirely different businesses. Comparing ice cream sales would be comparing apples and oranges.
    It seems that collision repair shops have fallen into the trap of thinking that their main goal is to bring customers in the door without having anything to sell. Articles tell shop owners everything except how to make a profit. I have yet to read an article that says its time for you to raise your prices if you’re not making any money. Unless you do, you will never make any money.
    More articles say we should up-sell, cut costs and run leaner, but when you are still losing money, it is time to raise your rates. I’ve read many books on business and none have ever suggested that I sell something for less than what it cost unless it is for marketing and promotion only.
    If 31 Flavors started selling ice cream for the same price as Thrifty to bring in more customers, they better have more than ice cream to sell or they will go out of business quick. The collision industry sells collision repair. If we discount our services to cost, there is nothing left to make us profitable. We will have plenty of customers but still not have any money. We need to stop believing that one day we will wake up and everything will somehow be all better. Nothing will ever change until you change it and no one is going to do this for you.

    The collision industry is like 31 Flavors selling their ice cream for Thrifty prices. Collision repair is our only profit center. If a consultant recommends selling  auto accessories and tires to help make a profit, they are selling a bill of goods. What they are really saying is do anything, but never raise your rates. Be cautious of any consultant who suggests ignoring the actual numbers, contributing to keeping the industry at ten-year-old labor rates. Where do they get these guys anyway? How many of them have produced successful collision businesses, or are they failed shop owners turned consultant?

    There is a simple solution to the entire industry’s problems: raise your prices to whatever it takes to make a profit. What is reasonable and fair about selling paint for less than the cost to purchase it? What is reasonable and fair about giving away body materials? No court would deem charging for supplies to complete a repair as unreasonable. Just because another shop charges less, does not mean that I have to. Other shops can do repairs for free but it wouldn’t make me unreasonable to charge for every procedure I do.

Set fair and reasonable rates
Letting others in our industry dictate shop prices needs to stop, along with labor rate surveys. Neither one makes any sense, and neither is fair and reasonable. Allowing the insurers to put the existing law aside and use bogus labor rate surveys as a way to price fix is something our industry needs to stand up against because it is wrong!
    What can be done to repair your bottom line? My simple solution: I set non-negotiable door rates. By negotiating my door rate and changing the labor rate on my estimates, I was setting a precedent that insurers could use against me.
    For years, insurers have been conceding to the door rate at the bottom of the estimate with a line entry deduction, so there is no documentation that they paid your rate, setting a precedent.
    Do what the insurers have been doing. Implement what we have learned from them and establish a verifiable door rate. Your door rate is your door rate period.
    I now charge for all of my paint materials using an invoicing program. Some insurers embraced this while others raised our dollar amount per hour under the old formula. Either way I was able to document the true cost of paint and materials.  Most insurer’s are reasonable when facing an invoice. The law requires the insurers  to pay based upon the invoice.
    Another thing I did was say no! I will not allow the insurance companies to control the repair process. We are the collision repair experts. Because we hold liability,  we cannot allow them to tell us how to fix a car. Required training is necessary to become the experts we claim to be. Expensive equipment is required to repair the vehicles to manufacturer’s recommendations. My experience is that once the costs are documented for the insurers, they became reasonable and easier to work with.
     I also say no to adjusting after the fact. Adjustments must be made before the repair  is completed. I will not allow any deductions after the fact unless there is some type of admin error or a justified mistake. If someone looking at a picture from a thousand miles away tries to deduct labor hours after the work is completed, this is extortion. There are laws against this behavior.
    Learn the laws and see that the insurers you deal with abide by them; they are not above the law. This will help the insurers that abide by the law and expose those that don’t. Just like the collision industry, the insurers deal with those competitors that cut corners to make a profit.
    Remember to recommend the good insurers and disclose the bad ones. Remember my saying: if an insurer takes one of my customers, I will take ten of theirs.
    Make copies of the laws and give them to your customers. Make the customers aware of their rights and have them hold insurers responsible when they fail to follow those laws. If you find yourself dealing with an insurer that is not abiding by the law, put them in check. Help your customers file a complaint with the Department of Insurance.
    You are the only one that can stand up for yourself and change your bottom line.