July 31, 2001 20:56:32
RX: Prescriptions for your Body Shop
ASC Retail Consulting, Inc.
For several months we have been talking about improvements in your service department. This month I would like to turn our attention to your collision center. A collision center that produces quality repairs, on time, with excellent customer service keeps customers coming back to your dealership. Customer retention has many benefits such as, profit from collisions, additional parts department profits, and more vehicle sales. Like your service department, many dealers think their collision center is running smoothly, but they are comparing current results to dealership history. A quick review of the profit benchmarks listed below, along with a few easy calculations, will allow you to compare your performance to some of the
best-run shops in the industry.
Let's review the benchmarks:
- Overall technician productivity, 170%
- Labor gross profit at or above 70%
- Estimate close ratio of 75% or higher
When measuring performance the following information will be helpful:
1. Overall technician productivity is calculated by dividing total flat rate hours (FRH) produced by the total clock hours worked. If you are below the benchmark you should examine two areas for possible opportunities. First, although it is tough to measure, observe the amount of time your technicians spend in their bay working on cars. Do they often wait for customers or insurance authorizations, parts, and repair instructions? Do they take timely breaks? How much time is spent on the tool truck or the lunch wagon when they arrive? Managing the time the technician is in the bay working on cars is most often the biggest opportunity for improvement. True technician efficiency, another area to examine, is measured as the number of FRH's produced compared to the amount of time the technician is in his/her bay working on cars. Obviously this would include, the technician's ability, training, and motivation. Other opportunities for examination include the availability of repair manuals, special tools, jacks and equipment, and the help for heavy jobs.
2. Labor Gross Profit is available on most financial statements. Be sure to calculate total labor gross profit. If your financial statement includes an account for unapplied time or an adjustment to the labor gross profit accounts, it will be necessary to subtract this cost from the total labor gross profit before you calculate your performance.
If your performance is low, there are only two areas to address to resolve this issue. The first is managing your effective labor rate, which we will discuss below. The second is managing your cost per FRH produced. While the biggest gains in gross profit are usually achieved by managing the effective labor rate, there are significant gains possible in managing your cost. Start by reviewing your technician pay rates. Most shops operate on a rate per FRH. Some pay hourly, or offer their technicians a guarantee each pay period. If you pay hourly or offer a guarantee to some or all of your technicians you may want to measure individual productivity. Low productivity with these types of pay plans can drastically affect your cost per hour produced. If this is the case, you don't have to change the pay plan. But, you need to spend time managing productivity (see above). If you pay per FRH, review the skill levels and rates of pay of your technicians. Often we find that shops pay all their technicians a standard or uniform rate.
If you examine each technician's abilities and specific productivity you may find some technicians are worth more than others. Most collision centers provide their customers with a broad mix of repairs and refinish abilities, each requiring different skills necessary by the assigned technician. All jobs do not require an “A” technician. Consequently, we recommend you utilize multi-level flat rate pay systems. Another way to state this is to base pay on ability and assign each repair job based on that ability. For instance, your painter may be worth every dollar you are paying when he/she is in the booth spraying or color matching. However, you may be able to employ lower skilled workers for booth preparation, sanding, masking, and wrapping.
After taking these actions, it will take time to see improvement. We are not recommending that you change an individual's rate of pay. Over time, due to attrition, turn over, and growth, application of these principles will have a positive effect on your profitability.
Your customer effective labor rate often can be accessed from your computer system. If not, you can easily measure it from a sample of customer pay or insurance paid repair orders. Note: the minimum sample size should equal one month's business. If you add all of the labor dollars charged and divide it by the number of FRH's flagged on those repair orders, the result is your weighted average labor rate, or customer effective labor rate.
Your target should equal your door rate. This sample should include all types of work, body repair, refinish, structural, and mechanical repairs made by body shop technicians. You may find your result is less than your door rate. This is caused by discounts to some insurance companies. For example, if you are a DRP you may have negotiated a discounted rate in return for volume. In many cases we find that a large insurance provider in a typical market may control the rate paid due to their volume of collision vehicles. Once this rate is established, collision center management assumes they need to charge all of the insurance companies that rate. By establishing a door rate that is fair in your market and only offering discounts when it is necessary to receive volume repairs, the effective labor rate can change drastically. Even small improvements will have a big effect on your profitability.
We always structure variable insurance labor rates based on a dealers specific market. These rates need to be “market driven.” If you chose to use variable insurance labor rates, conduct an extensive market survey first, structure your rates, and before you begin using them, be sure to adequately train your crash estimators.
3. Estimate close ratio is a measurement of the number of repair jobs closed, (RO's written) as compared to the number of estimates written or assigned by insurance companies. As an example, if your estimators wrote 150 estimates and you received 50 insurance assignments and closed 100 jobs that month your close ratio would be 50%.
100/200 = 50%
In other words you had 200 ups and closed one half of them. Thinking of them as ups as you would on the new car sales floor is a good way to view this challenge. Statistics show that the average repair order in a collision center can yield close to $850 in gross profit. When you compare that to car sales it is easy to see we should think of our estimators as sales people. Sales people need to use The Road to a Sale™, that includes selling benefits and asking for the sale. Do your estimators ask for the sale? Do they sell the benefits of having the vehicle repaired in your shop? Do they talk about factory sheet metal warranties, paint warranties, longevity of your dealership, factory trained technicians, and any local warranties you offer? Develop a follow up system for calling back customers that don't buy when you write the estimate. You follow up on sales ups don't you?
I know if you and your management team take the time to measure performance, compare it to these benchmarks, and develop processes that are customer focused and structurally sound, you can achieve more profit and have happy customers. Good Luck.
Mark Martincic is general manager/director of operations of ASC Retail Consulting, Inc., an ADP Company. He has an extensive background in the retail automotive field. During his 32-year s of experience in the automotive industry, he has held positions of technician, service advisor, service manager, body shop manager and fixed operations director of multiple dealership lines, and is an ASE Certified Master Technician. Mark grew up in Cleveland, Ohio; he is the oldest of ten children and served in the United States Air Force. Today, Mark is married to his wife of 33 years, has two grown daughters and 2 grand children. His hobbies include sailboat racing, sail chartering and he is an avid motorcycle enthusiast.