How increasing your revenue-per-vehicle can be a big boost to your shop’s bottom line
By John Joswick
Among the most fundamental rules of business is that there are two ways to improve your bottom line: reduce your expenses, or increase your top-line sales.
For collision repairers, increasing revenue can be accomplished by improving your marketing and sales to bring more cars to the shop — or by increasing your revenue-per-vehicle.
Here are some ways shops are legitimately increasing their revenue-per-vehicle, improving their top-line sales (and bottom-line profits) without the increased expenses or liability that raising car-count can require.
Check your mechanical labor rate
Many shops view their body and paint labor rates as limited to some extent by insurer mandates or competition in the marketplace. That’s why there’s often little variation in these rates from shop to shop within a market.
But labor rates for the mechanical labor operations that collision shops perform tend to vary widely from shop to shop. It’s a rate that insurers may not even ask about when conducting labor rate surveys, and research indicates that insurers and customers view a much wider range of mechanical labor rates as acceptable.
In a 2015 survey of rates in one state, for example, body labor rates in markets throughout the state were consistently within one dollar of the statewide average of $53 per hour. But the same survey found a wide spread in mechanical labor rates, ranging from a low of $52 to a high of $115 per hour. In some markets in the state, the average was $75 per hour, and in others it was as high as $90 per hour.
Granted, only a fraction of the labor on most collision repair jobs is designated as “mechanical,” although the growing amount of diagnostic and system calibration processes shops are conducting on newer vehicles could have an impact on this. But even if the average continues to hover around just six-tenths of an hour of mechanical labor per job, a $10-per-hour increase in the mechanical labor rate for a shop repairing 10 cars per week could add more than $3,000 to the shop’s annual revenue without any added expense.
Get equipped and trained to scan vehicles
More than 20 automakers, from Acura and Buick to Saturn and Toyota, have published position statements calling for pre- or post-repair scans (or both) of nearly all their vehicles undergoing collision repairs. (Copies of all the automaker documents can be found at www.oem1stop.com.) The scanning process is necessary to determine that all fault codes caused by the accident or repair processes have been addressed, and that vehicle safety systems have been adequately repaired and calibrated.
In some cases, shops are subletting such scan work out to dealerships or mobile vendors. Others are purchasing OEM or aftermarket scan tools and doing the work in-house. A third option is to use one of the remote scanning services which use trained technicians at a centralized location to read and clear codes on vehicles that shops have hooked up to the internet.
Shops conducting scanning report a variety of practices in terms of the percentage of the vehicles in their shops that undergo the process, and in terms of their ability to negotiate payment for the procedure. But virtually everyone — insurers, shops and automakers alike — concur that scanning is becoming increasingly necessary and common as vehicle systems become ever-more complex.
And while there are costs associated with scanning for shops in terms of equipment, training or labor, it also offers a legitimate opportunity — and many argue a necessity — to add revenue per job.
Billing for what you do
The “Who Pays for What?” series of surveys conducted by industry trainer and consultant Mike Anderson of Collision Advice in conjunction with CRASH Network offers shops information they can use to increase their revenue-per-vehicle. The four surveys each year (one per quarter) highlight nearly 100 “not-included” labor procedures and other items that many shops are including on their estimates and invoices, when appropriate, but that other shops may not be itemizing.
“There can be legitimate reasons shops are choosing not to charge for these items,” Anderson said. “But when we ask shops why they are not charging for a procedure that they are performing, the most common response is that they either were not aware the item was ‘not-included,’ or it simply never occurred to them to charge for it.”
Anderson said just having shop management or estimators complete the quarterly surveys can be a reminder of some of these potential invoice line items, and the quarterly reports with the results from each survey can be a tool to help shops improve their top line.
Anderson said one of the procedures asked about in the “Who Pays” survey that focuses on “not-included” frame and mechanical labor procedures offers a prime example. The survey asked shops how regularly they are paid by the largest auto insurers to “reset electrical components” — such as reprogramming a radio or other components — when it is necessary as part of a repair.
More than 750 shops from around the country responded to that particular survey last summer, and about 63 percent of those shops said they are paid “always” or “most of the time” when that procedure is necessary and they include it on their invoice.
That percentage varied somewhat by insurer, according to the 59-page report showing the survey findings. About 59 percent of shops said Nationwide pays for the procedure “always” or “most of the time.” Furthermore, more than 68 percent of shops said State Farm pays for it most or all of the time. (For each procedure, the survey also asks payment practices of six other insurers as well: Allstate, Farmers, Geico, Liberty Mutual, Progressive and USAA.)
The payment frequency can vary by region of the country as well. About 79 percent of shops in the Northeast region of the country reported being paid to reset electrical components always or most of the time when needed, compared to just 53 percent in the South.
“But here’s the key take-away,” Anderson said. “While 63 percent of shops are getting paid for this procedure ‘always’ or ‘most of the time’ when it is necessary, almost one-third of shops told us they’ve never included ‘reset electrical components’ as a line item on an invoice. Sure, there was a small percentage of shops who told us through the survey they’ve never been able to successfully negotiate to be paid for that procedure when they’ve tried to bill for it. But one-third are absolutely never going to be paid for it if they don’t even ask or attempt to negotiate for it.”
A single line item on some jobs won’t necessarily lead to a dramatic overall increase in revenue-per-job and a shop’s top-line sales. But getting paid for a handful of procedures that your shop is already performing, but may not be including on invoices, can add up. An added half-hour of labor on every invoice can, for a shop repairing 10 cars per week, add $13,000 to the shop’s annual bottom line — without any added expense, just by billing for the procedures the shop is currently performing for free.
Remembering the ‘not-included’ items
So just what are some of these other “not-included” procedures and items shops could be billing for if they are part of a collision repair process? Here are some additional examples.
A 2015 “Who Pays” survey found that just under 61 percent of shops surveyed said they are paid “always” or “most of the time” for removing coatings from pinchwelds prior to mounting the vehicle on a frame machine. But more than 20 percent of shops responding to the survey said it wasn’t a procedure for which they ever billed.
“In my opinion, that 61 percent should be 100 percent,” Anderson said. “I have not found any vehicle manufacturer or any frame equipment company that says it’s okay to secure a fixture clamp to pinchwelds without first removing all undercoating and seam sealer. If this isn’t done, it increases the likelihood that the vehicle can slip when you are pulling it, causing further damage or adversely impacting the accuracy of the measurements. So those coatings need to be removed in order to perform a proper and safe repair.”
(Anderson noted that some automakers do not approve mounting or anchoring in the pinchweld area at all, and said shops should always follow manufacturers recommendations.)
Also in 2015, one-in-five shops nationwide said they had never charged for weld-through primer when they used it on a job, yet 68 percent of those shops who do charge for it said that the eight largest insurers agree to pay for it most if not all of the time when it is needed.
Among shops who in 2016 said they had never asked to be paid for the additional labor time involved to match the original OEM texture of chip/gravel guard, more than 82 percent said they either were not aware it was a “not-included” operation or just never thought to charge for it. Any extra steps taken for this operation are “not-included” in the estimating database times because not every situation requires it, yet it regularly must be done. Of the shops that do bill for extra labor time when they need it, the “Who Pays” survey found that the eight largest insurers reimburse them “always” or “most of the time” nearly 40 percent of the time.
American Honda last year issued a position statement that calls for vehicle seat weight sensors (or “occupant detection systems”) to be checked (via vehicle scan) after “any collision, regardless of damage, even if no airbags deployed. Honda’s Chris Tobie said if not calibrated properly, “there’s a possibility [the vehicle] could deploy a front passenger airbag with a child in the seat, and the outcome would not be good.” Despite this, a “Who Pays” survey last year found that about 25 percent of shops said they have never invoiced for the procedure.
Most recently, a survey earlier this year found that while 56 percent of all shops say they are paid to “mask sunroof opening” “most” or “all” of the time when it is needed and billed for, 43 percent of the 650 shops responding to the question said they are not even billing for it.
Negotiating more successfully
Anderson said that while he understands why some shops may choose not to negotiate to be paid for all of the items asked about in his “Who Pays for What?” surveys, he doesn’t buy some of the excuses he hears about why shops don’t.
He points out, for example, that the surveys, now in their third year, have nearly consistently found that direct repair shops are paid, overall, more frequently for “not-included” estimate items than are non-DRP shops. So it’s not insurer leverage over DRP shops that leads to shops not billing for these items. The key to improving revenue-per-vehicle, he said, is smarter negotiations. Anderson recommends that shops start with one or two of the items at a time, including them on estimates on jobs when the procedure is being done, and being prepared to support why they should be paid for it. He said shops should have documentation from the automakers or paint companies showing the procedure is needed; documentation from the estimating systems showing the procedure is not-included and whether there is a formula for calculating the labor time for it; and an understanding of what the procedure is worth.
“You have to figure out what your labor is going to be and any materials you’re going to use,” Anderson said. “I can’t tell you what to charge. But the time you charge should reflect how long it takes the average technician to gather up their tools, equipment and supplies and perform the task in a safe and proper manner, and then return their tools and equipment.”
He said shops rarely do the research to gather the documentation they need to confidently make their justification for the charge. Anderson said each of the “Who Pays for What?” survey reports includes suggested resources shops can use in this process.
“The only thing that matters if you want to get paid for something is what you can prove, substantiate and justify,” Anderson said. “That’s all that matters. Your opinion means absolutely nothing.”
The latest “Who Pays for What?” survey is open through July 31. Shops wishing to take the survey, or in getting results from previous surveys, can visit: http://www.CrashNetwork.com/collisionadvice •
John Yoswick, a freelance writer based in Portland, Ore., who has been writing about the automotive industry since 1988, is also the editor of the weekly CRASH Network bulletin (www.CrashNetwork.com). He can be contacted by email at john@CrashNetwork.com.
