Do you know if you’re paying too many people? Do you know if you’re paying the right people?
If you don’t know how to answer those questions, there’s a strong chance your shop’s payroll costs are higher than they need to be.
Optimizing your shop’s payroll, collision repair industry experts say, doesn’t rely on just crunching some numbers–it comes down to making sure your employees match your business’s needs, having processes in place to maximize everybody’s time, and hiring good, not cheap, people.
“Payroll has the single largest effect on your income,” says Larry Edwards, founder of Edwards & Associates Consulting.
Some businesses, he says, spend some 50 percent of their revenue paying employees.
“One small change in your payroll structure can have a huge impact on your bottom line,” Edwards says.
Evolving Business
How does a shop’s payroll get out of whack?
One way, Edwards says, is that the shop’s structure changes. Body shops and other small businesses tend to grow and evolve organically, and people are added to keep up with that growth, but without a plan.
“It isn’t unusual to go into a body shop where they have four body techs and they’ll have four to five support staff,” he says. “You have more helper bees than you have worker bees.”
Edwards offers a rule of thumb: For every three productive staff members there should be a single support staffer.
Dave Luehr, owner of Elite Body Shop Solutions, says there are many age-old benchmarks shops still use to determine if their administrative labor is in line.
For example, some shops attempt to maintain an administrative expense to sales ratio of 10 percent of sales. If it’s a small shop grossing $100,000 per month, its monthly administrative payroll would be $10,000.
Another older benchmark is for direct labor costs, Luehr says. A shop would be paying its technicians 40 percent of its labor sales, with 60 percent leftover as the labor gross margin.
While it’s always a good idea to know industry benchmarks, he says they can sometimes actually inhibit innovation and profitability. Because of that, shops should also measure themselves against themselves, with the intention of constantly improving.
Many shops find it impossible to maintain low administrative expenses with all that is required for repairs today, while others, Luehr says, are getting smarter about how they set up production teams and are experiencing gross labor margins much higher than industry norms.
Let your managers manage
Larry Edwards, founder of Edwards and Associates Consulting, says body shops should aim for having a single support staffer for every three productive employees.
That rule of thumb, however, doesn’t apply to managers.
That’s because managers should be managing, he says, and not taking on support work such as writing estimates or placing parts orders. Managers sticking solely to leadership is more common in larger body shop chains and MSOs, he says.
“There’s no reason a small body shop can’t have that same kind of structure,” he says.
Avoid Waste
How your shop does business directly affects your payroll–wasted time leads to wasted money.
One way to waste time and profitability, Luehr says, is through something he calls “monkey management,” which manifests as the manager who is always busy, putting out fires all day, and doing other people’s work for them.
“When people grow a business they need to be able to hire people to do a job, train them well, and then get the hell out of the way and let them do their job,” he says, adding that clearly defined roles and repeatable processes support that goal.
Adopting the “Do It Once” mentality will also save on both direct and indirect costs. Luehr says one way to do so is getting away from estimates and into repair planning–ordering parts a single time and having a single delivery is more efficient than 10 supplements and returning parts.
“Those things will elevate your administrative expenses,” he says.
A strong repair planning process limits technicians’ interruptions during any given job, Edwards says, which has its own benefits.
“What a lot of managers don’t understand is that unless that technician is working on a vehicle, we aren’t making any money,” he says, adding that some technicians are productive just half the time they’re on the job, due to interruptions.
Administrative Bloat
Though keeping technicians busy is vital, work that requires lots of administrative backup can also lead to higher payroll costs.
Some shops have too many DRPs, Luehr says, leading to administrative bloat.
He says shops will hire a dedicated employee to handle a single insurance company’s account, a situation that can lead to competing priorities in a shop’s front office, affecting which vehicles get repaired, and when.
Shops can be balanced in terms of administrative staffing, Edwards says, but still pay out too much in payroll because of overtime.
To avoid overtime pay, which is often double an employee’s regular hourly wage, Edwards recommends staggering shifts throughout the day, with some employees coming early and leaving early, while others start later and stay late.
“Employees don’t all have to march into the shop and march out together,” he says.
Not only does splitting up schedules reduce overtime hours, Edwards says, but it also reduces staffing redundancies and can improve employees’ quality of life through shorter shifts.
Hire Smart
Shops can also improve their payroll situations by looking at who is doing what job.
“Highly skilled techs performing lower skilled work is a waste of money,” says Luehr, noting that only a small percentage of a typical repair job requires a highly skilled technician.
Moving toward a team of technicians and away from individual A-techs, he says, can improve a shop’s gross labor profits by 7 to 10 percent.
Luehr recommends employing techs of different skill levels and specialties with the end goal of your employees “learning together and growing like a pit crew.”
That’s not to say that body shops should hire just anyone.
“People hire the cheapest people they can get, which ends up costing them more,” Luehr says, pointing out shops will often hire inexpensive CSRs, make them their public face with little training, and wonder why the situation doesn’t work.
“Pay [employees] what they’re worth, treat them well, and they will always make you money,” he says.
“Find a person who has the right attitude, who wants to grow. If I can help them reach their career goals, they will help me reach mine as a business owner.”
Overcoming ‘Talent Shortage Problems’
Dave Luehr, owner of Elite Body Shop Solutions, has a new venture launching in May that aims to help small businesses solve what he calls their “talent shortage problems.”
Called “Limitless Entrepreneur'', Luehr says it came about in part from watching businesses over the past two years struggle to make progress and growth because of chronic understaffing.
“One of the reasons I’m so passionate about the new brand is to break some of the [bad] habits,” he says. “When we’re shorthanded we have the habit of hiring the first person who can fog a mirror and we wonder why our culture is so bad.”
Bad business culture repels high-performing employees, Luehr says.
“A-players aren’t going to want to work for a place with a bunch of B- and C-level people,” he says. “We want the best.”
