Although it’s not a new problem, per se, Steve Feltovich says that getting reimbursed by insurers is still one of the most pervasive issues within the body shops he works with as manager of business consulting services at Sherwin-Williams. And furthermore, he says it’s no surprise.
“I’ve been doing consulting work over 20 years and I look over a lot of financial reports and I see the margins shrinking,” he says. “When you look at the profitability today and the factors that are squeezing body shop profits, there are a host of them that managers have to be trained on so they know how to understand and balance those issues.”
Training, he says, is what the problem boils down to.
“We have a major training gap in the collision repair industry, especially with shop managers and estimators in terms of estimating effectiveness. That’s where the margin slippage occurs from,” Feltovich says. “We’re looking at 3 percent of our estimators have had any formal training classes in the last five years. That is just pathetic. That’s 3 percent who have had training in five years and we wonder why our margins are squeezed.”
Maintaining proper margins is necessary in today’s collision repair environment, he says, and ensuring you get reimbursed for everything on every job is possible through a few simple steps that every shop can and should implement.
1) Train your front and back office staff.
The only way to offset the challenges squeezing body shop profits, says Feltovich, is training. Invest in training for your estimators and your front office staff so they know how to use the tools available and present them.
“We really have to have astute estimators out there who know the numbers inside and out, know all three estimating platforms because insurers are using various ones,” he says. “And your people need formalized training. They can’t be trained by the insurance companies every day on the job. That’s who’s training them currently.”
Feltovich says that estimator training provides estimators with the information they need to present a sound argument to the insurance carriers. With that training, he says that the back office then needs an ultra efficient workflow process in place with elements of lean manufacturing.
“We need a very deliberate, welldefined process without speed bumps,” he says.
2) Understand how to move your effective labor rate.
Feltovich says one of the biggest keys to making margins is understanding your effective labor rate, which is calculated by the total labor dollars earned divided by the total hours actually worked. The way to move your effective labor rate (ELR), he says, comes from a balanced sales mix, which he says is connected directly to your estimate techniques and competencies. That sales mix should look as follows: 30 percent of the estimate should be body, frame and mechanical procedures; 20 percent should be refinish labor; 10 percent should be paint and materials; 38 percent should be parts; and 2 percent sublet.
“A lot of estimate audits I do, their paint and material sales per estimate or per a month of estimates is under 10 percent,” Feltovich says. “If they have $200,000 in sales for a month, they should have $20,000 in sales for paint and material. If they come in at $18,000, they’re under the 10 percent mark and that lowers their margin on paint and material. So they’re not selling paint and material effectively.”
Paint and materials (P&M) compensation has long been a source of heated debate—even lawsuits— between collision repair shops and insurance companies.
Repairers commonly report underpayment or no payment for various materials used during repairs. Meanwhile, shops’ costs for those products have increased dramatically over the past decade, causing P&M profit margins to dwindle by the year. Using a P&M cost accounting system allows you to implement diligent documentation practices and improve insurance negotiation strategies.
When it comes to frame and mechanical sales, Feltovich says you should do those tasks at tiered rates, rather than body rate.
“When you negotiate a higher rate for your frame and mechanical, now you’ve changed your ELR. You have that 30 percent body frame and mechanical mix coming in at a higher-than-your-door rate for body and paint,” he says.
The way to do that is to make sure your dedicated mechanic has ASE certifications, you’ve invested in equipment and then professionally negotiate with your insurance partner on a higher rate on mechanical, Feltovich says.
3) Have access to all three estimating systems.
Having access to all three estimating systems—Mitchell, AudaExplore and CCC—as reference tools is necessary, says Feltovich.
“If an insurer is using a different database to write from, how do you know what’s non-included in their labor hours unless you have the reference on that particular estimating database? You need the keys to that database to know what those labor hours represent,” he says. Another reason access is so important to the estimating systems is to have access to the database specific P-pages.
“Lack of P-page knowledge in the databases are very commonly overlooked and not used on a daily basis when writing estimates,” Feltovich says. “Those are only really viewed if there’s a discrepancy about a charge or labor time on an estimate. Those should be utilized more regularly on writing every estimate.”
P-pages are where those nonincluded items are located, he says, and today, that’s where your gross profit margins lie. If you write an estimate on base service time only and what readily comes up for the procedure in an estimating database, that will, best case scenario, cover your overhead and internal costs, says Feltovich. To put it bluntly: There’s no profit.
4) Provide proper third-party documentation.
You need a library of reference tools so you can find printed documentation to support the request for compensation pertaining to non-included items or work performed that’s not billed out, says Feltovich. That library of tools should include manufacturer’s requirements for repair standards, P-pages, paint company recommendations, I-CAR information and ALLDATA information.
“You need to support that with documentation,” he says. “Otherwise, their argument falls on deaf ears because they don’t know how to support it with third-party documentation or evidence to create a sound argument.”
5) Don’t forget the non-included items.
Feltovich says that one of the biggest issues with incomplete estimates is that estimating database providers keep lowering and moving labor times from the included operations under base service time.
“A fender could’ve been 2.5 hours on a previous provider’s update, and now the latest update shows two labor hours to change out that fender. And where did the time go?” Feltovich says. “The time is actually in non-included items and you have to click on the non-included items and build the estimate up differently in order to achieve those same labor hours you used to be compensated for.”
In fact, he says there are a whole stack of common repair operations that are performed and overlooked when the final bill is produced. Those include collision access time, R&I of wiring harnesses, pre-fitting of panels, paint and material items, undercoat, corrosion protection primer, etc.
“There’s a host of those materials that go without being billed for, or in most cases, are charged out for a lot less than what the shop is actually being paid for because they don’t know their numbers on paint and materials, which are continuing to rise year to year,” Feltovich says. “The work is being produced in a quality shop environment by the techs but these operations are not being billed out for and they’re legitimate repair operations that should be paid for by either a customer or insurance company.”
