What’s the Impact of Adding Just One Labor Hour to Every Estimate?

I was told years back, “We need to be in business to sell labor as fast as we can!” Why is this statement true? Well, our parts gross profit is capped to around 25% (pending discount levels), due to the car manufacturers’ list pricing. On the other hand, our technician labor GP should be around 60-65%.

What would be the impact on our business if we added just one labor hour to every estimate?

Let’s take an example hourly shop, ABC Auto Body, which produces $3,000,000 in gross sales per year, with the final bill on each repaired car averaging $5,500. If we wanted to know how many cars they repaired per year, we would take $3,000,000 / $5,500 = 545 cars. Let’s say each job averaged 36 billed labor hours. What if they started taking some estimating classes and added just one more hour to each estimate? What would be the effect? Well, let’s say their insurance-pay labor rate on average was $65 per hour. See the math below for not only what one more hour, but up to four more hours added to each estimate would look like.

One more hour: 545 cars X $65 = $35,425

Two more hours: 545 cars X $130 = $70,850

Three more hours: 545 cars X $195 = $106,275

Four more hours: 545 cars X $260 = $141,700

Let’s say ABC Auto Body has a 45% overall gross profit for every car repaired prior to any estimating improvements. At a $5,500 average, there would be a $2,475 gross profit. How many fewer cars would need to be repaired just by better estimating to make the same gross profit by year end? Here’s that math:

One more hour: $35,425 / $2,475 = 14 fewer cars need repaired per year

Two more hours: $70,850 / $2,475 = 29 fewer cars need repaired per year

Three more hours $106,275 / $2,475 = 43 fewer cars need repaired per year

Four more hours $141,700 / $2,475 = 57 fewer cars need repaired per year

My uncle, for whom I worked decades ago, said something I have never forgotten. “Greg, some days I can make more money in the office than I can working in the shop.” Granted, the owner shouldn’t be working on cars, but I think you get his point that poor estimating is just dumb. Here’s the deal: with the help of CCC, etc. the insurers know EVERY shop’s average labor hours, and they are trying to drive them down. Shops must work at driving them back up. After 40 years in this, it’s just a game between shops and insurers of winners and losers. “It’s only money”… YOURS!!! Another mentor told me, “Greg, if you are not getting denied things on your estimates, you’re not asking for enough!” With insurers suppressing labor rates, push up that denial line!

Tools to adding more labor hours to estimates:

Have all OEM procedures and inspections been added?
Use a PDR light to justify labor repair times for damage etc.
Attach all documentation for procedures, invoices for hardware, materials, paint, antifreeze disposal etc.
Providing quality and labeled photos is HUGE!
Estimates are not wish lists. ALL R&Is must be completed, photo’d and labeled. Adding line notes makes a huge difference and thus tells a story.
Review of the P-pages for non-included operations in DEGWEB.org
Add markup on any sublets, plus labor for pickup and drop-off
Possibly use estimating review software, as the insurers sure are.
Have a second set of eyes review each estimate and photos before sending them to an insurer. They will ALWAYS find something missing!
Besides the shop owner, we must have estimators who are motivated/incentivized to bill for every hour.
Estimating training is available through Collision Advice, Collision Hub, some paint companies, and others. This is a prerequisite to high profitability!!
If you have never read the book “Never Split the Difference” by author Chris Voss, you need to read it! Chris was the top U.S. government FBI international negotiator who retired and is now sharing his knowledge. Insurers are using these same negotiation skills without us even realizing it, so shops should, too.

Most all adjusters have been brainwashed to use this statement on shops, “We are just trying to keep premiums down for our policyholders.” Before being overcome with empathy and now agreeing with all the short pays from them, understand this: For the top-four US auto insurance companies, here are their published CEOs’ salaries/compensation for 2022.