CRA Business Profitability Explored
The rising tide of paint materials invoicing is a small trend within the industry that is helping shops to grow their margins a bit wider.
SHOP STATS: Lexus of Pembroke Pines Location: Pembroke Pines, Fla. Operator: Brian Martin Staff Size: 50 (6 painters) Shop Size: 35,000 square feet Average Monthly Car Count: 200 ARO: $4,600 Annual Revenue: $11 million
SHOP STATS: Lexus of North Miami Location: Miami, Fla. Operator: Brian Martin Staff Size: 50 (6 painters) Shop Size: 45,000 square feet Average Monthly Car Count: 190 ARO: $4,600 Annual Revenue: $10.5 million
For every body shop, trying to maximize its margins as efficiently as possible is one of the keys to maintaining success. But with low labor rates and constant battles with insurance companies, there is a persistent struggle to maintain and grow businesses.
As seen in the 2021 “Who Pays For What?” survey, a small trend within the industry has begun to develop that is helping those margins grow a bit wider: paint materials invoicing systems.
For many years, the go-to choice for invoicing paint materials has been the multiplier method, says Mike Anderson, president and owner of Collision Advice, in which an arbitrary paint materials rate was multiplied by the paint hours to cover the costs and markup of the materials the shop uses. In contrast, materials invoicing systems itemize and bill for the exact substances and amount of substances consumed during the refinishing of a vehicle using a materials calculator.
In 2016, only 19 percent of shops used a materials invoicing system, with the rest using the multiplier method. That rose to 27.5 percent in 2020. For the 2021 report, the survey allowed respondents to answer in a different way, giving an option for “a mix of both methods,” along with strictly multiplier or strictly materials invoicing. That led to findings that only 49 percent of shops are strictly using the multiplier method, meaning over half of the shops include some sort of materials invoicing in their business.
Anderson expects the trend will continue and paint materials invoicing will rise in prominence.
“As we start to see more three-stage and four-stage finishes, as well as more limited-use toners, it’s going to become increasingly important,” he says. “The majority of shops are going to benefit from using an invoicing method.”
So, what benefits does this system have and why is it gaining popularity now? FenderBender spoke with Anderson and several shops who use the system to find out.
A Better Understanding Of The Business.
For Randy Cooper, assistant general manager for Classic Collision (formerly Able Body Shop) in Anchorage, Alaska, the biggest advantage of using a paint materials invoicing system has been the increased emphasis on tracking. The shop has had ColorNet for the last few years, but just began implementing the invoicing strategy earlier this year.
While figuring out exactly how the system would work, the first thing Cooper identified was an improved efficiency in its paint and paint materials usage and tracking. With the system requiring a knowledge of exactly what was used, no materials are missed in tracking. It has allowed him to better see what exactly is used for every vehicle and it takes some of the guesswork out of supplying, Cooper says. It also created a library that the shop has gone back to for similar jobs or if a repeat customer comes in.
For Brian Martin, director of two Lexus dealership collision repair shops in South Florida, the biggest asset has been truly understanding the cost of sale.
“When 3M came to us and showed us the system, we could put a price number and price onto it,” Martin says. “It’s a tangible thing we can bill for.”
Choosing a System
Most shops that use a materials invoicing system use a calculator provided by the paint company they use, Mike Anderson, president and owner of Collision Advice, says. As more paint companies have added these calculators, that has contributed to the increase as well.
Brian Martin, owner of two Lexus dealership collision repair shops in South Florida, was approached by 3M and has used its free system, CRiMP, since. Classic Collision in Anchorage, Alaska, had a prior relationship with Axalta and began using its paid ColorNet product, which sparked the move to a materials invoicing system.
According to the 2021 “Who Pays For What?” Survey, 66.3 percent of shops that use an invoicing system use a paint company scale. Mitchell’s Refinishing Calculator is used by 20.9 percent of shops, the survey found.
According to Anderson, Mitchell’s refinishing calculator, an add-on product, is one that most insurers have recognized and accepted. However, the specific scale or company that a shop uses isn’t as important as the general transition to an invoicing system, he says.
Better Results With Insurers
Tracking paint and materials and using itemized invoicing has also led to major improvements in getting the insurers to cover it, Cooper says.
“Invoicing has been super smooth. It’s kind of hard to deny an invoice that has everything itemized, especially with an explanation,” he says.
That’s been one of the hidden keys for Cooper. For every invoice, he adds a line note that includes an explanation of the additional charges for paint materials. Since implementing that, he’s hardly received any insurer pushback.
In the 2021 “Who Pays for What” survey, it found each of the top eight insurers paid for charges that a materials invoicing system produced over 50 percent of the time. Several carriers even approved it over 60 percent of the time. Allstate approved it least frequently, in just 52.5 percent of situations.
Martin has also had great success with insurers.
“We get paid for over 90 percent we request when we can provide itemized invoice and labor,” he says. “If shops know about it, it’s certainly something they should be doing. I don’t know why they wouldn’t.”
“If a repair shop is not charging and receiving payment from insurance companies for materials recommended by the vehicle manufacturer, then the problem lies within the manager or decision-maker for the shop,” Martin continues. “Our stores have been very successful receiving payment for these items with the installation and utilization of 3M’s system.”
A Changing Tide
So, why don’t more people use the system?
“I think it’s a lack of knowledge to tell you the truth,” Cooper says. “I didn’t know about it until our Axalta representative introduced it to us.”
The logic for using it seems simple to Cooper. If shops don’t itemize the materials on the invoice, they may inadvertently give insurers and out-of-pocket customers free materials. It also benefits insurers who may be worried that a shop is overcharging on hours to compensate for materials.
“Why would a shop want to make less than it is spending?,” he says.
Anderson agrees that lack of knowledge is a major contributing factor to more shops not using the method. Anderson suspects that as more people learn about it, the numbers will continue to shift and favor invoicing over the multiplier method.
However, this is another reason some shops may not be using the system, and it’s a legitimate one, Anderson says.
While Anderson says most shops would benefit from transitioning away from the multiplier method, there is a scenario where it might be better for a shop to keep it. Just like labor rates, paint and materials rates vary from shop to shop and from region to region.
In some areas of the country, paint and materials rates are in the low $20 range, for others it is up around $50, Anderson says. For shops with a paint and materials rate in that upper echelon that also has a track record of success with insurance providers approving it, switching to a materials invoicing system may not be best for the bottom line.
In some rare cases, shops may actually be making more from the multiplier rate. Also, making a shift may cause pushback from insurance carriers and cause a headache that isn’t needed.
However, this isn’t the case for most shops, Anderson says. For the vast majority, making the shift to an itemized invoicing system is the way to go.
Article Credit to FenderBender.
Do you use a paint invoicing system to calculate your paint usage on a repair project? Do you think using a paint invoicing system will have a positive impact on your bottom line? Let us know in the comments below. Also, if you found our content informative, do like it and share it with your friends.
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