CRA Business Profitability Explored
It is wise to develop a direct repair program exit strategy before you push the button because your shop’s turnover will reduce and needs to be replaced quickly.
SHOP STATS: Frank’s Accurate Body Shop Location: Slidell, La. Owner: Frank Rinaudo Staff Size: 15 Shop Size: 12,000 square feet Average Monthly Car Count: 50 ARO: $5,000 Annual Revenue: $3 million
In the collision repair industry, it’s hard to find many shop owners with a neutral opinion of direct repair programs (DRPs). Either their shop has had loads of success having work referred that has caused the relationship with their insurance partners to become invaluable, or the relationship has caused a constant headache as returns fell short of expectation.
Frank Rinaudo, owner and CEO of Frank’s Accurate Body Shop in Slidell, La., experienced the latter.
“The insurance companies tout themselves as partners, but they just squeeze harder and harder on you,” Rinaudo says.
Rinaudo has been in business since 1990. He first got involved in a direct repair program with State Farm when the insurer created its Select Service program in 1995. For a long time, Rinaudo benefited from it. State Farm referred a good amount of customers to his shop and were willing to pay for the repairs in the way Rinaudo wanted them completed. Because of the success with State Farm, Rinaudo later added Geico’s DRP program. Again, it started out strong.
But as time wore on, the relationships with the insurance carriers began to sour, Rinaudo says. He points to the advancement in technology as one of the biggest reasons why. With certifications from GM, Ford, Nissan, Subaru and more, Rinaudo constantly battled with State Farm and Geico about what they were willing to cover versus what the OEMs specified. As technology evolved, the manufacturers’ processes did, too, but he felt the insurers weren’t following suit. And some operators that were once covered no longer were, he says.
Rinaudo remembers exactly when he decided it was time to end his partnership with Geico, which comprised 38 percent of the shop’s work. A vehicle came into the shop needing three panels repaired. All needed to be repaired but Geico continually pushed back on the paint time it would cover for each panel, an amount far below what the shop needed to carry out the work.
“That’s when I said enough; I’m not doing this anymore,” Rinaudo says. “My personal belief is you can’t be a DRP and follow the service manual.”
The problem for many shops that are in the same spot Rinaudo found himself in, is that they don’t have a gameplan for their exits. Leaving a DRP can be freeing, Rinaudo says, but there needs to be a concrete plan in place because lost sales will come at the beginning. The challenge is offsetting those quickly, creating a business that can thrive without that insurer partnership and doing it at the right time.
Start before you leave.
Even before that dilemma with Geico, Rinaudo could see the writing on the wall. The insurers frequently took items off the shop’s estimates, and claimed nobody else in his market charged for that, despite just following OEM procedures. It got to a point where his DRPs were “flat out ignoring safety procedures,” Rinaudo says.
Before Rinaudo pulled out of either program, he began to shift his focus. Because of the work coming from the DRPs, the shop did little to no marketing or advertising whatsoever. They relied almost solely on referrals from the carriers. So for a few months before he left the program, Rinaudo slowly built up the shop’s social media presence and marketing spend. They began to prioritize Google reviews and encouraged customers to leave them. They took note of where every customer found them, and realized many did their own research.
“Ten years ago, the customer would just go wherever the insurer told them,” Rinaudo says. “Nowadays we see a lot of people doing their own research.”
They knew a dip in sales was going to come. Instead of denying that, they worked to lessen the blow. After building up some of those customer acquisition tools, the shop finally left.
Accept there will be a dip.
After leaving a DRP, there will be a dip in sales. That’s just the reality, Rinaudo says. For many shops, that can often be the reason they continue on in their DRPs despite wanting to leave. But if the shop accepts there will be a dip, plans for the dip, and puts together a plan to lessen the dip, it is a manageable transition.
After leaving in 2013, only 20 percent of the shop’s work was from Geico clients. Rinaudo’s advanced planning made up for some of that lost work, but not all. In total, the sales dip lasted for about six months before it returned to where it was before the departure.
However, because Rinaudo was prepared, that didn’t cause a panic. He felt that freeing his shops from the restraints of DRPs was going to help long-term, so he was OK with taking a short-term hit.
The shift required a leap of faith from Rinaudo. He was banking that his marketing and customer service would be enough to offset the lack of referrals. And it worked.
His sales rebounded and it also led to a major shift in the shop’s average repair order and monthly car count numbers. With the DRPs, the shop saw roughly 80-90 cars per month. Now they see around 50 per month. However, their ARO has spiked dramatically. When they were part of the DRPs, the shop’s ARO was around $2,800. But now with more freedom to follow the OEM procedures, the ARO has jumped to nearly $5,000.
DRPs are not the devil. For many shops, direct repair programs deliver a strong pipeline of customers and greatly help business. In the same way, some insurance companies are better than others when it comes to what they’re willing to cover and what they’re not, Rinaudo says, and it’s very possible to make them work.
But for Rinaudo, it came down to prioritizing the safety of the customer and he felt he couldn’t do that with his DRPs in place, so he left. But it wasn’t an easy or sudden decision. It took planning and building of customer acquisition tools before Rinaudo was comfortable making the move, and it still led to a six-month dip in sales. However, it was a dip Rinaudo expected, planned for, and recovered from relatively quickly. Now his business is in a better place.
“It’s a tougher road, but for me at least it’s the right one,” Rinaudo says. “My focus is on the customer and giving them a safe quality repair. I feel like I can do that now.”
Article Credit to FenderBender.
What is your view on how insurers treat the collision repairers as it appears to be a global problem? Do you think insurers take new technology and OEM repair specifications into account when pricing a job? 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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