The 30-20-10 rule

Jan. 1, 2020
I suggest that one rule of thumb to look for when evaluating an estimator’s overall averages (or those of your entire shop) is what I call a 30-20-10 breakdown.

Several months ago, I wrote about evaluating your estimators not by the total amount of their average repair order, but by looking at more specific numbers, such as the average body labor hours or paint labor hours per repair order. The point was that an estimator writing a lot of sheets on high-end cars might have a higher average repair orders than the estimator writing sheets on more common makes and models, but that’s likely based more on higher parts prices rather than good estimating practices.        

I suggested in that column that one rule of thumb to look for when evaluating an estimator’s overall averages (or those of your entire shop) is what I call a 30-20-10 breakdown. Print a report of your shop’s sales broken down into categories and look to see if your repair orders average 30 percent body, frame and mechanical labor (combined); 20 percent paint labor; and 10 percent paint materials. (The other 40 percent will be parts and sublet.)     

The value of the 30-20-10 rule really hit home for me when I started to facilitate shop 20 groups for DuPont Performance Services a few years ago. In comparing shops’ financial numbers at those meetings, it was clear some shops had better gross profit than others. I started to look for trends, and that’s when it became obvious: If you want to earn a maximum gross profit, you want your average repair order to be 30 percent body, mechanical and frame labor, 20 percent paint labor, and 10 percent (or more) paint materials. I found the shops that maximize gross profit are those that hit those targets.        

Take a look at your shop’s sales breakdown. As I always say, the data will tell you one of two things. It will tell you to celebrate, or it will tell you to “go look.” If need be, go look for why the numbers aren’t what they should be.         

My experience is that most shops’ sales are between 26 percent and 30 percent body/frame/mechanical labor, so you may well find you’re already hitting the 30 number. If you’re not, it could be because your estimates are missing a lot of R&I operations. This is where the 100 percent teardown method of building your repair order is so valuable. It’s easy to overlook necessary R&I operations while sitting at a desk. But a person who is actually doing the complete teardown of the vehicle to identify every needed part and process can annotate all the R&I needed and get it listed on the repair order.        

I also find a lot of shops are at only 13 percent to 15 percent in terms of paint labor sales, well below the 20 percent I recommend for maximum gross profit. These shops, I find, are often missing a lot of non-included refinish operations, such as weld burn damage. They also might be accepting basecoat reduction paint times. Or they’re replacing a lot of parts versus repairing parts. (I’m not suggesting your estimates should include repairing parts that really should be replaced, but good estimators know when repair is the best option for the job.)       

I also have found that many shops come close to having 10 percent of sales attributable to paint materials, but some fall a point or two short. If you’re only at 8 or 9 percent, it could be because you’re accepting paint and material caps or thresholds. It could be because some paint labor is getting put into the body labor category and thus you’re not being paid for materials on those operations.       

I’ve also seen estimators use money from paint materials to help avoid having to supplement an insurance company. “I’m not going to call the insurance company for $40, so I’ll just lower the paint materials from $300 to $260,” these estimators think. This could be preventing your shop from having paint materials account for 10 percent of your sales and thus could be negatively affecting your gross profit.  

As I said, the shops that I see digging into their numbers and estimating practices in order to hit the 30-20-10 rule are those with the gross profit numbers at the end of the month.

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