Our industry wrestles with a standard for paint shop performance. Some believe if the paint and material account shows a profit, you’re doing ok. Others have high standards of performance and lofty expectations that include paint and material profit percentages in the 40s and 50s. Unnecessary cost is waste. In many ways, we are talking about removing waste from our paint shop in terms of paint and material purchasing. However, let’s also consider other forms of waste.
Thinking of the big picture in today’s fast changing world, let’s keep in mind the direction we are taking our MSO business. One cannot deny our industry’s current heightened focus on cycle time and process. Most of us are striving to produce a cost-effective, high quality, prompt repair. We are discovering that the speed at which the work flows through our shop plays a huge factor, bigger than we used to assume. Minimizing inventory, or work in process, we focus more attention on fewer cars. When we perform complete teardowns and thorough blueprints, we can start repairs and complete them without interruption. By minimizing interruption, we minimize wasted motion and the need for excess work to fill gaps in the process. When we do this successfully, our shops move faster and with less chaos. We find that we can produce more in the same time and space. As we consider removing waste from our process, consider the following: The greatest form of waste in our business is taking it in the wrong direction. First and foremost as you consider improving your MSO business, identify a direction you are taking your business — one that lends itself to today’s changing world. That could mean focusing on DRP relationships and providing high performance KPIs. That could be providing exemplary customer service, where customers become raving fans who endorse your business. It could be some model that focuses on a niche in your market, perhaps OEM certification. It could be a combination. Whatever it is, have a plan that leads you to strive in a direction that provides confidence in future success. Your paint department is obviously part of that business plan.
Paint department labor structure and expense is another component. If you are not familiar with current benchmarks for paint labor expense as a percentage of paint labor sales, there are many classes that could help, as well as vendors such as paint companies or material companies who are willing to offer education and training.
When confronted with poor paint and material gross profit (GP) performance, many shop operators are quick to pursue the obvious and seek a better discount from their vendors. While that may or may not work, once you have achieved competitive rate — best case for you — there is nothing more to be gained. Also remember that your paint supplier can be a valuable resource, even a good business partner, in helping you improve your business. Also remember that, no different than you, your vendor must make a reasonable profit to be able to sustain their business and offer good service. The cheapest supplier doesn’t always offer the greatest value.
Let’s get into the paint and material sales, costs and profitability. This can seem overwhelming as one contemplates all of the influencing factors. However, it simplifies the situation as we break it down into two major categories. The first factor is the sale amount, or what we charge for paint and material. Secondly there is the cost amount, or what we spend to buy the paint and materials. Assuming you are interested in improving your paint and material gross profits, both factors must achieve high levels of performance.
A general formula for researching performance, especially poor performance, is to break all of our paint and material purchases into their own categories and compare the cost to known benchmarks. We focus on the poorest performing areas first. As we research the usage of each category, consider how the paint or material in that category is leaving your facility. As we consider our paint and material purchases, keep in mind that all of the paint and material we purchase and bring into our facilities can only leave one of three ways. It will leave on a car, in a waste container or be carried out by someone. Thus, we can theoretically track down the source of our low performance and correct it accordingly. Let’s get into greater detail.
Defining paint and material
As an industry, we relatively agree on what products are considered part of “paint,” but we are not consistent in how we define many materials. Some shops include all materials and fasteners. Others consider some materials, such as adhesives, seam sealers and fasteners as parts. Others segregate some materials as “body materials,” in other words material used for the body repair process instead of the paint process.
“Material is defined as the paint materials used in the general repair of the vehicle. These items include items like paints, abrasives, tapes, papers and fillers. Items like adhesives, seam sealers, sound deadener pads and cavity waxes that become a part of the permanent structure of the vehicle are considered body supplies and should be itemized and billed as such since they are not reimbursed in paint materials,” says Ted Williams of Sherwin-Williams Automotive Finishes. “Items like disposable paint cups, mixing cups and cans are considered tools and should account as such. Some shops use hazardous waste fees to pay for disposable paint cups since they contribute to better waste control.”
Charlie Whitaker with Valspar Automotive advises getting a clear understanding of what is and is not included within a repair or refinish procedure as defined by the P-pages within a major estimating system. “Most shops do not itemize their material usage on an estimate or invoice. Typically a shop will use a formula based off of a prevailing dollar amount in a given market multiplied by the refinish times. This practice only accounts for a portion of the overall material usage during the repair process. Organizations that do not understand or have not been educated on this calculation method will tend to say it’s the cost of doing business. It is not the cost of doing business; having a clear understanding of these calculations, what’s included and not included, will aid shops in getting paid for the materials that they use.”
If you utilize your paint company for benchmarks, it is best to use their methodology. If you are doing this on your own, you can break it down and measure as you wish. An important factor is that you maintain a consistent methodology that can reveal trends.
Measuring paint and material expense
Simply put, paint and material expense is the cost to bring these materials into our shop. We can break them down into as much detail as we prefer or need for researching poor performance. George E. Hogan of Axalta Coating Systems explains that key metrics and goals set by location often include:
- Paint and Material sales as a % of sales
- Allied Costs as a % of sales
- Gross profit dollars and Gross Profit%
- Cost per hour for Paint
- Cost per hour for Allied
- Effective Material rate as a diagnostic measurement
- Hours per gallon of clear coat as a diagnostic measurement
- Hours per Gallon of base coat as a diagnostic measurement
- Cost by hour by technician as a diagnostic measurement.
Personally, I prefer to look at the total cost first to determine if my performance is within industry or paint company benchmarks. If so, I may elect to look elsewhere for problems, such as paint and material sales. If my performance is low, I will break down the expenses into greater detail to seek any areas of weakness that I can investigate and correct.
“Following a few proven systems and processes is strongly encouraged. An effective system is built on key processes, which are designed to yield the desired result in both cost and productivity. The system design and ongoing development needs should include all the individuals who take part in the processes,” Hogan says. “Related to cost control, this often includes paint technicians, body technicians, location managers, material ordering and receiving, vendors and distributors. By including these individuals, MSOs are able to achieve a common understanding of what needs to be accomplished from the process and the desired process result.”
Other paint companies offer similar measurements. In fact, most can break it down into even greater detail by specific paint products such as clears, sealers and mixing tones. Many can also break down the allied costs similarly, such as by sandpaper, buffing products, tape, etc.
Benchmarks
Without outside assistance, it can be very difficult to learn what performance levels are good or bad, relative to the rest of the industry. Most shop operators are reluctant to share such information, considering it confidential; however, paint companies have accumulated immense data. It can be obtained through specific assistance initiatives from the paint companies themselves, or through participation in 20 groups.
Benchmarks often differ based on the paint manufacturer; however, their data can give MSOs a general idea of standard performance levels.
“Paint benchmark as a percent to sales is 4.5 percent or less, with paint and material gross profit of 35 percent or higher,” says Craig Seelinger of BASF Automotive. “Depending on the situation, we will look at paint mixing practices and begin tracking paint consumption and waste in the BASF VisionPLUS Online tool. This provides us some reports that we can review with the business management and technicians with a suggested action plan.”
“Ideally, 5 percent of shop sales is a good benchmark. However, this primarily works for collision shops; excluding custom, restoration and shops that paint completes,” says Ken Papich of Quest Automotive Products. “The acceptable range would be 5 percent to 7 percent. Also, shops should write repair orders where greater than 10 percent is paint and material sales. In a perfect collision shop environment, a shop sells paint and material on the repair order. Generally, paint and material sales represent 10 percent of the collision shop’s revenue. If same shop spends 5 percent on paint and material, they would net a 50 percent gross profit. There are some KPIs specific to ounces of clear per refinish hour (usually 2-2.5 oz. per hour). ”
There can be a benchmark for every measurement, and most paint companies can provide data. However, your own MSO performance can be very helpful in comparing performance between shops and establishing the difference between good and bad numbers. The use of the same products among shops can help provide comparable data. Once you have a baseline, you can experiment with different products to compare performance.
Sales
You’ve no doubt noticed that many performance numbers are a percentage of sales. As indicated earlier, good sales numbers are a requirement for good paint and material gross profit performance. Sales numbers can be measured in terms of paint and material sales or paint labor sales, as a percentage of total sales. Other indicators include paint labor hours per RO. However measured, the key factors include getting those not-included items on the estimate and not excessively reducing paint times for partial paint/full clear.
Product selection
The collision repair industry is driving more to the standardization of products, says PPG’s Bryan Robinson. “Therefore, carrying multiple like kind vendors is not a trend we see going forward for some shops. Keep in mind when you look at one product, it may be a part of a larger system of products that work together to create value in areas such as efficiency, productivity and cost.”
When considering different products, consider the cost of use rather than the list price of any specific products. Labor costs should also be considered when comparing cost of use.
Suggestions for cutting costs
Cutting expenses in your paint shop can be tackled from many angles, and what works best for some MSOs may not be feasible for others. Robinson suggests focusing on improvement in what your shop does best. “Measure your key areas of performance and manage that result for improvement,” he says. Other “suggestions are mixing all products across the scale, mixing to repair orders, inventory management, eliminating or reducing redos, training, housekeeping and improving shop operations.”
Standardized processes can also help eliminate waste. “Have written repair procedures in place, establish material incentive plans and establish material purchasing plan,” says Tom Gardner of Quest Automotive Products.
“Process is key. Do you have an inventory system and controls in place? Do your people understand the expectations? Are they held accountable for poor results and rewarded for good results?” further emphasizes Williams of Sherwin-Williams.
A simple evaluation of customers’ expectations may be all you need to tackle cutting costs. “Eliminate non-value-added operations and materials that customers are unwilling to pay for and that do not jeopardize the standard of the repair,” says Valspar’s Whitaker. “Use products that are multi use and versatile, products that have better cure rates and help eliminate non-value-added steps in the process. Standardize the materials used within a shop. Standardize operating procedures for the repair process.”
Also consider how the paint and materials you purchase leave your facility. There are only three ways paint and materials leave your shop — on a car, in a waste container, or by being carried out. The most significant waste is having to redoing a paint job. This automatically doubles the cost of paint and adds many materials to the cost of the job. In this case, the paint leaves your facility on the car. Consider the waste of over-mixing paint, or mixing too much for the job. In this case, the wasted paint leaves in a waste drum. Consider theft of paint and materials. In this case, someone carries them out. Such thinking aids in identifying the source of waste or loss.
Another consideration can be an incentive for paint staff. It can be based on a financial reward or some other appealing reward, such as vacation time. The idea is to provide a reward for staff to conserve paint and materials. Performance can be measured a number of ways, including paint and material gross profit or cost of paint and material as a percentage of sales. Of course, to provide accurate analysis of the shop’s financial performance, incentive dollars need to be considered when analyzing paint labor costs as well as paint and material gross profit.
Conclusions
Thor Heyerdahl said, “Progress is man's ability to complicate simplicity.” It’s not necessary to complicate the analysis of paint and material gross profit performance. Get advice and assistance, perhaps from your paint supplier. Take it one step at a time. Carefully analyze, focus first on the low-hanging fruit, then move on to the next opportunity. Implement a change, measure performance and then implement another after you know the results of the first change. You too can obtain nice profitability from your paint and material sales with careful analysis, common sense and persistence.
