At a recent industry event, I started a presentation with these words: “Paint…the final frontier.” Beyond the comical Star Trek reference, there is some truth to this statement. Paint and materials (P&M) is one of the last areas where shops can still have very significant impacts on their costs and, therefore, their margins.
With all the competitive pressures both internal and external to do repairs faster and still maintain quality, the job of the repair shop owner has not gotten any easier. It is obvious that investments in equipment and training costs, along with significant cost controls on parts and sublet procedures, has taken its toll on repair shop margins.
When speaking with repair shop owners about P&M, there are generally three responses: 1) We probably lose money on P&M most months; 2) We think we are doing OK; or 3) We do great on P&M and are making a healthy margin.
Unfortunately, many shops don’t have a handle on their true P&M margins. The sales side is fairly easy — even the most basic management systems will summarize P&M sales, along with a lot of other key components of the sale. Even a quick adding of the P&M sales from every closed RO will give you this number. Knowing what this number doesn’t include is also key to understanding P&M margins. For instance, seam sealers, cavity wax, stripping tape, foams and clips are generally accounted for separately as line item charges or a similar term.
The other half of the equation is the cost side. For the majority of shops, the paint supplier or jobber is the major source of P&M purchases. This sounds simple on the surface, but there are probably many other non-P&M items purchased from the paint jobber as well, including those line items — small tools (drill bits, gloves, etc.), air hoses, safety supplies and more.
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Most shops have the ability to mix substantially all liquid products — primer, sealer, color, clear and some ancillaries — on the scale. If everything is mixed on the scale and coded or entered per RO, then we have a great foundation for job costing. So first let’s verify that we are mixing everything on the scale. One easy way to do this is to run and save a report from your paint mixing system that summarizes by volume. This could be a Mix Report, VOC Report or Product Category Report; it varies by paint manufacturer. Your paint jobber can help you select the best report. Be sure to run all reports in an easy-to-decipher format. Almost all systems will output their data to an MS-Excel format. Then have your jobber run their sales report (your purchases) for the same period of time (we suggest 3-6 months). If the gallon usage on both reports is fairly close, your mix reports should also be fairly accurate.
Our next step is to take that same jobber’s report and do a little quick math or sorting. For this quick job costing method, we only need three categories 1) P&M liquids; 2) All other associated products that are a true part of your P&M cost, but are not measured on the scale; and 3) everything else. This may include line items, shop supplies, equipment and small tools.
Now some quick math: Add the purchase costs of P&M liquids and the other P&M items and divide the liquid cost by the total P&M costs. For example: Liquid of $7,070 plus other P&M of $3,030 = $10,100. Then $7,070 ÷ $10,100 = .70, so liquid (items mixed on the scale) is on average 70 percent. Most shops will find this number to be in the range of 60 percent – 75 percent. We can now say that, on average, non-liquid items are about 30 percent of our costs.
Several of the paint mixing systems have the ability to enter this non-liquid cost as a constant and thereby calculate the total RO cost. Or just run the mix reports (Repair Order Summary or other system-specific report) and add back in this allied cost (the liquid cost per the report divided by the .70, in this example) and you now have a total material job cost.
Ok even easier: just use the 70 percent liquid figure. This will be close enough to allow you to run the RO cost reports from your paint mixing system and see what jobs need a little more inquiry.
I will concede that this is not a perfect system. Repairs can differ significantly from the small bumper job to the major front-end repair with lots of replaced parts or welds. But these quick calculations give you a good handle on material costs per refinish hour. You will likely be surprised to find jobs that you assumed were losers in P&M gross profit are really not, and vice versa.
Mixing
If you want to have lean material usage, everything starts at the scale. Are you mixing everything possible on the scale? Several of the paint manufacturers’ systems have some great reports built in. But they are all dependent on the shop mixing/recording everything possible on the scale. Some systems even allow for batch mixing of primer, sealer and clear. For example: Mixing 20 oz of primer and using 4 oz on RO#1, 5 oz on RO#2 and 11 oz on RO#3.
Don’t skip the validation. Check that over a 3-6 month period the gallons purchased are comparable to gallons used on the scale. You can do this by part number, or by category, such as color, clear, primer, etc.
And don’t assume that everything is being mixed on the scale. Working with shop owners on lean material management, we have found that shops that thought they were 100 percent mixed on scale were not; some we found at 90 percent on color and 60 percent on primer; and others we found at much, much less.
After using and evaluating several paint manufacturers’ mixing systems, we found some variations reports and setup screens, but all are very capable of doing a good job costing if you ensure everything is mixed on the scale. We found some other great tools in these systems, such as the ability to calculate net cost after discounts, cost per refinish hour, RO exceptions and VOC and other compliance reports.
Obviously the paint manufacturers’ systems and most management systems can provide even more sophisticated job costing programs. But none of them work at 100 percent right out of the box. So shops need to mix and record everything possible on the scale. And, with the help of their suppliers, shops must periodically compare/verify purchases in gallons against gallons recorded as mixed on the scale. Try the free method outlined above. For many, this will be a great starting point for getting a better handle on materials costs.
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