As odd as this may first sound, saving money on materials it is not always a good thing. Making a decent and deserved profit on materials is vital to the success of any auto body shop, but not nearly as important as the profit dollars generated with labor.
Let’s look at the math. For our discussion, we will use an average $1,900 repair order (RO), a $36 per hour labor rate with paint labor making up 30 percent of the labor (with body, frame and mechanical comprising the other 70 percent). We will further assume that the average RO is 40 percent labor, 46 percent parts, 9 percent paint and materials (P&M) and 5 percent sublet. Just for this example, we’ll assume that labor is generating a 40 percent gross profit and P&M a 33 percent gross profit.
While these may or may not agree with your exact average RO profile, the underlying math remains.
The initial calculations show that our $1,900 RO has $228 paint labor dollars, generating $91 gross profit dollars ($1,900 x 40 percent = $760 x 30 percent = $228 x 40 percent = $91). Our sale of P&M is $171 and generates $57 of gross profit ($1,900 x 9 percent = $171 x 33 percent = $57).
Next we need to look at the cost of materials verses the labor involved to use those materials. Everyone will agree that paint (primers, sealers, color and clear) make up the bulk of material costs while abrasives, masking materials, buffing and miscellaneous supplies make up much less. We will use 70 percent for the liquid (primers, sealers, color and clear), leaving the remaining 30 percent of costs to be abrasives, masking, etc.
First, we will look at sanding abrasive costs. In our example, abrasives run 9 percent of total P&M costs, or $10.26. If we were able to use cheaper abrasives and save 20 percent, we would save about $2.05 on this job. Looking at the labor, sanding is generally one of the most time-consuming parts of paint shop labor, making up an average of 30 percent of the time. Using the same formula as above, we find that gross profit on the sanding portion of our paint shop labor yields approximately $27.36. If we lose 8 percent efficiency, we lose more dollars ($2.19) in labor than we gained in reduced abrasive costs.
While the saving on material (in this example, abrasives) may or may not be totally offset by the increased labor times, we may have other effects to consider. Are we adding time to our processes and thereby reducing touch time, increasing cycle time and affecting CSI (which seems to have a correlation to cycle time)?
Knowing where your labor and material costs are can help determine the areas to seek efficiencies in labor (possibly even with slightly higher cost materials) and areas to seek better material cost control (where higher cost materials are involved, making material savings a higher importance).
In other words, those labor-intensive procedures need all the labor efficiencies we can muster, and material cost-intensive procedures need good, sound practices to avoid waste and over-use.
Labor-intensive areas are sanding (approximately 30 percent of actual labor time in the paint shop), masking (15 percent) and polish/detail (15 percent). In these areas, use the materials that provide the best efficiencies or labor savings.
Material cost-intensive procedures such as painting, clear coat, primer/sealer and other liquid surface prep, which make up 24 percent to 30 percent of our paint shop labor (and approximately 70 percent of our P&M costs), need to be managed to reduce over-mixing, misuse and waste. Just 2 ounces of over-mixed color, for example, could easily wipe out more than double the abrasive savings mentioned above. The calculations for masking materials would have similar results, with a bit less labor gross profit dollars at stake.
Reducing material expense is generally a good thing, and aids in maintaining or improving gross profits on materials. Labor efficiencies cannot generally be sacrificed to save money on materials. If a product (abrasives in the above example) causes increased labor, the negative impact may be bigger than the apparent savings, especially when you weigh in other factors.
