Anyone who thinks this is the same industry it was a decade ago isn’t paying attention. Yet when I look around the industry, I continue to see shops operating under the same business model they were using a decade ago. I see shops that are almost completely reliant on direct repair programs, with 70 percent or even more of their work driven to their door by insurers. At the other end of the spectrum, I see those defiantly, 100 percent non-DRP. Even more shops have moved in that direction as OEM certification programs have given them confidence that those will be a game changer.
I am not here to argue that either of those business models is wrong. But there are downsides to each of them in this current era. Shops with no DRPs are far more likely to see more peaks and valleys in their volume of work. That’s less likely to be an issue for DRP shops, they also have basically become a discount body shop; maintaining a profit margin is becoming increasingly difficult. Every one of those DRPs expects you to give that insurer’s work priority; how do you manage that when you have five or seven DRPs?
The hybrid model I see as really successful for shops is different from either of those opposite camps. It begins with choosing the two or three OEM certifications that make the most sense. If you’re in Dallas, Texas, that may mean a Ford certification rather than a Subaru certification. If you’re in the middle of Montana, being Ferrari-certified might not make a lot of sense.
So look at the brands of vehicles you typically repair. Your paint company may be able to show you the car count by vehicle make for your geographic area. Think about what relationships you have – or can develop – with dealerships or others who can refer a particular brand of vehicle your way. Those are the certifications that will work best in this hybrid model.
Then choose just one or two direct repair programs that work best for you. That may be one of the larger national companies along with a smaller, regional carrier that does well in your market. The key here: Don’t let that DRP work account for more than about 25 percent of your overall business.
Why does this work? Unless you choose one of the automakers that is limiting the sale of some parts to only certified shops, the reality is that none of the certification programs today will push a lot of work to your shop. The DRP work will help you maximize your shop’s capacity, and lessen the peaks and valleys in your business volume.
Yes, that work is heavily discounted. But it’s only 25 percent of your business. The other 75 percent is retail-priced work. That provides the resources you need to market your OEM certifications like crazy. That may mean, for example, putting one of your estimators at the dealership for an hour every morning, making it like a satellite location for you.
But the other key to making this hybrid model successful is to train your estimators to write a complete and thoroughly-researched sheet on every vehicle. They can then go back on the DRP jobs and zero out the price for the items you’ve agreed to not bill for under the DRP agreement. But get them trained to write complete estimates first.
One shop I work with is doing about 100 vehicles a month under this model. In writing complete sheets on all vehicles before zeroing out items for the DRP jobs, the shop found the DRP work was generally $100 to $150 less per vehicle than the full retail work. Think about that. If they’re making just $100 more per vehicle on the 75 percent of their business that is non-DRP, that’s $7,500 a month ($90,000 a year) to the bottom line.
Clearly this isn’t a business change you should try to make immediately happen after spending a few minutes reading this column. Do your homework, make a plan, develop your dealer relationships. Shops using this hybrid model generally find there is some reduction in their overall car count, but that they are making more money overall.
Do less, but make more; that sounds like a pretty good gig. And I believe it’s a key to success in this new era in the industry.
