How to maximize sublet profit

Jan. 1, 2020
There are two ways to increase your gross profit on sublet repairs–one is doing the work yourself and the other is through smart purchasing.

Attempting to increase profit in any collision center is a struggle and I do not believe it is going to get easier anytime soon. I know most are looking at every opportunity to gain a nickel or dime in any area possible. That is what every shop should be doing to maintain profitability.

One area that is often overlooked is sublet repairs. It is an area that is most of the time gray on an estimate with pricing based on an "average" for your particular market. If you look at sublet repair closely you will find it is an area with great potential for increased gross profit. There are two ways to increase your gross profit on sublet repairs – one is doing the work yourself and the other is through smart purchasing.

One way to maximize your sublet profit is to accomplish as much as possible in house. I have seen shops have a vendor come in to pinstripe a fender and a door because the stripe was a "dealer installed" addition. As you know those stripes are generally mismatched when compared to the standard stripe carried by most shops. In most instances you are better off profit wise to restripe the entire vehicle in-house for what the insurance company allowed on their estimate. In addition to gaining profits, you have given the customer a value-added service.

Another area is in mounting and balancing tires. Some shops still are carrying tires down the street to be mounted and balanced. If you calculate the man-hours spent transporting the tires to and from the tire shop and the amount you pay the tire shop to mount and balance the tires you will find you have absorbed all the profit and maybe a little bit more. Used tire machines and balancers are very economical and with a little training an apprentice technician can mount and balance the tires for about half of what is allowed on the estimate, leaving you almost 50 percent gross profit.

Achieving gross profit on sublet repairs you actually send out is most often difficult. You can overcome this adversity through smart purchasing and gain the profit you need to remain successful. Maximizing your purchasing power to minimize the effect of insurance company driven markup restrictions is a very viable solution. Not only will it add to your gross profit, but it's also a good business practice that makes good sense.

Just as insurance companies work to negotiate their best price for repairs you should also work to negotiate your best price on the sublet services you purchase. One of the best opportunities to stabilize your sublet profits is to develop vendor partners that will provide discounts for loyalty and volume. Even if the discount is only 10 percent or 15 percent, it will give you an edge towards increasing your profits.

Think about the items you sublet, determine how long you have used the same vendor and use that information to negotiate your discount. Arm yourself with the monthly or annual purchase average when you approach the vendor. The bigger the number you can show the vendor the more leverage you will have to negotiate a discount. If you use a management system you can track purchases within the management system by identifying the vendor and printing a report with the purchase information. If you don't have a management system a simple spreadsheet will work. Among the first areas I would look into are your towing purchases. Towing is the most common sublet purchase you make, so the volume should help you earn a loyalty discount and it has a zero profit expectation from the insurance company.

After you negotiate a price with your vendor have them indicate the list price for the service on their invoice. The allowed markup would then be applied to the list price and included on your invoice to the insurance carrier. How you work the discount is between you and your vendor. You can have them apply a credit to your monthly bill or indicate the discount on each individual invoice. Either way, you will still appreciate the increase in gross profit by crediting the discount to the account the invoice was paid from.

Remember it's the nickels and dimes that will keep you profitable, so no discount is too small and very valuable to your success.

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