Paint and material – the forgotten gross margin

Alan Shotton has been surveying bodyshops profit performance for seven years, and prior to his Boss Australia Services Pty Ltd career, he was the brand manager for one of the countries largest refinish suppliers for Queensland and New Zealand. Here he takes a look at paint and materials – the forgotten gross margin.

Many body shop owners speak of their continued frustration about high and increasing cost of paint, along with the terms “low nett profit” and “going broke” in the same sentence, and most of these businesses owners believe that the overall low profit outcome to their business is based on high paint cost.

In most cases this can be challenged after learning more about their businesses.

Most of the low profit results in body shops are caused by low labor profit that is a side effect of poor productivity
(and arguably low rates paid by work providers) and is a legacy of poor production planning.

Most repairers make the claim that if they where paid six or seven dollars more than the old rates they would have
be happy.

Shotton is a believer that if nothing changes, then nothing changes. Unfortunately, he says, what is not changing is the fact that there is still a large part of the market that believes paint and material is an expense to their business.

It is, in fact, a cost of goods sold (COGS). However, at least 45 per cent of the market has paint and material expenditure listed as an expense in their chart of accounts.

Some basic examples of COGS are labour, parts and sublet.

Labor: This is the core margin maker in your business. It will, if you have your shop rate right and you know your budgets for hours to sell, yield around 66 per cent gross margin .

In very simple terms every $1000 you pay in wages to your productive staff can make you $2,300 gross profit, but you need to have surveyed your business to ensure you have the figures right to make this profit.

Parts: This is a major part of gross profit for the industry.

Sublet: Very hard to make good margin her, but if business owners work at it they can do reasonably well.

The forgotten COGS

Shotton says that anything that is bought and sold is a COGS, and the forgotten COG is paint and material margin. This, he says, is linked directly to the shop rate.

Looking at a shop with a labor rate of $75, this rate would service  expenditure, productive wages and labor nett profit.

From the $75 labor rate add a further 40 per cent for paint and material; a further $30, so the shop rate would be
$105 for paint shop. Owners should strive for a 50 per cent gross profit from paint and material.

So, if the shop used about $15.00 per hour sold, the paint and material gross profit would be $15.00 per hour. Every hour sold would make $15.00 gross profit.

Quality in performance

Some brands perform better than others, and Shotton says painters should not be tricked by thinking that cheap paint will proivde a greater profit margin. Generally the premium leading brands perform better.

He has also seen some waterbourne products giving the users a return of 60 per cent, an impressive ressult given the cost of the can is, in some cases, 35 per cent higher than some solvent based products.

Working your figures

It is a given that premium brands allow better productivity. Shotton worked with a body shop in NSW that increased its labor profit by more than $144,000 in one year by changing to a premium brand from an econo brand.

The material spend that year went up by about $8000 using waterbourne technology. The options were an $8,000 saving on the annual paint account or increased labor gross profit of $144,000.

Paint usage is directly linked to labor sales, so the more labor sold, the more paint should be used, but remember the margin should be set at 50 per cent.

It can be said that paint’s paint, and this might be true while the paint is in the can. Once it is mixed and applied it now takes on a whole new meaning. Without doubt, the industry is seeing an all new high in terms of hourly rates paid to productive staff. So it make sense to ensure shops get the most out of them.

Shotton urges shop owners to allow their technicians to help them and that paint and material margins won’t happen by accident.

He says things that slow paint and material profit include poor quoting, rework, theft and wastage, which is the result of poor housekeeping.

In the area of paint and material, shop owners will never save their way to prosperity by using cheap paint. Instead, it will cost plenty in the long run.

But this won’t be seen until there is a better approach to planning and scheduling. If the daily plan or execution of work is not right, act now. It is most likely costing money in many areas of the company, paint and material being one of them.