Alan Shotton of BOSS Australia, a business coach for the smash repair industry, puts the case forward that paint and material is not an expense for bodyshops but a cost of goods sold .
I’ve been surveying body shops’ profit performance for nine years now and previous to my Boss Australia Services career I was the brand manager for one of the country’s largest refinish suppliers for Qld and New Zealand.
During this time I have heard many body shop owners speak of their continued frustration about high/increasing paint cost. They use the terms “low nett profit and going broke” in the same sentence. Most of these businesses owners believe that the overall low profit outcome for their business is based on high paint cost. I would seriously challenge this in most cases.
Most low profit results in body shops are caused by low labour profit that is a side effect of poor productivity. The poor productivity is a legacy of poor production planning.
I am a believer that if nothing changes then nothing changes. Unfortunately what is not changing is the fact that there is still a large part of the market place that believes that paint and material is an expense to their business. It is, in fact, a cost of goods sold (COGS). In my travels looking at people’s profit and loss reports I would see at least 45 percent of the market have paint and material expenditure listed as an expense.
Some basic examples of COGS are:
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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. For every $1000 you pay in wages to your productive staff, it can earn you $2300 gross profit. You need to have surveyed your business to ensure you have the figures right to make this profit.
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Parts - This is a major part of gross profit for the industry.
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Sublet - Very hard to make good margin here these days you can do okay.
Anything that you buy and resell is a COGS.
But let’s work the forgotten COG, being paint and material margin. Again, it is linked directly to your shop rate. Let’s view the following example:
Let’s say you have a labour rate of $75. This rate would service expenditure, productive wages and profit.
Once I have my labour rate of $75 I can then add a further 40 per cent to that for paint and material. This would be a further $30, so the shop rate would be $105 for the paint shop.
The benchmark that I’m looking for would be a 50 percent gross profit from paint and material.
In other words, I would only like to use around half of the $30 allowed in the rate. We should use around $15 per hour sold .So therefore the paint and material gross profit would be $15 per hour. Every hour you sell you would make $15 gross profit.
Which brand gives the best margin?
Some waterborne products are giving the users a return of 60 percent. Impressive, given it can cost up to 35 per cent more than some solvent-based product. Premium brands allow better productivity. I have worked with a body shop in NSW that increased labour profit by over $144,000 in one year by changing to a premium brand from an economy brand even even though material spend went up by around $8000 a year. What would you prefer, a saving of $8000 off your paint account per year or increased labor gross profit of $144,000? For me as a business person, give me the labour profit first.
Things that slow paint and material profit are:
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Poor quoting
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Rework
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Theft
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Wastage -
Alan Shotton can be contacted on 0412 797 066