Collision Pricing Finance

Keys to Achieving Target Labor Rates

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A look at the necessary steps to reaching your shop’s optimal labor rates.

Barry Hopfe entered the auto industry humbly, “pushing a broom, in ’72.”

A lot has changed since then. Hopfe has worked his way up to becoming the manager at Jim Burke Collision Care in Bakersfield, Calif., a facility that produces $4.2 million in annual revenue. And, he’s not afraid to speak his mind, when necessary.

In fact, Hopfe has become a rather gifted negotiator. And that’s become a key requisite for success when running a body shop these days, considering the direct repair programs that so many facilities have.

If a collision repair center’s staff hopes to reach its target labor rates, it had better be willing to fight for every cent, and explain every charge on an estimate, Hopfe says.

“The better you are at negotiating, the better you’re going to go on and be,” he says.

With insurance companies often seeking significant discounts on items like labor, Hopfe has thoroughly examined how to mine every charge he reasonably can on repair bills. And, when it comes to achieving target labor rates, Hopfe has several suggestions for his industry peers.

 

As told to Kelly Beaton

You have to be very savvy. My walk-in rate is $65 per hour. My effective labor rate, after everything gets washed out by the end of the month, is $58.71 per hour. That’s primarily due to contracts that I have with DRPs. I’ve found that you’ve got to charge for everything they will possibly allow. I mean, I charge for fasteners, doorbond adhesive, expanding foam. If you don’t stay on top of that stuff, then you end up absorbing it and giving up a lot of money. We have to charge for every dollar we can possibly get on the estimate, because insurance companies generally will pay them, you just have to be able to justify them.

Blueprinting is the most critical stage of the repair process. Because, if you think about it, the initial check is always written off of the first estimate. So, if I can write an initial estimate that’s 95 percent accurate, that’s going to eliminate my accounts receivable, because I’m going to be collecting 95 percent of that money on Day 1. So, to me, blueprinting is the most critical stage of the whole repair process; it establishes the foundation that the whole repair follows. And that’s where the money is to be made—because you can justify clips, and fasteners, and everything possible.

Be cautious with the DRP contract that you sign. Because these contracts don’t come around every year. And, even though your state may require you to have minimum wage increases every year, the insurance companies aren’t going to follow that up with a labor price increase every year to go along with that; they’re just going to tell you, “Hey, sorry, but we don’t regulate states, and this is our contract with you.” So you have to be very conscious that, once you get into a contract, you may be locked into that thing for five or 10 years, with no increase in sight.

Ask, up front, for short-term DRP contracts. I think that would be very easy to do. Say, “OK, I’m willing to enter into this agreement with you, insurance company A, but I’ll do so only on a one-year contract. Then, at the end of one  year, if everything’s going good and you’re happy with us and we’re happy with you, then we’ll continue.” If your numbers are good as a shop, the insurance company needs you as bad as you need them. They don’t want to have to go to a substandard shop and get beat up by their customers, and have their CSI go in the toilet. They’d much rather deal with somebody reputable.

Build trust with your insurance adjusters. I have adjusters call me all the time, asking me for input, asking me, “Hey, what do I do in a situation like this?” And it’s only because I’ve earned their trust over the years. So, quite often they’ll approve a supplement for me over the phone, because they know that I’ve never gouged them in the past. I try to treat everybody the way I want to be treated, and, if you run your business like that, it makes things a lot smoother. Otherwise, you’ll end up pulling your hair out.

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