Monday, 31 December 2007 17:00

Jobs Need to be Calculated in Dollars Not Hours

Written by Lee Amaradio, Jr.

Over the years, I’ve come to know myself well. For instance, I am a poor gambler. For that reason, I don’t gamble.

 

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Lee Amaradio, Jr.

Las Vegas has a unique way of separating a man from his money. A person is more likely to throw down a chip than money, so casinos replace your dollars with chips. Once the action starts, it is easy to lose track of the fact that chips represent hard-earned dollars.

 

Some research certainly shows it is easier for someone to part with a $100 casino chip than a $100 bill. In a similar way, when discussing labor hours or units with insurance adjusters, we allow them to cut .5 here and there without realizing that every .5 the insurance company takes is costing us $20 or more.

 

Try this the next time someone tries to cut your labor time: For every half hour you give back, take a $20 bill and light it on fire. This is exactly what you are doing, because every half hour you give back is throwing money away.

 

It is necessary to retrain our brains to think in terms of dollars not hours. Take the average 4.0 hour dent. Using a  body labor rate of $40 per hour, the labor costs $160. When the adjuster comes in and deducts 1.0 hour, he only sees a 3.0 hour dent. Even though you think the repair time has already been undervalued (since it probably takes closer to 5.0 hours to complete the job), 1.0 hours does not equate to the $40 it actually represents and is easier to give away.


This may not seem like such a big deal, but what have you agreed to? First, you agreed with the adjuster that you were overcharging him in the first place. Second, you just reduced all future 4.0 hour dents to only 3.0 hour dents. Third, you affected every other shop he enters and reduces 4.0 hour dents to only 3.0 hrs. And finally, you just gave him 25% off on the labor on top of other discounts you may be already giving.
Looking at this transaction in terms of dollars, $40 was given back without even a second thought. Follow me here – now we are only charging $120 for the damage.


But what kind skilled labor can you really buy nowadays for $120?

 

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Think dollars
If you begin thinking in terms of dollars, a crummy job can turn into a profitable one. Blending, for instance, is an every day activity that we never really think about in terms of dollars. By blending a hood according to industry standards, I’m paying for the privilege of guaranteeing the most noticeable part of a vehicle, not to mention the part that fails the most.


Any time we blend a hood we are losing money. The cost of an average hood blend is between 1.0 and 1.8 hours plus materials. Using the $40 per hour rate, the job costs between $40 and $72. With materials costing between $24 and $44, the cost of refinishing a hood can be as low as $64 or as high as $116. The clear for the hood costs twice this amount.


My point should be coming in loud and clear about now. Unless it was my mother, I wouldn’t paint any hood for $116, let alone $64. By dealing with hours or units, we are dissociated from our dollars, just like in Las Vegas. Talking with adjusters in terms of dollars, they get a better understanding of how far off the labor rate hours are. Ultimately, by accepting labor hours or units as a standard of payment, I am paying the insurer to blend a hood. If someone caught me on the street and asked me for a price to paint a hood, I would probably say around $400.


Managed care for cars
DRP agreements exemplify paying for the privilege of repairing cars offered up by the insurers. We give a discounted labor rate, only to have our repair times reduced. If you think in terms of dollars, you may want to rethink some of your agreements.

 

What does one have to do with another? Either I paid so much for my materials or I didn’t. Where’s the rocket science? I’m not overcharging, I’m only asking to be reimbursed actual costs.


Once again think in terms of Las Vegas chips instead of dollars. We have no problem charging for part price increases because we use dollars. Are we too stupid to figure out what the actual dollar amount of the paint really is? Of course not, so why use a formula that is guaranteed to lose us money. Think in terms of dollars, not labor hours or formulas based on labor hours. Either it costs a certain amount to do something or it doesn’t; either it’s profitable or it’s not. This is Business 101.


And don’t lose track of the fact that shops assume the liability for everything we touch.  Calculating a margin for error is part of the cost. When you blend that hood and it fails a year later, you can’t write that customer a check for $116 and tell them to go away. No, they will make you redo that hood and you will lose again. Just the fact that we guarantee our work should have a surcharge attached to it.


Transitioning from an hour-based formula to charging actual dollars will increase profits immediately and the unprofitable repair will become a thing of the past.


In business for 26 years, Lee Amaradio, Jr. is the president and owner of “Faith” Quality Auto Body Inc. in Murrieta, California. With 65 employees, he attributes his success to surrounding himself with good help, claiming to have some of the best office staff and techs in our industry. Amaradio has been in this industry long enough to see the handwriting on the wall. He feels that now is the time for us to unite as an industry before it’s to late.

 

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