Saturday, 02 August 2008 10:44

Have a Contingency Plan Before Separating from DRP

Written by Lee Amaradio, Jr.
In my last article I discussed counting the cost of doing business. What do you do when and if you decide to go the distance? What is the next step? Crunch the numbers to determine where money is being lost including which insurance companies are the lowest paying and the most difficult to work with. An insurer who delays payment would be classified as difficult to do business with. Any procedure you are just breaking even on should be classified as a loser also.

    When insurers ask what shops want from them, the answer is simple – collision repairers want to repair cars. They should stick to selling insurance. I don’t tell them how to do that. While some control may be necessary due to the lack of any universal collision repair guidelines, it is up to the OEMs in conjunction with the repairers to make those decisions. Allowing insurers to become involved is a conflict of interest.
    I can repair a vehicle faster, better and more cost effectively if they just let me do my job. Part of my contingency plan includes building relationships with those insurers that allow us the freedom to prove that we can run our shops better without them second guessing. These are the  insurers I recommend to my customers, and, at the same time, advising them on which companies to shy away from – turnabout is fair play.
    Insurers fail to recognize that they are part of the problem when they continue to throw more administrative tasks at us which adds to the cost of repairs. Just because there isn’t a line item for administration doesn’t mean that its free. We all need to find a way to charge for it or lose money. We waste hours reworking estimates to find profit.
    My shop had a DRP relationship with a company that sent me well over a million dollars a year in business, but in the end they never paid me. They always owed me between $85,000 and $120,000 past due by over ninety days. We would always get the run around every time we pressured them for payment. We would have to resend all of the files or look for an invoice from two months ago or they would try to negotiate the final bill two or three months down the road. When I finally added up the administrative hours and costs, the account was not worth having. After my concerns were brought to their attention and nothing changed, it was time to end the DRP relationship with them.
    This wasn’t my first departure from a DRP, so I knew better than to just call and announce that we were finished. First I determined the cost to maintain this particular account, ultimately deciding they were not worth keeping. Believe it or not, my business was better off without their one million dollars worth of gross sales.

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    When crunching the numbers, you will be surprised at the admin cost that has been shifted over to the shop’s side. These are soft costs that must be absorbed just to maintain some accounts. When you add financing and collecting to the mix, you will find that you are just turning dollars.
    Remember unprofitable cars only equal more money lost. More cars never means more money – just more work. Looking busy can create the illusion of profit. That is why everything must be included when evaluating a particular account, especially the administration cost.

Develop a contingency plan
Before parting ways with this particular DRP, I crunched the numbers over and over, discovering that losing the account wouldn’t hurt us. In fact, it may even help us. After trying to negotiate a better program, I realized  in the end they really did not care. We just parted ways.
    My contingency plan was in place before any decisions to part were made. I had bumped my advertising up, targeting this company’s insureds. Immediately, we got a big raise. Our door rate was $12 an hour higher. Even though we only captured about 25% of their customers, we were much better off. Now every job that comes from this company is profitable. We control the repair process and the admin cost are passed back to them. Plus now we get paid before we release the car. Not a win-win situation in this case. We were the big winners here.
    Remember to pick your battles, do the math, and make sure your contingency plan is in place long before you make any drastic changes or challenge any insurer.

Insurers are not all the same
There are many insurance companies I respect and like doing business with, but I am not afraid to ask them for the same things they ask of us. I work constantly at maintaining a professional attitude with the best customer service possible. I want to become an asset to them and give them the respect they deserve.
    This is a business relationship and to deal with any company that always needs to get the best side of the deal is poor business. If you treat them fairly, make darn sure you demand fairness in return. If you give respect then its up to you to demand respect. This is just basic business practice.
    If you are second guessing a relationship with an insurer, first and foremost do the math. Find out the real cost associated with managing their files, then make an estimated guess of what your capture rate for their customers would be without them. If you took the money that you were discounting and moved it to your advertising, would you be able to maintain a percentage of your customer base?
    Remember to treat your customers right and give them the quality and service they deserve. The insurers will be forced to use you either way. As hard as they try, they will not be able to steer your customers away.
    Thirty years ago we all did business the old fashioned way – selling each and every job to each and every customer. At our shop, we worked hard at building up our customer base which took years to accomplish. As I’ve said before, shops need to mimic the insurers. They are marketing to our customers. Why do you think they spend so much on advertising? They want to take control of the customer because the one that wins the customer is the one calling the shots.
    Slowly but surely, we are starting to do business the way we did thirty years ago. The vehicle owner is our customer and we work hard to keep our customers. We are marketing; we are selling ourselves and creating a customer service practice to keep our customers coming back to us no matter what the insurer recommends. I suggest you do the same and quit relying on the insurers to grow your business.
    If you want to take control of your business, then you must win each and every customer over for life.