Billing In Dollars vs Rates   Authored by Jeff Bryant

For decades now collision repairers have struggled to remain profitable partly due to suppression of labor rates. First, let’s look at how we got here. Some may remember the days of using parts guides to reference part pricing and preparing estimates on hand written estimate pads . Labor was written as a dollar amount per line item. I believe all that remember would agree the body shop business was more profitable in those times. Part guides then started to include labor times as well as part prices and shops began to adopt the rate per hour labor sales. I am not going to get into all that transpired in to reductions of labor times or suppression of rates as most are all aware of how that happened.

So here we are now, in 2017, with most collision shops operating on a labor rate of approximately half of the mechanical rates. It is obvious that shops have not determined their labor rate based upon their own cost accounting nor the value of the services provided. Most shops feel powerless to adjust their rate and often look for other ways to achieve a profit. Some may say that you must scale up labor production or increase efficiency to overcome this. Basically do more for the same profit or do it quicker. No one wants to do more for the same profit or less. If you are billing in an hourly rate format and your efficiency is greater than the billable hours it could easily be argued that such could be fraudulent. Every shop owner knows what happens if he or she tries to adjust the rate beyond what insurers say is the “Market Rate”.

For most, this seems impossible to increase the labor sales dollars. Billing in dollars is an alternative that many collision shops have successfully adopted and implemented. There are far more advantages than disadvantages to this system over the rate per hour method. First off is proper billing. It is unrealistic to believe that every minute of every technician can be accurately accounted for, on every single line item, on every vehicle in production. Billing for a specific amount of time and when the operation was performed in a lesser amount of time can be construed as fraudulent. Billing in dollars eliminates the potential fraud of such. Better yet, assigning a dollar amount to a specific service can incorporate the cost and​ value of the service Say for example you have two identical vehicles in your shop that both need the exact same bolt on chrome bumper replacement. The estimate database calls for one hour for this operation. You may have have a 20 year veteran technician that has performed this same repair dozens of times and can complete the replacement in 30 minutes. You may also have an entry level or apprentice technician that may take more than one hour to complete the replacement.. If you billed this accurately on a rate per hour system. You would receive much less for the job the more experienced technician completed than the less experienced technicians job. It is the exact same repair therefore it should have the exact same dollar value.

Billing in a dollar amount also allows for pricing the specific operations based upon actual true cost of that operation. Most times the technicians labor cost is the only consideration used to determine labor cost . Labor cost should be determined based upon true cost of the technician based upon loaded cost which includes cost of benefits, training, compliance and benefits. There are many other things that need to be considered in the cost of labor in order to determine a true cost and therefore determine the retail value of the service. Requirement for the operation should be considered and accounted for. Items such as technician experience or training necessary and equipment required. You must know the cost to determine a proper retail price. If your retail price is based upon actual cost with a reasonable margin for profit than you have not only properly billed your customer, but also properly compensated your business and hopefully your employees as well.

Another legal issue in using rates per hour billing is price fixing. Do you not find it odd that every shop in your market has the exact same or nearly the same labor rate per hour ? They are all the same regardless of their differences in expertise, quality and overhead. What other product or service industry charges the same price regardless of such? Collision repairers should not either. Here is the Federal Trade Commission's explanation of price fixing . Price fixing is an agreement (written, verbal, or inferred from conduct) among competitors that raises, lowers, or stabilizes prices or competitive terms. Generally, the antitrust laws require that each company establish prices and other terms on its own, without agreeing with a competitor. When consumers make choices about what products and services to buy, they expect that the price has been determined freely on the basis of supply and demand, not by an agreement among competitors. When competitors agree to restrict competition, the result is often higher prices. Accordingly, price fixing is a major concern of government antitrust enforcement. A plain agreement among competitors to fix prices is almost always illegal, whether prices are fixed at a minimum, maximum, or within some range. Illegal price fixing occurs whenever two or more competitors agree to take actions that have the effect of raising, lowering or stabilizing the price of any product or service without any legitimate justification. Price-fixing schemes are often worked out in secret and can be hard to uncover, but an agreement can be discovered from "circumstantial" evidence. For example, if direct competitors have a pattern of unexplained identical contract terms or price behavior together with other factors (such as the lack of legitimate business explanation), unlawful price fixing may be the reason.

Now the hard part. How do you go about implementing the dollar system ? No doubt you will receive opposition from insurers in trying anything that may increase their payout or increase your profit. But for many that may be struggling for profits this could be their saving grace and well worth the fight. The reason we have most of the problems with sustainability and profits today is that as an industry we have adopted the insurance processes and devices. Basically we are playing their game by their rules. This industry will never achieve the profitability or sustainability it should playing their game . Create your own game and rules and stick to it. If you are going to bill in dollars you must be customer focused. Estimates and invoices written in a dollar format are much more understandable for the consumer than a bunch of incremental numbers. After all we should be writing estimates and preparing final invoices for the customer. Many insurers are likely to oppose dollar billing and if they can not force you to concede they will most likely involve the consumer. Remember you are the repairer and you have an obligation to the consumer to repair the car properly and bill them properly. If you are new to the concept of a consumer focused business model that is free of outside influence I would recommend joining the CCRE to learn more about taking control of your business. “ You individually may not have the power to solve the issues of our industry, however you do have complete power to change your own business.”

Home