Virtually every conversation our firm has with a dealer includes some questions about how to pay the body shop manager. Dealers are constantly frustrated with recruiting, hiring, retaining and motivating this key member of their management team.
There is no short answer to the question of how to compensate the manager. There are three key factors to remember, however: 1) qualifications of manager, 2) facility potential and 3) distribution and allocation methods of gross profit.
Qualifications of Manager
In the Midwest they say, "You can't make a silk purse out of a sow's ear." In other words, you must have a manager in place that is capable of doing the job. If they are not presently capable of doing the job, can they be trained? I have an axiom that I live by, "You must hire character and teach skills." You cannot hire skills and teach character. Most dealers make the mistake of thinking they can hire some guy with all kinds of experience and turn him into the kind of person they want. They then find that they are constantly having to look the other way on some character issues. What the dealer should do is hire someone who has the professional manner and demeanor they are looking for and then teach them the skills necessary to be successful. Essential qualities such as integrity, concern for quality and focus on productivity are a must. You need someone who has a basic grasp of the need for profitability and understands that what they do impacts the entire dealership. They can be trained in the specific skill groups such as estimating, negotiation and sales.
Facility Potential
You have to know what the facility is capable of in a best-case scenario. Too often, dealers make comparisons based on partial information derived from notes taken in meetings with other dealers. They come home and set unrealistic expectations of their body shop manager. The influences on facility potential are many and complicated. It is not as simple as number of technicians and square footage. The bottom line here is you must get a professional analysis, which takes into account the following: 1) layout and design, 2) staffing density ratio, 3) labor efficiency, 4) parts intensity, 5) pay plan, 6) wholesale mix, 7) DRP relationships, 8) equipment available, 9) quality of estimates and 10) morale of crew. These are just a few of the components an expert would look at to measure facility potential. Unless you know these things you will only be guessing as to what your potential is. The manager deserves to be held accountable to an objective standard, not an uneducated whim.
Distribution and Allocation Methods of Gross Profit
Body shop sales typically break down like this:
Labor = 50% of total sales
Parts = 35% of total sales
Materials = 10% of total sales
Sublet = 5% of total sales
Most dealers pay their managers a salary plus commission. This is fine; however, the incentive is usually weighed toward labor only, thereby encouraging the manager to sell more labor and consequently, less parts. The rationale is that the gross profit percentage on labor is higher than parts. Be careful. The gross profit dollars generated per actual hour is always higher on parts-intensive jobs. The percentage of gross profit may be deceiving. You must give your body shop manager an incentive to sell parts.
Typically, dealerships do not give a proper amount of parts profit to the body shop. Usually the dealer gives half of the parts profit to the body shop and half to the parts department. Consequently, the body shop shows 15-18% profit on parts on their monthly statement. The same dealership will sell parts to an independent body shop for 25-30% off of list. The irony here is that the dealer treats the independent shop better than he treats his own manager. The dealer thereby shoots himself in the proverbial foot.
The message is twofold: 1) Change the way you allocate parts profit to your body shop. If you don't, you are only hurting yourself; and 2) Offer incentives to the body shop manager to sell parts. Your gross profit per actual hour will increase dramatically in every situation.
Finally, remember that the body shop should and can be a source of pride and profit to your organization, but not if you do it the way it is typically done at franchised dealerships.
Dave Dunn is the collision industry's most respected management consultant. Dave is a shop owner from Galesburg, Illinois and president of Masters Educational Services with offices in California and Illinois. Masters specializes in all types of consulting, training and education within the collision repair industry. If you have specific questions or require more information about this subject, please check the appropriate box on the reader response form on page 3.