Good Estimates: Your Blueprint to Profits

The insurance industry’s direct repair programs (DRPs) have grown rapidly since 2000. A FenderBender 2014 KPI Survey found that 70% of collision shops generated at least some revenue from DRP participation. And 50% reported that they generated 30% or more of their income from DRPs.¹ A recent Automotive Service Association® collision survey, which tracks the percentage of U.S. repair shops participating in DRPs, found that it has held steady at about 90% since 2001. Only 7.7% of respondents reported that they currently participated in no DRPs.²

An estimate is so much more than a price-to-fix quote. It’s a blueprint for the entire repair process, the key to customer satisfaction, and vital to your relationship with insurers. In fact, properly managing the repair process could make the difference between staying on a DRP or not.

What can go wrong? 
Many factors, some beyond the repair shop’s control, affect the integrity of an estimate and hurt cycle time. Somebody forgets to include the cost of common R&I. The lead time to order parts or the need for supplements cause direct delays. Backed-up production flow and last-minute schedule changes result in indirect delays.

According to Mitchell Vice President of Industry Relations Greg Horn, "The average additional administrative impact cost of a supplement is thought to be around $225 because of the administrative costs and increased rental time impact. For other delays, we can figure on at minimum the average $31.95 a day for a rental."

Kevin Mehok, CEO of Crashcosts.com and collision industry veteran of over 30 years, agrees. As he wrote in a SearchAutoParts.com article, "I recently performed a study for two large industry groups and determined that on every estimate written, they were missing a minimum of $35 just on forgettable items."³ That may not sound like a lot. But multiply it by the number of vehicles your shop repairs in a year and you’re likely losing significant revenue.

The end result of imprecise estimating? Throughput is disrupted, jobs can get backed up, time is wasted and everybody loses: the shop, the insurer and the customer.

Still in doubt? Then consider this… In a survey of over 50,000 vehicle owners, Customer Research, Inc. found that increased cycle time has a direct negative influence on CSI in several key areas including whether or not customers would recommend the facility. At a one- to five-day cycle time 98.1% said “yes,” at six to 10 days it dropped to 96.9% and at over 10 days it dropped to 94.1%. ⁴

Shrinking cycle time
As far back as 1999, WardAuto.com reported that Allstate had set a goal of a 72-hour cycle time⁵. The industry hasn’t achieved this ambitious goal yet. But, in just the past three years, the average cycle time has gone from 11 to eight days.

Why does cycle time matter? In evaluating DRP participants, insurance companies favor shops with better cycle time averages. So, the higher a shop’s cycle time, the more likely that shop will be removed from the program.

Replacing lost DRP revenue could be difficult, leading to an emotional impact as valuable employees get laid off or leave for better job offers. Ultimately, reducing cycle time could help you improve your bottom line. Research on four target shops showed that the effect of cycle time improvement over a year resulted in an increase in net profit from a low of plus 16.12% to a high of plus 21.26%. ⁶

A new way forward
The good news is that there’s a better way to accurately blueprint the repair process before a vehicle enters your body shop’s production stream. It doesn’t require fancy gadgets or a rocket-science learning curve. It’s as simple taking back control of the repair process by writing your own estimates. Patrick Yurek, owner and president of Collision Consulting LLC and writer for Body Shop Business, explains it this way in a BodyShopBusiness.com article:

"Most insurance appraisers have absolutely zero hands-on experience. So when they write four hours on a quarter panel, in their mind, they think it’s fair. When you call for a supplement asking for eight hours, they think you’re hijacking them because they simply don’t know....Why not get it right the first time? If you hand them a sheet that shows eight hours, there’s a better chance they’ll at least start at six. And then when you explain why it’s eight, you’ve got a far better chance of getting what you need."⁷

The Mitchell solution
Mitchell Estimating, helps you write accurate, defensible estimates right the first time. Mitchell Estimating, also known as UltraMate, combines accuracy and technology to provide reliable collision estimating data. Optional add-ons give you flexibility to enhance the solution.

Build the right blueprint and master the balance between quality repairs and tighter cycle time. When you do, you may find your DRP partners sending more business your way.

¹Bryce Evans, "A Changing Landscape”
²Susanna Gotsch, "Collision Industry Continues to Transform”
³Kevin Mehok, “Collision shop profits begin with writing a proper estimate”
⁴James E. Guyette, “Reversing the Cycle Time”
⁵John Yoskwick, “Body Repair Industry’s No. 1 Issue”
⁶Tony Passwater, “Stop Wasting Time”
⁷Patrick Yurek, “Estimates: Waste of Time or Path to Profit?”