Under-Billing is Killing Your Service Department’s Profit
I am going to begin with a statement you may not believe but here it is. The average service tech is under-billing the customer, for work that was actually performed, by anywhere from $10 to $30 per hour. Yes, I know what you are thinking. “Tom that can’t be true. If that were true each of my techs would be costing our service department from $10,000 to $30,000 per year. That just can’t be….can it?” Well, unfortunately the answer is not only that it can be costing you that much, the truth is that it usually is costing you that much.
Now the first question to be addressed is how your tech could possibly be under-billing the customer by that much. If you are still charging the customer by the hour under-billing is pretty easy to understand. The tech was on the job for 2 hours and 15 minutes but he or she only wrote down 2 hours on the service ticket. Or perhaps the tech used three parts on the repair but only wrote down two on the bill. Lastly, the tech should have marked the parts up 80% but only marked them up 50%. Like I said, under-billing is pretty easy to understand if you are on time and material.
Perhaps some of you reading this article realized the under-billing problem when you were charging by the hour. The solution seemed simple enough. We will simply switch to Flat Rate Pricing. The price is written in black and white in the book so we couldn’t possibly under-bill the customer – right? Wrong. Actually under-billing is just as big a problem when the company is on flat rate pricing as it is on time and material. The source is different but the end result is the same. You are STILL under-billing the customer by $10 to $30 per hour! Did you know the average tech performs 3.2 repairs per service call? But guess what? The average number of flat rate repairs listed on the ticket is only 1.5. What happened? It’s pretty simple when you think about it. How thick is your flat rate book? I would venture to guess most exceed 1-2 inches which means there are lots of repairs listed. Now put yourself in the techs shoes for a moment.
You completed the repair/s and now it is time to fill out the ticket. The book is thick and you are not really all that familiar with it. Beside that, the office is putting pressure on you to get to the next call. What’s the techs solution? Find one or two of the repairs he did as soon as possible and move one. Well when he missed a repair in the book the company lost the labor, parts, parts markup, overhead cost and profit. Wow, that’s a lot. Do that a few times a day and guess what happens? Right, the tech under-bills the customer by $10,000 to $30,000 a year for work that was actually performed. That is huge. What’s the solution? Flat rate drills in your service meeting! Do them over and over and over again. It will make you money.
Now some of you reading this article are thinking “Ghee Tom, that really is a major problem for those other guys, but surely not me.” Well let’s find out if you are under-billing or not. It’s not really all that hard to find out. Do this simple exercise.
How much “should” your tech be billing out for every hour he or she bills. To find out add the hourly rate you charge (time and material or the internal rate if you are on flat rate pricing) to the average parts sales per hour. Average parts sales are about $21 per hour. Now add the average markup on those parts which again usually averages 100%. Lastly add the trip charge or diagnostic fee if you are on flat rate pricing. Let’s assume your hourly rate is $125 per hour.
Hourly rate -------------------------------- $ 125.00
Parts per hour sold --------------------- 21.00
Markup of 100% on parts sold ------ 21.00
1/3 of the trip charge or diagnostic
Fee which is $60.00 --------------- 20.00
Total projected income per hour billed = $ 187.00/hour
This is telling me that for every hour my tech bills out he or she “should” be generating $187 of income. Now let’s see if we are.
Take any period of time. To keep it simple lets look at one tech for a week. Take a look at your service tickets and simply add up the total income he generated for the week and divide it by the actual number of billed hours.
The techs gross income for the week was $3,040 and he billed out 21 hours for the week. That means the average income per hour generated by the tech was:
= $3,244 / 21 billed hours
= $144.76 / hour
Now remember our goal was to generate $187 per hour so how much is the above tech costing the company, in terms of under-billing, for a year. Let’s assume the tech bills out half his time for the year or roughly 1,000 hours. This tech under-billed the customer by this amount:
= ($187.00 - $154.47) / 1,000 billed hours
= $32,530 for the year
It seems hard to believe that our tech under billed the customer by $32,530 – but he did! Check out the numbers at your office and see what you find out. The numbers may be staggering.
There is a new software program out called ProfitMaxx. From a simple timesheet that takes 2-3 minutes a day to input into the software it accurately measures each techs productivity and profitability, including how much they under-billed for the day, week or year. All the information also flows into the Tech500 Bonus system so you can reward your techs based on real, accurately measured, productivity. For more information call Grandy & Associates or attend a FREE 30 minute Webinar. To sign up call our office or register on our website at www.GrandyAssociates.com .
If your profits are not what they should be you may want to consider attending our three day “Basic Business Boot Camp”. Sign up now while space is still available. If you would like to attend a FREE Webinar overview of the boot camp simply call our office or sign up on our website at www.GrandyAssociates.com.
Tom Grandy, president
Grandy & Associates
One Executive Blvd.
Suite LL-4
Owensboro, KY 42301
Phone: 800-432-7963
FAX: 270-684-7425
E-mail: TomGrandy@GrandyAssociates.com
Website: www.GrandyAssociates.com
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