Minimize Risk, Maximize Profits - Part One
Profits are what we seek. Costs and sales seem to catch our attention as the first figures to consider in maximizing profit. However, we can expand our search for ways to create more profit if we consider another perspective - reducing risks.
Significant risks can destroy all the hard work you've invested in your business, just because something unexpected goes wrong. It's not good luck alone than can prevent these surprises; it's preparation. In many cases, the preparation also increases profits, a double win.
There are five primary areas of risk that, given our attention, can help increase profits and reduce costs at the same time. This month, I will share two I have discovered that have paid off over time.
Untrained or Unmotivated Technicians: We can evaluate performance on the job using two criteria: skills and attitude. If either one is substandard in any technician working for you, your customers will know. For example, if the service and repair work is not carefully completed, the customer will soon be on the telephone letting you know he or she is not satisfied.
When a customer is unhappy, the goodwill associated with your company is blemished. You can't repair that loss at any price. Customers talk to their neighbors and friends, and word spreads about the quality of your work. Of course, when the customer's perception of the work is good, word also spreads, so the goal is to satisfy every customer and eliminate callbacks.
Callbacks are expensive, not just because it costs you money to send the technician back to the customer's home, but because that technician is now unavailable to complete a job at another customer's home.
Yet another cost from a botched job is the company's time and attention to fix the situation, as well as any incentives provided to the customer to keep them happy. We have given restaurant coupons, discounts on future jobs and other tokens to help placate a customer. All these costs start adding up quickly if you have even a few callbacks.
AttitudeThe most important factor in customer service is attitude. If a customer is unhappy with a job, it is more likely the result of the technician's attitude, appearance or demeanor than his technical skill. The typical customer is not usually able to determine whether the best techniques were used to fix his problem, but he knows if he's been treated with courtesy and respect. Often a technician who appears unmotivated to the customer actually has reasonably good technical skills.
Since it is the customer's perception of the quality of work being done that determines his satisfaction, a technician's poor communication skills or indifference to a customer can overshadow excellent technical skills. Assuming the problem he called about doesn't reappear, a customer uses only the technician's attitude and professional demeanor to evaluate whether a good job was done.
If the customer has the least suspicion that the faucet, furnace, thermostat or other fixture was not repaired adequately, that feeling will be magnified if he sees poor customer service skills - often enough to cause a complaint or callback.
TrainingFortunately, there is a solution that is not especially difficult or costly. Training your technicians is essential to minimize the risk of a dissatisfied customer. It sometimes surprises me to discover that many companies spend time and resources to keep every technician up to date on the latest changes in products, equipment and technology, but neglect their training in customer service.
A technician's initial appearance can influence the customer's perception of the entire service call. Technicians who look like a professional - with a clean uniform, nametag, business card and briefcase - are immediately distinguished from those who present themselves wearing a dirty T-shirt and carrying a rusted, greasy toolbox.
From there, a brief greeting identifying himself as a technician with XYZ Co., delivered with a smile, sets a whole different tone than the technician who mutters, "What's the problem?"
At this early point in the service call, the customer has probably made up his mind whether he has confidence that this person is going to be able to professionally fix the problem in his home.
Training technicians in the latest customer service skills, including the effective use of a flat rate manual is one of the most cost-effective management decisions you can make to improve your business this year.
Compliance With RegulationsMost of us spend time trying to keep up with regulatory changes that affect our business. Every year new requirements surface that demand some of our attention and usually some documentation. Existing regulatory obligations often necessitate professional assistance to ensure compliance as well.
For example, one of the subtle but real challenges I have seen in service and repair companies is overtime pay. The Fair Labor Standards Act, which addresses overtime pay, has been around for more than half a century, but accurate payment of hourly work in excess of 40 hours in a week (or eight in one day in some states) continues to plague companies.
Bonus payments, partial workweeks and some state laws add to the potential uncertainty. For example, California, after rescinding the requirement a few years ago, recently re-instituted daily overtime (where an hourly worker is due pay at the rate of time-and-a-half for work in excess of eight hours in any day, regardless whether the total hours worked during the week exceed 40). Now, daily hours worked, not just weekly, have to be monitored.
Most of us meet regulatory requirements through the use of professionals or by implementing a system that catches oversights. Pay, however, seems to be one area where we could use some help. I have seen companies withhold pay from a worker for vague policy reasons - such as lost tools or damaged equipment - when no explicit guidelines were provided for such losses. Let me caution you, both federal and state regulators take a dim view of withholding pay from employees' paychecks, especially without a clear policy for such actions.
We have used a tool allowance fund, which is built up over time from contributions from each job completed. That balance is available for tools, so every technician knows where he stands and how he can be issued new tools. For uniform damage, we have a specific policy that explains what the technician is responsible for and what is normal wear and tear.
CommissionOne way we address the overtime issue is to use an incentive or commission pay schedule for technicians, similar to what many companies use to compensate salespersons. We want our technicians to be salespeople, so we compensate them as salespeople.
If they sell more services and products to our customers, they earn more money. Interestingly enough, we have found that they better serve customers that way, too. They are not in a hurry to run off to the next job like many technicians. They make certain there are no other malfunctioning fixtures or systems in the customer's home before finishing the job.
We demand ethical standards for finding additional work to preserve our reputation. I explain the process by comparing it to auto repair, where you would want the mechanic to locate and fix any malfunctions, particularly safety concerns, before you leave the shop.
TaxesSales taxes are another area for risk analysis at your company. Since all states treat what is taxed and when it is taxed somewhat differently, you need to examine your practices and have a professional review with you ways to lawfully reduce your tax burden. We have reduced inventory as one way to minimize tax expenses, and we closely scrutinize our invoices to be certain we tax our customers what is required and nothing more.
SafetyThere's no argument that work is performed more safely now than many years ago. At the same time, we have to deal with federal and state health and safety agencies that specify how chemicals are to be handled and stored. Work safety regulations expand all the time, but we still need to keep up. Violations of regulations - or worse, injuries - are very costly and can wreck a good year's profits.
Your technicians are your company's most important asset, so it is important to takes the necessary steps to safeguard them. Most service and repair businesses have safety procedures to meet that need. The weaknesses that I have seen are in the follow-through and monitoring.
Do you follow your company procedures for all operations? That's where the risk typically exists. Good management means monitoring the operations to confirm you are doing what you have planned. Safety is part of that plan.
What I really like about identifying risks in a service and repair business is that usually the solution not only minimizes the risk, but it also puts in place a process to boost profits at the same time. We'll look at three more areas of risk next month.