Minimize Risk, Maximize Profits - Part Two
In March I reviewed two of the five primary areas of risk that will help increase profits and reduce costs at the same time. Now, I would like to analyze a few more risk areas that often need our attention. All of these issues may not apply to your business, but by addressing these risks you will soon see the results on your financial statements (and in your pockets).
Telephone TacticsOur business is service and repair. We don't just deliver a product, we deliver service. We fix what is wrong with the customer's home or business. And we can't know what needs fixing over the telephone. That's fundamental and easy to understand, but there are more reasons why we should never quote prices over the telephone.
Are we supposed to rely on the customer's expertise in diagnosing what is wrong with a thermostat, air conditioning unit or furnace? Why send out technicians if we can rely on the customer's ability to diagnose problems? We could just let the customer tell us what is wrong and save a lot of time. It's silly to think we can rely on customers, yet some businesses do just that. If the customer says a certain part is needed or a particular job should be done, those businesses believe them and tell them how much it costs to fix the problem. The real problem is then the responsibility of the service and repair company who quoted the price. The company is held to the quotation, regardless of what is really wrong at the customer's home.
Once a customer is given a price, he or she will demand that a service and repair company stick to that price, despite any and all efforts that a technician might put forth to prove there is a more serious problem. What that means is you are, essentially, giving the customer a warranty that the job will be completed for no more than the quoted price. The customer would view the technician's examination of the problem as a trick to jack up the price.
There is another version of the same no-win practice. Some businesses let the customer describe the situation and let the call taker determine what the problem is. Assuming your call takers are not trained technicians, it is unlikely that the call taker, despite any telephone experience and familiarity with the types of jobs the company frequently sees, will be any better at precisely determining the problem than the customer. Don't take the call taker's conclusion or the customer's assessment of the problem. Rely on a trained technician at the site.
Also, if you haven't switched to flat rate pricing and are still using the pricing methods of the last century, you face even more hurdles for price quotations. Even if you prudently avoid stating the job price, your call takers can cost you business by giving the hourly rates over the telephone. It is not unusual to see hourly rates of $90 or $100 for T&M service companies. So when the price shopper asks for an estimate and your people wisely avoid the issue, explaining that a diagnosis is necessary, you still have a major obstacle.
When the call taker mentions the hourly rate, the customer is likely to resist. Often customers compare the rate to their own pay and find it excessive. As soon as customers are told there is a one-hour minimum charge for sending out the truck and diagnosing the problem, the telephone gets quiet as they think about going into the service and repair business for themselves and look for the next company to call in the Yellow Pages.
If you can't safely quote prices and you can't give hourly rates or minimum charges, what can you do? Fortunately,
there is a way to handle this dilemma on the telephone that maintains your credibility and keeps your customers happy
at the same time.
Simple SolutionUsing a diagnostic fee eliminates the problem of quoting prices over the phone while letting you collect something for sending a truck and a technician out to a customer's home or business. Instead of giving an hourly rate or job charge, my approach has always been to charge the customer a fixed fee - one that is relatively nominal - for the diagnosis. It comforts the customer to know that they will pay no more than, say, $39 or $49, for a professional diagnosis of their problem. The explanation of the diagnostic fee should be a part of your telephone script. Your script should inform the customer that once the technician knows what is wrong he will provide a firm price for the job, before any work is begun. That way, the customer is assured he will know what the problem really is and exactly how much it will cost to fix it.
Just about all the risk is eliminated. No promises over the phone that cannot be kept. No surprise bills when a worker is slow, building up the hourly labor charges. No keeping the customer in suspense by telling them "we will let you know how much when we are done." A diagnostic fee is the only way to cover costs, make callers satisfied customers and keep technicians happy.
You can also credit the fee toward the price of the job. Some shops don't credit the diagnostic fee. These businesses maintain that the diagnostic fee is a separate charge for work performed. This reasoning makes sense, but I have found that there is a trade-off in crediting the customer with the diagnostic fee as a reduction in the price of the job - you get more customers to agree to have the work performed. So any revenue lost from crediting the fee is made up with a higher percentage of closed sales and a higher volume of business.
It continues to surprise me that many business owners are not familiar enough with the costs and pricing structure of their business to know the break-even amount for the work their technicians perform. How can you determine profits or pricing if you don't know how much you have to charge to meet all your obligations? I have actually seen businesses set their pricing at a level where the company is losing money - and doesn't even know it.
It is common for businesses to undercharge. Sometimes the practice is excused by "the competition" or the fear that "my customers will leave me." They won't. You need adequate revenues to be able to deliver the quality service that separates you from the competition.
Matching your competitors' prices (how many of you have called around?) only ensures that you will follow them into the red ink area on your financial statements. Compete on service, not on price. There is always someone who will do it a little cheaper. Let them have the bottom 10 percent of the market. As soon as some other business offers the work for a penny cheaper their customers' loyalty will vanish anyway. Customers remember quality service work long after the price is forgotten.
Get some help in determining your costs, but don't price a job without knowing what your break-even costs are. It's
the only way you can compute your profits. Computer programs are available that can assist any business owner in
computing his break-even costs and setting profit margins. You no longer have any excuse for not knowing your
Homemade MaintenanceThe last area of risk we will examine is in vehicle maintenance. It's disappointing, maybe even shocking, to see the repair bills on trucks sometimes. It makes you want to hire a mechanic and do all the work yourself. Don't be tempted. Sure, it looks like you'll save big bucks by circumventing the labor charges for repairs, but watch out for hidden costs.
For example, if you do your own maintenance and one of your trucks is involved in an accident, you have to show that the work was performed to the highest standards using the latest technology so you are not found negligent in any legal proceedings. It's not easy. In addition, your liability insurance premiums could also reflect the additional risks of maintaining all your vehicles in-house. So the money you save could disappear when you look at the overall costs and risks.
By monitoring your business and looking into the risks I have reviewed, you could turn potential problems into more profits. Examine each area of your business closely and you will be able to keep the risks low and the profits high.