Service and repair business owners have shared with me their revenues from service work and the data surprised me. Do you know that some of companies that bill on a time and materials (T&M) basis are reporting as low as $60 an hour for their work? Similarly, even companies who have switched to flat rate pricing are seeing as little as $80 an hour for their work.
Those amounts may sound OK if you compare them to hourly wage rates for technicians or for businesses that have very little overhead and no investment required for capital equipment, such as trucks, warehouses and service equipment. Add to those costs investments in parts inventories, training, fuel, uniforms, Yellow Pages ads and a bunch more costs, and soon the net amount the business owner is left with seems to be a only a few dollars.
It’s the net amount that makes all the difference. And you can’t have much of a net profit if you don’t have much coming in for gross receipts. This weak spot for many service businesses can be overcome. Let’s look at what it takes.
Cost AnalysisAn analysis that is relevant here is the company’s cost structure. Where do you spend your money? The starting point for any kind of cost analysis is the break-even point. Some business owners out there are unaware of what it costs for them to cover their general and administrative overhead on a monthly basis (mostly fixed costs) and what it takes for their technicians to complete a job (mostly variable costs).
When you combine all your costs and apply them to an hour of a technician’s time spent on a customer’s job, you may be surprised. Most businesses find the total costs they incur each month are greater than they would have estimated. And the charges per hour each technician generates barely covers the company’s costs to have them on the job.
You need to have accurate cost information before you can begin to determine the company’s profitability. Or before you can attempt to accurately set your job prices.
The smaller the company, the more desperate the situation. Once you have the office activities set up -- accounting, computers, etc. -- it doesn’t cost that much more to add extra personnel and increase volume. So the smaller the company, the more it needs to cover the general and administrative costs from fewer jobs. A larger company can spread its costs over more jobs and reduce its cost per job.
Let’s look at some typical numbers. Many small companies face costs of about $100 per hour when you total all the fixed and variable costs of providing service work to a customer. Obviously, if they are generating only $80 an hour, they are already losing money on their jobs.
If it only took an awareness of costs that could be overcome by raising prices immediately, the solution to the problem would be simple. Just raise prices. But raising prices, for some reason, brings out many concerns on the part of business owners, generally relating to a fear of losing customers to the competition. If every customer only shopped price, then no company, other than the cheapest, would have customers. So the prices charged for services are not the only issue.
What does it take to bridge the gap between charging enough to receive a decent return on investment and not charging so much that customers disappear? There is no formula that puts the business owner in touch with the exact balance of demand for his business’ services and prices that don’t scare away the customers. However, there is a way to generate more revenue per job.
Success StoriesBefore reviewing ways to increase revenues in your company, let’s see what other companies have been able to successfully accomplish this. We can start at the top. There is a company that receives more than $300 per hour for their service work -- without customers’ objections. In addition, there are numerous companies we track that use the Maio Menu Pricing and Maio Success System that are maintaining $200 per hour (or more) for their service work.
Not just a few companies, but large numbers of companies (more than 500) located throughout the country. If they can charge what they do, and keep their customers happy at the same time, why can’t you?
Generating reasonable levels of return for your investment and the risks you take and the costs you face in your business is certainly dependent on your prices for service work. However, all businesses face economic realities; the most basic is that they cannot charge more for their services than what their customers receive in value and are willing to pay for. Otherwise, they would go out of business.
So the key is providing the value to the customers for the prices you charge. If, like one company we know, you are charging an equivalent rate of $326 per hour, then your service -- the value that you provide to the customer -- had better be exceptional.
All of us are familiar with the service offered by some higher-end department stores like Nieman Marcus, Saks or Nordstroms compared to that offered by discount chain stores. Customers in those value-oriented stores receive top-notch service and are professionally treated. They feel important, plus they are confident that if they buy something that doesn’t perform it will be made right.
We need to translate that level of service to our customers on service and repair jobs. If we can, we will be the industry leaders in our area of business, and we will enjoy a better standard of living, too.
Professional ServiceIf I had to differentiate the level of service from companies that offer service -- the common ordinary variety you often see -- and the top companies, I would describe the difference as “professionalism.” Professionals know their job and can consistently deliver a higher level of performance than the competition. To get the earnings we deserve, we have to be professionals. I’ll give you some more examples of these higher standards:
- Being a professional in the service business means the technicians from your company are dressed impeccably in clean, attractive uniforms.
- They are trained not to drive their trucks through customers’ flowerbeds and over lawns.
- They arrive on time. They courteously greet the customer, and leave the jobsite cleaner than they found it.
- They use documents and forms that are professionally printed, and are neat and clean.
- Their attitude is positive and they communicate a willingness to solve the customer’s problem, getting it right the first time.
It may sound like these are nice touches to add to your service and repair work, those that the customer would appreciate, but I sometimes hear, “All those niceties cost money.” It’s true -- but it’s what the customers see and the only way they are able to distinguish your company from another. They can’t tell that your technician is better trained or knows more about the fixtures or equipment he is fixing than anyone else.
Customer’s Point Of ViewCustomers are interested in three aspects of the job: 1) When can you do the work? 2) Will it be done right (the first time)? and 3) Does the technician give the appearance that he works for a professionally run company?
If the technician does a great job of fixing the problem but looks sloppy, customers will believe the work was sloppy. If he leaves a mess, they will believe he did careless work. If he has a disrespectful attitude, they will be reluctant to agree to the repair work in the first place.
It may be difficult for you to believe but the cleanliness of your technician’s uniform can significantly affect your bottom-line profits. Naturally, that doesn’t mean that you can send incompetent technicians to complete a job; their technical skill is assumed to be up to par. So you have to have adequately trained and skillful technicians, but how their work appears to the customer will be more determined by their appearance and demeanor than their skill with tools.
If you look at companies that are receiving twice what their competition gets for a job or for an equivalent hourly rate, you will find that there are no mysteries to maximizing your hourly rate.
Run a professional shop. The rules of economics are clear: no value, no good hourly rate.
If you attempt to raise prices and do not offer the value that a professional shop can offer, you will not be able to sustain the level of business you anticipated. You must give the customer something for their money. The good news is customers are willing to pay for service. If you deliver they will gladly pay.
The customers who want service are out there. They are begging for a high-quality shop to do their service and repair work. It’s up to us to deliver.