Want to Succeed in the Service Business – Know Your C.O.D.B.

CODB - CalculatorC.O.D.B. These four letters have the potential to literally shape your future in the service business, and to determine whether or not you will be able to stay in business long term.

As simple as this calculation is, I am constantly surprised (shocked to be honest!) at how few people pay attention to this simple number. Even veteran service managers often don’t seem to know what their C.O.D.B. number is.

Appliance repairs are relatively short in time allowing several completed repairs per day so we generally think of the charges for our services on an hourly basis. Likewise in calculating the C.O.D.B. of a service company, we must think of costs in the same hourly terms.

C.O.D.B stands for “Cost of Doing Business.” Basically it’s a number that represents what it costs to operate your business for every hour that you work.

On a basic level, you add your technician’s salary (remember to add your salary if you’re a single man shop or still performing calls) to the expenses to run your business and divide that by the total number of hours you expect to work each year. That will give you a number that is the minimum you must charge each hour to BREAK EVEN. If you charge more per hour on average than your C.O.D.B., you are profitable. If you match your C.O.D.B but bill fewer hours than what you need to cover your costs, your business is in the red, and you’re on a path to being out of business…

Not knowing your C.O.D.B. makes it very difficult to grow your business over time – let alone what to charge for repairs. Knowing your C.O.D.B. provides operational control and enhancement of the business. It allows you to make sound decisions based on numbers rather than your gut and provides for strategic long term planning.

You should know this number by heart as it should help you determine the minimum rates you need to charge your customers on a job per WORKING hour and to stay solvent as a business. Keep in mind that with appliance repairs there are significant non-billable preparatory, driving and research times in every call. It’s impossible to bill for every hour we work; so when setting service rates we multiply our hourly C.O.D.B. by an efficiency factor that will compensate for this non-billable time and add a profit component. The more repairs we can complete (get paid for) per day through our efficiency, the more revenue we can generate to cover our costs. To calculate your company’s efficiency factor divide the average number of completed calls per day by the hours worked per day per technician.

The United Servicers Association’s C.O.D.B. calculator is one tool to help you get a handle on these costs and help when setting service rates. The USA calculator is a simple Excel spreadsheet that you can download free from the Resources tab of the www.unitedservicers.com website. Once downloaded, fill-in the yellow highlighted cells with the information gathered from your company. The calculator will tell you what your average repair charge should be based on your technician’s wage, the company’s overhead, desired profits and efficiency. If the results from the calculator cause your company to not be competitive, you must either lower your expenses or increase your efficiency by completing more calls per day.

While the C.O.D.B. calculator will provide you with what your average repair ticket charge needs to be, it won’t tell you the makeup of that charge. Many in the appliance business continue to debate the pros and cons of flat rate vs. trip and labor charges while most other service industries have firmly adopted the flat rate billing process. Flat rate service fees are preferred for many reasons. First, experienced technicians with extensive knowledge and skills regularly diagnose and complete repairs more quickly. They shouldn’t be penalized by lower charges. Similarly, if you work more slowly or less efficiently you shouldn’t be rewarded. Second, all repairs are subject to predictable and unpredictable forces that affect the time to complete a repair. Flat rate pricing is fair and consistent for your customers and your business. It compensates for the ups and downs of repairs.

 

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