The Cost of Doing Business

By Paul MacDonald, Executive Director, United Servicers Association

CODBWhat does it really cost to have a technician knock on a customer’s door? In every sales transaction, knowing the full cost of a service call is fundamental to setting a selling price that will lead to sustainable profits.

The service business today is not like the old days—it’s tough to make a buck. The good news is that the appliance repair business has never been better, but the key to profit in appliance repair involves understanding the true hourly cost of running your business and knowing how efficient your operations are. Unfortunately, most service companies and dealers don’t know where to start.

In the appliance industry, calculating the selling price of appliances or appliance parts is a fairly straightforward mathematical calculation: take the acquisition cost and add a mark-up. Retail appliance dealers generally work on margin rather than mark-up, whereas appliance service companies work with a mark-up on parts that they sell during a repair transaction.

It’s not so easy for servicers when setting rates for repair services. To set rates that deliver profits, we have to know the full cost involved in running a service call. There are many aspects to consider, starting with the technician and support staff’s hourly or commission wages, the rental cost of the store or office, the technology to receive and record customer information, and transportation costs to get the technician there and back. Let’s not forget the costs of training the technician and the special tools, technology and manuals needed to diagnose the problem. There’s also waste removal and recycling costs, worker’s compensation and healthcare.

Clearly, calculating the full cost behind every knock on a customer’s door is long, but it must be factored into how much you charge for every service call. So how do we do it?

Calculating your full cost

First you have to know how many of your technicians’ hours of work are available to re-sell. To find this out, take the total number hours available in the working days of the year, minus vacations, stat holidays and sick days. Calculate the gross hourly wage, not the net wage, by taking all the costs involved in a service call and spread them across only those hours you can re-sell—not the hours you have to pay when he or she is on vacation or at home sick.

Next, take your service department’s entire overhead, minus the technicians’ wages, and divide by the number of technician hours you have to re-sell. This will give you your operating cost per hour. By adding the technicians’ gross hourly wage to the hourly operational cost, you get your breakeven hourly cost. Add to that a modest profit for the business, around 20 to 30 percent, and you get an hourly rate for your service. But we’re not all the way there.

Efficiency: An Essential Concept

What happens next leads to the success or downfall of all service companies.

It is impossible to re-sell 100 percent of all available technician hours. Non-billable time is spent pre-screening and pre-diagnosing calls, researching, ordering and receiving parts, and driving to and from service calls. The lower the percentage of non-billable time, the more efficient your department is. Efficiency is also affected by how many first-call completes you achieve in a day; it must be applied to the gross billable rate per hour we calculated earlier to determine what your average ticket price needs to be. Once you determine this number, you can set your hourly service rates.

Sound complicated? It is! To make it easy, download the free Cost of Doing Business Calculator from the United Servicers website at www.unitedservicers.com. Better still, attend my CODB workshop at the Annual Service Training Institute from February 9 to 12, 2015 in New Orleans (register at www.asti.us), and I’ll walk you through everything you need to know to set service rates that deliver lasting profits.

One Comment Add yours

  1. DAN says:

    We have done a pretty good job of keeping our rates up over the years and actually much better than the in warranty manufacturers have…. Our first warranty repayment was at $15.70 per call. We have been in business a few years…

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