Archives for March 2019

(Published with permission from Coolfront.)

As a service contractor, you have a general idea of your expenses, which includes items such as rent, wages, insurance, equipment, utilities, as well as many others. But have you considered what unapplied time does to your overhead?

Unapplied time is the number of hours your field staff is on the clock, but you can’t bill for their time. According to research by the Carrier Corporation, during a regular work day a field person is able to bill for about four hours of repairs, yet their company still has to pay them for a full eight hours. The rest of the time is commonly spent driving, picking up parts, and callbacks. Naturally, most companies offer paid time off and this must be added to unapplied time as well.

But you can’t bill customers for every hour of the day your tradespeople are on the job. After all, in order to keep a business running and professional there are tasks that must be done internally, such as meetings, cleaning the shop and washing the vans. So what should you do?

The key is that your unapplied time absolutely must be included in your hourly rate. For example, if you estimate that you must charge $70 per hour to make a 10% profit when you’re staff is on the job, you likely need to double that in order to turn that same profit for the entire day. Again, you pay your staff for eight hours but can only bill for roughly four.

But how can you push your labor rates up without getting blow back from your customers? The answer may be flat rate pricing. Since flat rate systems focus on total repair price instead of hourly rates, customers are less likely to push back on the prices.

I’m sure you’ve heard the statistics; about 90-95% of all trades companies are owned by individuals who used to be a technician working for someone else. What that does not mean is this: that every technician who starts their own company succeeds. Listen to these two scary facts. According to the government, 90% of all companies that start up this year will fail the very first year. Secondly, only one company out of 1,000 that starts this year will ever see its 20th birthday. Sobering numbers aren’t they?

Now, I am not trying to discourage anyone from starting their own company! But before you dive into entrepreneurship, you might want to consider the following.

Not Much Profit
The difference between what you are being paid, and what the company is charging, is NOT all profit. It costs a lot to run a company in terms of basic overhead, non-billable time and the costs of equipment. The average trades company owner actually only nets about 3-5% of gross sales. That is a lot of work for not a lot of money!

Consider the Business Side of the Business
The most profitable companies within the industry are run by owners who understand the “business side” of their business. If you don’t have a basic understanding of the business side of the business, you are likely to fail within 3 years. If you are serious about starting your own company I would strongly suggest you invest in some business training classes……before you start the company.

Cash on Hand
It takes a lot of cash to run a company, much less start one. Think about this. You decided to start a company, and you already have some contacts who will provide work for the first month or two. What money is going out, immediately? You will have to pay for gas to run your vehicle, and you will need insurance both of which will be up-front dollars. If you have a second tech, they will need to be paid (and don’t forget about payroll taxes, which MUST be paid within a specified time period!). You will probably have to purchase some parts up front and, unless a family member owns the distributorship, you will be on COD for at least a while. That requires cash! These are just a few basic things to think about. Now unless you are a shrewd business person, and have your collections policies in place when you perform your first job, you will probably not be paid immediately. Normally it will be 1-4 weeks before your first money rolls in … that is if you have carved time out of your busy schedule to invoice the customer! Start-up cash is critical and most start with none, so you are behind the eight ball right out the gate!

The Cost of Personal Relationships
Starting your own company will require long days, and lots of them. Typically you will work 40-60 hours in the field and another 20 a week doing paperwork. Count the cost. Do you love your wife? Do you want to spend time with your children? The cost, in terms of relationships, is high when it comes to starting your own company and the extra hours tend to NEVER go away. As a tech, your job is finished at the end of the day; your nights and weekends are your own. Also, you get paid each week, which is unlikely to happen as a new owner.

Now I could list at least a dozen more things to consider before starting your company, but this is just some food for thought. The bottom line is this: count the cost BEFORE you make the break. It’s kind of like buying a boat. Typically a boat owners two happiest days are they day they bought the boat and the day they sold it. That’s clean. Getting out of business, once you are in, is a lot more difficult.

By John Mathis

Benchmarking Outlines the Personal Talents Jobs Call For

How do we truly know if an employee is a “fit” for the position?

Typically, employers deem competent and suitable candidates fit for a position if their resume represents experience matching the technical skills the job calls for.

But there’s more to it. Let me explain a bit further.

Recently, I observed the manager of a chain restaurant assisting his staff clearing tables and checking on customers who had already received their meals. I could tell he had lots of enthusiasm while doing his work.

When he stopped by my table, I made a point to mention that I thought he did an excellent job keeping the place running smoothly. He thanked me and said with great gusto, “I love my job!”

Over the years, I have asked successful sales people, customer service representatives and managers, who go the extra mile, how they go about achieving the results they do.

To a person, their first response is always, “I don’t know.” But when I profiled them, I discovered they had the personal talents the job called for — and they received an emotional reward for doing it.

Most of them had not completed a behavioral profile before and were surprised with how accurate the report characterized them.

People who are a clear fit for a position carry out the duties and responsibilities of the job because they have that inherent desire and drive. They receive emotional rewards that build their self-esteem.

As their self-esteem increases, it becomes easier and natural for them to routinely discover more and more good things about their job and the company. They become the people who help fellow colleagues become better team players, if not directly then indirectly.

Job descriptions are key in determining what personal talents are needed for prospective employees to be successful. 

Sales people need personal talents for presenting, asking questions, listening and overcoming objections, all the while focusing on the end outcome. Managers need the personal talent for providing direction, follow up, holding people accountable and seeing the big picture.

However, the job benchmarking process is the ONE tool to truly determine if the candidate or incumbent has the personal talents to perform the job comfortably and with ease.

Most people can adapt if needed, but there is a price to pay for adapting.

In the end, the person who will be most comfortable performing the job goes about it with little fanfare and a desire to not only benefit their customers, but also drive performance and profits for the company.

If you would like more information on using these tools to increase your odds of finding the right person, visit our Team Solutions Page or email GeneHeacock@GrandyAssociates.com.

Callbacks are not only very expensive to the company, but they are often the difference in making an acceptable overall net profit in the service department!  Let’s run some numbers.

• Calculating the EQCR – The first thing we need to determine is what we call the equivalent charge-out rate, or EQCR.  This number represents the dollars we expect the technician to collect for each hour he or she actually bills the customer.  Let’s assume your internal hourly rate for your flat rate pricing system is $150/hour (fill in your number to make the example real).   We then need to add to the $150 the average parts “cost” per hour.   The norm within the industry is that for each hour billed, the technician sells $20 worth of parts.  Also, the average markup on those parts is 100%, or another $20 per hour.  That makes our EQCR $190/hour ($150 hourly rate + $20 parts cost per hour + $20 markup on the parts per hour)

• KPI – Now let’s talk about the key performance indicator, or KPI,  for callbacks within the industry.  The KPI is 2.75%.  It is an established fact that of all the parts produced nationally, roughly 2% fail due to poor mass production. That means if a technician exceeds a callback percentage of 2.75%, the callback is not a parts failure, it’s an installation problem caused by the technician.  If a tech has 100 service calls per month that means he or she should have no more than two, or at worst three, callbacks during the month.

Economic Impact on the Company’s Bottom Line
Callbacks are very expensive in three ways:

1. Lost profit on a job: In most cases the customer does not pay for the callback. Let’s assume the technician’s total time on the callback is only an hour (usually longer) which includes driving to the customer’s location, completing the job that was not done properly to begin with, and then driving back to the office or to the next call.  That is an hour of time at $190 per hour the tech worked, but the customer did not pay for.  Cost to the company = $190
2. Lost potential income: The hour we “lost” doing the callback could have been used to make another profitable call.  The “lost income” was $190.
3. Total Loss: That means the one callback has a net effect cost to the company (between the lost profit on the initial call and the lost income on the call that could not be made over the same period of time) of $380 dollars.

Overall Impact

If a tech has three callbacks per month, at a cost of $380/each, the cost to the company over a period of a year is $13,680 ($380/call x 3 callback a month x 12 months).  The $13,680 ASSUMES the tech hits the industry KPI of 2.75% callbacks.  It the tech has an average of 6 callbacks a month, the loss doubles to $27,360/year!!! Ouch! Callbacks can truly be the difference in the company making an overall net profit in service……or not!  Remember the loss of $13,680 was for ONE service tech.  If you have two service techs the number doubles and three techs will triple the number!!!!

Customer Dissatisfaction

The final impact is customer dissatisfaction.  Retuning for a callback upsets the customer as they have to be inconvenienced by having the tech come a second time while, at the same time, endure the effects of the equipment not working.  Frustrated customers sometimes go elsewhere the next time they need service. That equates to a lost customer.  Also, remember the schedule had to be adjusted back at the office to accommodate the callback.  Bingo, now the scheduled customer that was to be serviced must be called and “rescheduled” for the repair.  Again, we have irritated our VALUABLE customer base.

Consider the ways you communicate within your company.  In all likelihood you meet with people directly, call them on the phone, email or instant message them from your computer, smart phone or tablet.  You’re probably also using social media platforms such as LinkedIn and Twitter.  We now have more ways than ever before to communicate with our networks.  We not only have the capacity to communicate clearly and effectively but to be misunderstood as well.

Too Much is Not Good

The Huffington Post published a comical, yet interesting article featuring the six ways you can offend, anger and annoy your coworkers via email.  Not surprisingly to those of us who study behavioral science, the number one and number two offenders were “sending a novel” and “sending a two-word email.”  Think about the last few emails you’ve sent.  Have you considered that your lengthy message discussing your position on a current issue might be better received face-to-face where everyone involved can provide input?  While you may feel your robust, yet professional, communication is effectively laying out your opinion, think about the conversation that you might be encouraging or discouraging?  Whether the communication is occurring between team members or between employee and supervisor; there is the opportunity for you as the writer to come across as overly opinionated, controlling and even self-promoting.

Too Little is Not Good

The two-word emails can that you send when you’re in a hurry can perhaps cause more unnecessary stress on an employee-supervisor relationship – particularly if the employee is on the receiving end of a brief response.  Picture a new employee spending a number of hours on a project, and her proposal comes back from her supervisor via email with two words: “It’s fine.”  From the supervisor’s perspective, that’s all that needs to be said.  The work is good, and there’s too much in his department that needs to be done.  The supervisor is happy with the proposal and wants his employee to get going on the project, not realizing that his abrupt response of “it’s fine” may cause his employee unnecessary stress.  “Is it just fine?  Do I need to improve it?  Is my work meeting his expectations or not meeting his expectations?” — These are just some of the concerns that can easily sprout from a simple, two word email, particularly if the employee prefers more in-depth responses.

There are very few businesses today not using email to communicate internally.  If you manage others, what can you do to ensure your team is communicating effectively with each other?  While the Huffington Post article pointed out a few of the more common e-communication culprits, there’s so much we can learn about our own communication style (and the styles of our employees) that will help us be more effective in the workplace.

How many callbacks are acceptable for a service technician? That is a good question. If the tech is properly trained and their vehicle is properly stocked, the simple answer is none! The job should be completed properly the first time, every time. But is that realistic? No, because manufacturing is not flawless.

From a statistical standpoint we know that about 2% to 2.5% of all parts manufactured fail simply because of mass production. That means our Key Performance Indicator (KPI) for callbacks is 2.75%. If a tech goes on 100 service calls during the month, that means two or three callbacks are acceptable. If the callback percentage exceeds 2.75% we can be pretty sure the cause was not a part failure; it was more likely the failure of the technician to install the part properly.

Like all 24 KPI’s for the service department, a callback goal needs to set, and performance against that goal needs to be measured. When specific goals are set, the tendency is to not only reach the goal, but to exceed it. Outstanding technicians want their performance to be measured, and they want to be rewarded for having done an outstanding job.

But, herein lies the problem. Tracking total callbacks by tech is not a tremendously difficult task. If they are sent on a callback, the callback can simply be noted on their timesheet. However, just because a tech went on six callbacks during the month does not necessarily reflect the true picture. What if the callback was created by another technician? What if John improperly installed the part, but William was sent out to fix it? Another situation that often happens is that the installation crew failed to do their job properly, but the service technician is the one sent out to fix the situation. Knowing our tech went on six callbacks during the month is not enough information to evaluate his or her performance.

When we analyze our tech’s six callbacks we might find that three callbacks were initiated by the installation department and one callback was caused by another service technician. That means our tech, with six callbacks, actually did an outstanding job for the month. He only had two callbacks that he created, and the reality is that those two callbacks were probably related to part problems, not his failure to install the part properly.

Remember, service should be the most profitable department within your company, yielding a 20% net profit or better! However, that is often not the case. The primary reason for poor profitability in the service department is often the inability to properly manage the techs.