Grandy

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.

Many of you have heard Bill Farrell’s true story known as “Give ’em the Pickle.” Bill’s customer had been coming to his restaurant for lunch for over three years and he always ordered the same thing. Let’s read the letter Bill received for a customer as it appears on Bill’s website at www.giveemthepickle.com .

I’ve been coming to your restaurant for over three years. I always order a #2 hamburger and a chocolate shake. I always ask for an extra pickle and I always get one. Mind you, this has been going on once or twice a week for three years.

I came to your restaurant the other day and I ordered a #2 hamburger with a chocolate shake. I asked the young waitress for an extra pickle. I believe she was new because I hadn’t seen her before. She said “Sir, I will sell you a side of pickles for $1.25.” I told her, “No, I just want one extra slice of pickle. I always ask for it and they always give it to me. Go ask your manager.”

She went away and came back after speaking to the manager. The waitress looked me in the eye and said, “I’ll sell you a pickle for a nickel.” Mr. Farrell, I told her what to do with her pickle, hamburger and milk shake. I’m not coming back to your restaurant if that’s the way you are going to run it.

The story illustrates a common problem and the point is obvious. Create a happy customer at almost any cost, and be sure the customer service message is properly conveyed to each employee. However, to make that happen, a couple of things need to be in place. First, funding needs to be in place to cover the cost. Second, an internal training program needs to be in place.

When a company determines what they need to charge per hour to cover costs while generating a reasonable profit, the first step is to determine what it costs to run the business. Those costs include rent, utilities, insurance, and many other very real costs of doing business (including your salary!). Anything and everything the company expects to spend over the coming 12 months needs to be included in what is known as overhead costs. The money to fund the cost of “pickles” (or, in your case, whatever it may cost to retain happy customers), needs to be included as a cost of doing business. For most companies, the cost of customer retention runs about 2-3% of gross sales. That means if your gross sales are around $1 million a year, the company needs to include an additional $20,000 to $30,000 in it overhead costs when setting their hourly rate. If you have eight service techs who bill out an average of 1,000 hours a year, that would amount to an additional $ 3.13/hour ($25,000 / 8,000 billable hours = $3.13/hour) in your hourly rate.

Now it’s time for training. When it comes to training, it’s a lot like raising children. How many times do we, as parents, do a great job of training our first three children … and then number four comes along. What happens? We have spent so much time training the first three that we “assume” we have taught number four as well. Ok, maybe we didn’t sit down and train number four, but surely he or she picked it up from the first three, right? Well we all know what happens. Number four never really gets the message; we just “assumed” they knew what to do … until things don’t work out as planned.

The same thing happens when it comes to our employees. We have taught the principle, or process, for so many years that we simply assume the new employee somehow picked up the training when, in reality, he or she didn’t. Then what happens? Our customer asks for a pickle, and the new employee drops the ball and mishandles the situation.

Training needs to be constant and consistent to ensure the proper message gets to every employee within the organization. Part of that training involves empowering each employee with a budgeted amount of money to create, or retain, happy customers. That includes the tech in the field through the accounts payable person. Many of the major Five Star hotels provide a budgeted amount of money for every employee, including the janitor. If an employee happens across an unhappy customer, for whatever reason, they are empowered to give them something. That something may be a gift certificate, a free dinner, a room upgrade, or even a free night’s stay. In extreme situations it might involve sending a gift basket to their room with an apology for whatever might have happened.

If your tech shows up late for a call, they might reduce the bill $20 or waive the diagnostic fee. If the customer complains about a charge, the receivables person has the authority to waive part of the fee. Maybe the tech messed up the customer’s carpet. Can you imagine the startled look on the customer;s face when the office calls and says, “Mrs. Jones, we understand Bill accidentally tracked grease onto your family room carpet. When would a good time be for XYZ Carpet Cleaning Company to come to your home to clean your carpet?” How many people do you suppose Mrs. Jones is going tell about that call?

It’s not just about keeping the customer happy, although that is very important. It’s also about future cash. In one of our classes we talk about the future cash flow generated by a happy customer over a 14-year period. Between their annual maintenance agreement, a service call once a year, a major repair every seven years, and their referral of at least one new customer, it amounts to over $20,000 in gross sales. What’s the point? Don’t cut off $20,000 in future cash flow over a $45 service call! Give them the pickle!

Be sure to set hourly rates based on your increased costs of doing business, which should now include money for customer service situations. Also make a note to hold a class on customer service for all your employees to be sure the message is received loud and clear!

If you are a company owner, inventory is important to you. If you don’t have the right parts in stock the result is an inefficient service call that often results in a callback. What’s the solution? You put an inventory system in place. Someone records what’s needed, and the order is placed. Knowing what you need, and when you need it, is important. To remember what needs to be ordered requires making a physical list, if you are a small business. If you are a larger business you might have inventory software, but the principle is the same. A list of what needs to be ordered has to be kept in some form or fashion.

We all want to increase our add-on sales, right? Service technicians are typically in roughly 1,000 homes per year. While you’re in the home, take inventory. Create a checklist, depending on the trade you may be in. For HVAC contractors, the list might include the age of the equipment, making note if they have an air filtration system, or if they are in need of an updated thermostat. Plumbing techs will want to note the size and age of the hot water heater while electricians will want to note the age of the panel and/or the need for added capacity.

Create a checklist of what your customers do not have but might need. Keep it simple by creating a standard checklist that the tech fills out while on the call. Be sure to provide space where the tech can enter unique needs for a specific customer.

The next step is to have a system set up for keeping track of the data. If you have a detailed customer base program then enter the data directly into the customers file AND keep an overall list of your customer’s needs.

As time goes on do a bit of marketing. One area of marketing might be a direct mail piece to customers covering their specific needs. Another idea would be to create a simple one-page flyer that can be handed to the customer on each call. The flyer might feature a discounted price on a specific product. It could be your Special of the Month. The tech would obviously have the product on his, or her, truck so it could be immediately installed while the tech is on site. Create a simple flyer in your computer and print it in the office.

My dad always told me that if you want to be successful, then find a need and fill it. That is what this program is all about!

*Published with permission in the February, 2015 newsletter*

The great statesman Benjamin Franklin once said, “When you are finished changing, you’re finished.” And even though it’s been 200-plus years since he uttered those famous words, they still hold true — especially in today’s business world.

Long standing ideas about how to lead a team are no longer viable. Workers won’t stick around for a bad boss these days, no matter how much they’re paid. They want to be motivated and inspired. So, how can you ensure that you’re functioning as an awesome leader? Start by avoiding these common, but mistaken, leadership beliefs.

The Myth: They’re inspired by their paycheck. As the owner of your company, you have the power to change lives. After all, you’re the person signing the paychecks. Everyone should be happy, and even grateful, to do their jobs with no questions asked.

The Truth: Great leaders know that power comes from persuasion, not position. Simply offering a paycheck, or intimidating workers by holding their jobs over their heads will not make them more productive or creative. Leaders who take the time to communicate, support and encourage earn loyalty and respect from their teams.

The Myth: No news is good news. Your team doesn’t need to know when something bad happens. If sales are down, they’re going to become scared and maybe even leave. As a matter of fact, they can’t be trusted with any sensitive news — good or bad.

The Truth: Winning organizations have a culture of communication. Your team wants to know what’s happening and why. Sure, there’s some information you can’t share. But when you have the right team members on board, you can trust them with almost anything. Make a habit of over-communicating. Your team will respect you for it even more.

The Myth: You can’t find good workers anymore. Today’s generation doesn’t listen. They lack initiative, and they never show up on time. They want the world handed to them.

The Truth: You’re probably not good at finding and recognizing talented, responsible workers. Think there are no young people who are willing to do an awesome job? Look at Chick-fil-A. The company has thousands of them. Part of being a good leader is knowing how to hire. You have to be willing to wait for the perfect person — one who shares your values and work ethic. At Dave Ramsey’s company, team members are interviewed four to six times, and the process can take three or four months.

Becoming a great leader is not easy. It’s a skill that needs to be developed, and it’s one that takes time, patience and a willingness to learn and improve one’s self. But if you’re willing to put in the hard work, you’ll find yourself with a team full of talented, passionate people — a team willing and able to slay dragons right alongside you, and do whatever it takes to win.

It’s definitely worth the wait!