The Tech Shortage is Really a Pricing Problem

By Tom Grandy, Founder

This is an updated version of an article that was published back in 2007.  Guess what?  Techs are still in short supply but it’s not a tech shortage problem, it’s a pricing issue. 

Have you talked to other contractors lately or perhaps attended a local or national trade association/conference?  No, I don’t live in the dark ages, I know there is a pandemic going on, therefore most conferences have either gone virtual or have been cancelled.  Humor me anyway and I will get to the point.  If you have been in any conference where contractors meet, the conversation soon comes around to techs. Most contractors are saying the same thing.  “We have more than enough work but we can’t find qualified techs.”  Guess what? It’s not just a problem in the plumbing, HVAC and electrical industry, it’s a problem within the entire trades industry! 

Now let’s switch our thought pattern a bit.  Let’s assume you paid your techs a base wage of $30-35/hour, paid all their medical, dental and vision insurance plus a 401K plan and a year-end bonus.  Then throw in another week’s vacation and let them earn education and tool credits based on billed hours.  Do you think you would have any problem finding a qualified tech?  If you were honest, you would say “No, we would have no problem finding techs if we offered that kind of a benefit package.”  As a matter of fact, if the entire industry offered those kinds of benefits, something else wonderful would begin to happen.  High school grads would be looking at our industry as a very viable career path.  At $30/hour that equates to $62,400 a year with GREAT benefits.  Who needs college! 

What kind of benefits does the average contractor offer his or her tech?  Usually the hourly rate is $18.00 – $25.00/hour and the company pays a portion of the medical benefits.  Vacations? Usually one week, and if they have been there a long time, perhaps two with a few holidays thrown in.  Are you noticing a difference in your company and the one described above?

Ok, I can hear you now.  “Great idea, Tom, but what contractor can afford to pay $30-$35.00/hour with all those benefits.”  Well let me ask you this.  Have you had an internet, copier or computer tech work on your equipment lately?  If you have, did you look at the bill?  The hourly rate was likely somewhere between $100 and $150/hour or more – and you paid it!  When AT&T, IBM and Microsoft set rates for their techs, they don’t just pick the rate out of the air.  They charge those rates because they have run the numbers and found out that they have to charge that much to cover their costs and generate a profit.  Guess what, so do you! 

At one of my full day labor pricing seminars recently, I did an exercise with the contractors – just for fun.  I asked each contractor to list all of the benefits they would like to offer their techs, just so we could see how much it would increase their hourly rate. The results were amazing.   To keep things simple, let’s do our little exercise, but let’s limit it to the service techs.  The principles however, are the same for all the departments. 

Let’s get started.  We will begin by increasing the hourly rate we pay the tech by $8.00 an hour.  That should get most of you in the $25.00 to $35.00 per hour range.  In order to put some numbers together, let’s further assume our hourly rate is now $30.00 per hour including the company matching taxes.  Now, let’s give the techs an additional week’s vacation at a cost of $1,200 a year ($30/hour x 40 hours).  How about holidays?  Let’s give them four (4) more holidays at a cost of $960/year (4 days x 8 hours/day x $30/hour).  Now for the fun part – insurance.  Let’s pay all the medical insurance for a family of four at a cost of $400 per month or $4,800 per year.  Dental and vision insurance will run another $200 per month or $2,400 for the year.  How about a 401K plan for retirement?  Let’s assume the company contributes $1,500 a year to the plan.  It’s Christmas time!  How about a year-end cash bonus of say $750?  Is this fun or what?  I can just see the techs coming from across town, from another city or perhaps even from across the country.  They are lining up at your door, waiting for the company to have an opening so they can be hired.  No shortage of techs here!

What else do techs like?  Well, everyone loves tools, right?  How about building in $1.00 per billable hour for an “earned” tool allowance. Let’s also build in $.50 an hour for education so the two will add $1.50 per billable hour to our rate.

So much for the benefits.  Now the question is:  How are the extra costs going to affect the hourly rate we charge the customer?  Let’s find out.  The first question is how many hours we have available to charge the customer.  The normal non-billable time for service techs is 40%-55%. To keep it simple, let’s assume we have 50% non-billable time.  That means of the 2,080 hours the company pays for during the year, it can actually bill out 1,040 hours, or half the time.   So let’s total the additional costs for the above benefits:

Raise in base hourly rate ($8/hr x 2,080 hr/year) —- $  16,640

Additional week of vacation ———————————    1,200

Four more holidays ——————————————         960

Medical insurance ——————————————-      4,800

Dental and vision ——————————————–      2,400                                                     401K plan ——————————————————   1,500

Year-end bonus ———————————————-         750

                                                              Total ———————  $  28,250

If we take the additional $28,250 and divide it by the 1,040 hours, we can bill the customer, it means the company will have to increase its hourly rate to the customer by $27.16/hour.  We are not quite through however since we need to add the $1.50 per billable hour for tool allowance and education which now makes our rate $28.66.  The range for the average service tech on a time and material basis is $60-$80/hour.  If we assume the current rate is $70.00/hour and then add our $28.32/hour for the extra benefits, the company will need to charge $98.32/hour.  “But Tom, my customers will not pay $98.32 per hour for service work.”  You may be right. So, what is your current alternative?  Right again. Switch to flat rate pricing.  The average internal hourly rate on flat rate pricing is $125-$175/hour.  If we switch to flat rate pricing, is our $98.32/hour rate a problem – NO!  

Let’s face it.  If we are going to solve the tech shortage issue in our industry, we have to offer the pay and benefits that will attract the best talent in the industry.  Our country’s economic system is based on the law of supply and demand. If the computer, internet and copier industries are going to offer the best pay and benefits, guess who is going to get the techs that are available? If the young people of the future are going to consider a long-term career in our industry, the pay and benefits are going to have to be there to attract them.  Bottom line-Do the math for your company and then see what changes you are going to have to make.  The question then comes up, “But Tom, if we all do this, then there will still be a tech shortage.”  You’re right, but we all know by experience that everyone will not run the numbers and few will increase their rates where they need to be.  Those that make the changes will attract the top techs and will go on to be successful and profitable companies. 

Are you having trouble convincing your techs and/or employees that you “need” to charge what you are changing?  If so, take advantage of this month’s first website special.  The streaming version our Why Do We Need to Charge So Much?  is normally $114.95 but this month it’s only $99.95.  This program will walk employees through the process of understanding why the company needs to charge what it is charging.  Order today!

If you prefer a shorter online version, of Why Do We Need To Charge So Much? check out our online version where the normal investment for this module is $39.95 but this month is $29.95.  Order today!