You may remember Elijah in the Bible. He prayed that it would not rain and in fact it did not rain on the face of the earth for three and a half years. After the three and a half years were over he prayed that it would rain. After praying he sent his servant up the mountain to look for a rain cloud. The servant came back twice saying there were no clouds. Elijah then sent him a third time and this time he noticed one small cloud far on the horizon. Before lone it began to pour!
Guess what, technician productivity is very similar. Few have paid much attention to it over the years. But like the servant, I am noticing a small cloud on the horizon. Contractors are beginning to recognize the direct relationship between technician productivity and the bottom line profitability of their company. First, let’s review a bit of history.
Thirty years ago if you just showed up on time, and did a really good job of fixing the problem, you could make a nice living. Not so today. Today's owner needs to understand the “business side” of their business, provide outstanding customer service, and adapt to the new world of marketing through their website and social media. Really sharp contractors are also noticing the need to track technician productivity. Why, because of the cost of non-billable time is huge! Non-billable time is any time you pay the technician for that you cannot directly charge the customer for. That includes shop time in the morning and afternoon, travel time between jobs along with sick, vacation and holiday time. Then throw in callbacks, customer no shows, warranty work and a few hours of “Hey Bill, can you put up the inventory that just arrived, fix the van, or deliver this or that.” Bingo, the average service technician has 50% non-billable time.
Let's make the point clear by putting some numbers together for just one service technician. Let’s assume the techs base hourly rate is $23.00/hour, to which we must add at least 10% for company matching taxes, so John Doe is costing us $25.00/hour in round figures. If his non-billable time is 50% that means the companies cost of non-billable time is roughly $26,000 for the year ($25/hour x 2,080 hours per year x 50% non-billable = $26,000). The $26,000 is an overhead cost that must be figured into the hourly rate. If John actually bills out a thousand hours a year that means the cost of his non-billable time alone is $26/hour. Yes, that is a lot of money!
Now for the sake of discussion, let's say the service department should be bringing in $165 for every hour they bill out ($125 per hour for labor, plus $20/hour in parts cost which is marked up an average of 100% = $165). If the company could reduce their non-billable time by only 10% they would win in not one, not two, but three ways.
- Reduced Overhead – The technician’s non-billable hours would be reduced by roughly 100 hours per year. At a cost of $25.00/hour that reduces the companies overhead by $2,500 for the year.
- Company Overhead Spread Over More Hours – Adding 100 more billable hours per year allows the current company overhead to be spread over an additional 100 hours. That would reduce the cost per hour of ALL the hours billed out by all service technicians.
- Additional Gross Sales – Reducing non-billable hours by 100 means creating an additional 100 BILLED hours at $165.00/hour resulting in additional gross sales of $16,500.
Bingo, the light has come on! Tracking, and reducing, service technicians non-billable time will create a huge amount of additional bottom line profit.
The trend of becoming more aware of non-billable time is taking hold within the industry. There are all sorts of programs that now track technician time, in the real time mode, via cell phones and/or ipads. Wise contractors are now doing several things:
- Setting Specific Goals – Through the budgeting process contractors are now setting specific goals for their service technicians in terms of the number of “billable” hours that need to be charged to the customer on a daily basis.
- Measure Productivity Against Goal – A goal is of little value if productivity is not tracked to see how the individual technicians are performing. That means systems need to be put into place to measure productivity.
- Rewards – Technician, like everyone else, will always work harder if there is a “what’s in it for me?” carrot somewhere. Therefore the final step is to reward outstanding performance.
When service technicians productivity increases profits increase as well which is why top quality contractors are now beginning to “trend” towards taking a good look at the costs of non-billable time while at the same time putting systems into place to set goals, track progress and reward outstanding performance. It’s a win-win for everyone.
Latest posts by Tom Grandy (see all)
- How Long Can Your Company Survive Without Income? - November 6, 2017
- Technician Productivity Is Moving to the Forefront - August 28, 2017
- Technician Productivity Is Moving to the Forefront - May 11, 2017