The amount of time your team spends servicing a customer’s account—whether that’s in the field or over the phone—has an enormous impact on service contract profitability. But how do you know you’re charging correctly for your technicians’ time? After all, you are in business to make a profit.
If contract profitability keeps you up at night, we have a tool to help you measure the impact a couple of simple changes can have on your bottom line. But before you start crunching numbers, let’s review the concepts of minimums and rounding when your technicians answer the call.
Minimum billable time increments
Any time your technicians spend helping customers outside of the contract commitments should be billed, and the contract should contain a minimum billable time increment. This is important as there are costs for your technicians’ time that you incur long before they reach the customer’s location. Travel time, discussions on the phone prior to the site visit to narrow down potential problems, and actual time working on a fix all adds up. It is common to charge for 30 or 45 minutes per incident, even if the technician is on-site for a shorter amount of time.
Rounding minutes for service work
Well-designed service contracts also use the principle of rounding. This results in logging service work in set increments. Rounding up to the next highest 15-minute increment is common. For example, if a technician takes 33 minutes to complete a task, applying rounding rules means you will charge for 45 minutes of service. Combining minimums with rounding is an excellent way to ensure the best possible contract profitability.
Running some numbers
Let’s look at 3 scenarios based on the same service call. The assumptions we will use for the example:
- Service technician hourly costs: $50/hour
- Service technician hourly billable rate: $100/hour.
- Increment for rounding (in minutes): 15
- Minimum billable time: (in minutes): 30
Using a series of service incident lengths and frequencies, we calculated the service margins and profit based on unrounded entries, rounded entries with no minimum, and rounded + minimum. By applying these levers, service margins went from 50% to as high as 79%.
Okay, but how will making these adjustments impact your business? Find out! Download your FREE calculator, fill in the values that best represent your business, and start working on the scenarios. Incorporate what you learn into building a business plan focused on fairness and profitability which will benefit both you and your customers.
For more ideas on how to help your technicians more accurately track their billable time, check out this helpful article.