How to calculate ROI & increase profitability for technology SMBs
For small- to medium-sized business (SMB) leaders, calculating return on investment (ROI) and increasing profitability may seem like an elusive, complicated formula. However, a good ROI and rate of profitability for technology services companies is simply a combination of using data from:
- Service ticketing and tech time utilization
- Contracts and agreements
- Inventory management
- Quotes and proposals
The weight and responsibility of day-to-day operations may make you feel like you never have enough time to crunch any data. So here’s an easy but in-depth guide to help you break down the seemingly nearly impossible tasks of calculating ROI and increasing profitability.
Service ticketing and tech time utilization
Using service ticketing and tech time utilization to calculate ROI
IT services businesses likes yours spend the majority of their time on, well, services — from selling and installing equipment to monitoring assets and fixing issues in the field. Yet, service is often the least tracked process for SMBs.
For example, say you get a call for a customer reporting a problem, a tech is dispatched and eventually the issue is resolved. The tech might write down what work they performed and if they needed any parts. But did he track how long that service call took? How many different resources or trips were needed to find the resolution? Is that tech the best at fixing that issue? Was his time being utilized to its fullest? And didn’t that account just call you last week for the same issue?
These are tough questions that can add up to a lot of time and money spent. So how can you ensure you’re getting the best rate of return on each call or for your company’s services overall? Tracking service ticketing and tech time utilization is the most effective and efficient way to calculate ROI for SMBs. Let’s take a look at what information you need to track, how to collect that data and then how to analyze that data and calculate ROI.
Use a service ticketing and time tracking system to collect data for calculating ROI
First of all, you need a consistent system in place to track all of your service orders from start to finish plus your technicians’ time. Extensive paperwork filled out on the go and then turned in to office staff to be filed away used to be the standard, but now the industry best practice is to find a service ticketing software.
Here are the top 11 features to look for in a service ticketing software that will benefit your ROI:
Accessible both in the office and out in the field (i.e., desktop application and mobile app)
Account details and password keeper
Service ticket generation from customer emails
- Priority sorting based on contracts and agreements
- Real-time dispatch board and calendar
- Trip time and mileage tracking
- Technician time logs
- Reminders for unresolved issues
- Signature capture
- Automatic invoice generation
- Codification for sorting and analyzing
The biggest benefit of using a service ticketing and time tracking software is collecting all the necessary data to calculate ROI in one place. (Of course, cutting down on unnecessary, cumbersome and easy-to-lose paperwork and manual entry is pretty awesome as well.)
Analyze service tickets and technician utilization to calculate ROI
Once you have a service ticketing and time tracking system in place, you are ready to pull the data and calculate ROI. Here is what information you need to gather for each customer:
- Service calls:
- Number of service tickets
- Total time spent on resolving issues
- Active time (trouble-shoot, fix)
- Idle time (triage, dispatch, follow-up, etc.)
- Technician time:
- Billable activities
- The industry benchmark for utilization is that techs should be billing 80 percent of their time.
- Extra costs
Use this data to add up all of your costs. Then compare that number to how much your customers paid you, whether they have a contract, service level agreement (SLA) or service plan or simply pay per service call or project. The result of this simple (thanks to your service ticketing and tech time tracking software) equation is your ROI per account.
Now that you have calculated your ROI per customer, you can now see who is costing you money and make adjustments to contracts, your service call rates or costs for future projects in order to increase your profitability.
Contracts and agreements
Maximize ROI with recurring revenue model
Now that you figured out your cost per customer using service ticketing and technician time tracking, you know the accounts that are dragging down your ROI. Some of those may be your most loyal customers, and you’re worried that you can’t keep them at this rate.
Right now, all the control is in their hands. They determine when they need a service call or when they need new parts. That keeps you guessing as far as profits go. In order to maximize your ROI, you need to offer the same great service and products your customers enjoy now but with a different revenue model that keeps the money flowing your way. There are two long-standing, effective ways for technology service SMBs to generate recurring revenue: contracts and service level agreements (SLAs). Let’s look at how you can create and monitor contracts and SLAs in order to maximize your ROI.
Create contracts and service level agreements (SLAs) for best ROI
Not all clients are created equal, and you don’t have unlimited resources. So how can you make sure you prioritize your top clients while maximizing your ROI? The answer is to create contracts to provide different levels of service agreements.
Contracts and SLAs allow you to charge higher rates for faster guaranteed response and resolution times. This also helps your dispatcher and field techs prioritize service tickets. Here are five basic steps for setting up contracts and SLAs:
- Gather data: The best practice is to gather at least six months (but longer is better) of data to calculate what you should charge to ensure profitability.
- Choose the level of service to provide: Create your own internal identifiers for levels of accounts, such as Yellow, Orange or Red.
- Select the proper basis to track and rate: Standard options for IT services companies are time period, hourly, hourly usage, prepaid, metered, metered usage, multiple meters, units and incidents.
- Determine items covered: Contracts can include all parts and labor or can be based on certain usage and time limits.
- Set contract billing cycle: Parameters can be set to specific time periods, hourly, prepaid, metered, per unit or per incident.
When your customers have contracts and SLAs, calculating your recurring revenue stream is much easier. And, just as important, maximizing your ROI and protecting your profit margins are as simple as reviewing all contracts and SLAs on a consistent interval and adjusting rates accordingly.
Service automation helps monitor contracts and SLAs and increase ROI
By implementing the combination of customer contracts and SLAs along with a service ticketing and tech tracking software (see section above), you now have the right tools in place to maximize your ROI through the automation of processes.
Business automation not only saves you time but also maximizes your potential rate of return. Here are a few examples of automatic service ticketing workflows to set up based on contracts and SLAs in order to increase ROI:
- Usage: Receive a notification when a customer’s asset hits a usage threshold so you know when a device is being heavily used and/or when to schedule routine maintenance.
- Pricing increases: Escalate pricing by a percentage at certain time intervals, such as a 5 percent increase every 12 months so that your contract fees are keeping up with your cost increases and inflation.
- End of cycle: Get an alert when an asset is reaching the end of its warranty or a contract is about to expire so you can begin talking to them about possible upgrades or new sales. (This could also be part of the formula for boosting sales ROI.)
Effective inventory and asset management key to increasing profitability
As a technology services provider, your business depends on the sale and/or installation of items, including supplies, parts, equipment, machines, accessories, hardware and software. And this inventory is always on the move — whether it’s shipped from your distributor directly to your client or winds up in your warehouse, then on one of your trucks, staged at your office and finally installed at your client site.
This is a complicated supply chain, and you need to be able to effectively track and manage your inventory in order to not only calculate your ROI but also ensure you’re able to continue increasing profitability.
The first step is protecting your profit margins. And how you ensure profitability is to have an effective inventory management system in place that can tackle the top six inventory challenges for SMBs:
- Multiple inventory locations: Warehouses, stores, work trucks, etc.
- Technology lifespan: Some items become obsolete quicker than others, especially in the technology industry.
- Sales and invoice control: Field techs must keep track of all used items or risk giving away valuable inventory.
- Customer service: Maintain set inventory levels so you aren’t left empty-handed when a customer has an urgent need.
- Pricing: Stay up-to-date on your vendors’ prices in order to value your merchandise appropriately.
- Loss prevention: It’s a tough subject, but you need to be able to quickly identify and deal with employee theft.
But inventory management isn’t just the responsibility of your warehouse manager and field techs. Inventory is truly something that impacts your entire company. And it’s a team effort to help increase profitability.
Sure, you have all of these literal moving parts, but you also have many people inside and outside of your organization “touching” them — from the service department who identifies the need and places the order, to the sales department who quotes the client, to the inventory department that tracks the shipments and logs the delivery, to the field technicians who build or install and, of course, the accounting department who sends the invoice and processes the payment.
Here are some examples of how effective inventory management throughout your entire organization can increase profitability:
Real-time monitoring of inventory levels allows your service department to anticipate purchasing needs well ahead of time and save on rush shipping fees — and avoid angry customers waiting on must-have parts.
On the flip side, long-term inventory usage data helps your service department identify the most-used items and keep a lookout for sales from vendors and order them at their lowest cost. You still sell the item at your normal rate, which increases your profit margin.
Let’s be honest. Your sales team mostly cares about looking good and getting the correct commission. With effective inventory management, they can see at a glance what items are in stock, avoiding the embarrassment of accidentally selling an item not available.
Plus, commissions can be easily calculated down to each item. Your sales folks will know exactly how much they can discount in order to still make money for themselves and for the company. No losses for you and a deal for the customer is a win-win.
Dispatching field techs to your customers’ locations without the right materials or only to have them need more/different parts is a waste of time and money. But if your techs can access inventory at any given moment, they can check their vehicles ahead of time for the items or quickly put in purchase requests on the go.
And if items have a warranty, your techs can anticipate the necessary materials or suggest routine maintenance before an issue arises. This translates to less trips and more money saved.
Your finance people love their accounting software. (Almost in a creepy way.) But they absolutely hate dirty data. It defiles their clean system.
With inventory control, they not only have the right data but also the accurate data they need to calculate expenses paid, cost and profit margin for just one item to be delivered/installed to a customer. It makes them giddy. And the only thing better than a giddy accounting department is how they use inventory data to calculate profitability on a customer-by-customer basis.
Remember that giddy accounting department? When they calculate profitability down to each account, they can tell you which customers are making you money and which are costing you money. From there, you can direct resources accordingly to make adjustments across departments and increase profitability.
You can also rest assured that only the minimum stock is kept on hand while customers still receive the same effective and efficient service they expect from your company. And that all goes back to inventory management.
Quotes and proposals
Build quicker, more accurate quotes and proposals to boost ROI
The faster you bid on jobs, the faster you can win business, do the work and collect payment. But you can’t just throw together a guestimate and expect to make money. To ensure the biggest possible ROI for your hard work and time, you have to know your costs and be able to figure in profit margin. And you need to be able to do that quickly. Time is money after all.
With an effective inventory management system in place (see section above), you already have one of the key ingredients for building quicker, more accurate quotes and proposals. Just as important are updated costs for parts and labor and professional, customizable templates.
Let’s explore how you can calculate ROI and increase profitability during the quote and proposal process with each of these building blocks:
- Real-time costs for parts and labor
- Effective inventory management
- Custom business proposal templates
Real-time costs for parts and labor translates to increased profitability
Have you ever put together a quote or business proposal and realized later on that your costs were outdated and now you’re going to lose money on the job? What a gut punch.
How you ensure your quotes or proposals will be profitable and boost your ROI is to have a system in place for constantly updating costs for parts and labor. You could try to use spreadsheets, but that would be very time-consuming and require a lot of manual entry. The technology industry best practice is to use a real-time price book like Etilize with access to top technology vendors — such as Ingram Micro, Tech Data or Synnex.
With a real-time price book, the information for every item is constantly being refreshed so that you can pull the items you need at any time and know the price is accurate. Plus, you can adjust the profit margin for each part so that the final cost that shows up on the quote or proposal guarantees you are making money.
Plus, many real-time price books allow you to add labor rates to certain items so that separate or combined (you choose) line items for parts and labor are attached automatically to your quotes and proposals. This requires a little upfront work to figure out time requirements for installation for each item but saves a lot of repetitive steps down the line.
Your business proposals and quotes will never be outdated, unprofitable or gut-wrenching again. How great does that sound?
Inventory management produces more accurate quotes
Once you secure items through a real-time price book, the next step toward building quicker, more accurate quotes is inventory management.
A big part of the business proposal process is impressing your client with your service, products and price. But you can kiss any goodwill goodbye if you end up trying to sell or install something you don’t have or quote too high of a price. But you also don’t want to hurt your own profitability. This is where inventory management and asset tracking comes in.
Accuracy is paramount on a quote or proposal to guarantee the highest rate of return. And with inventory, being able to track your assets — serialized or not — in real-time is how to guarantee that the most accurate information will be included on the quote, which in turn will help you calculate your ROI.
For example, say you have 20 routers that you purchased at a discounted rate from your vendor but still have 10 of the same router at full price in your warehouse. Your profit margin on the sale and installation of that router will change based on which group you pull that router from. If you’re trying to land a hot prospect, you could use the discounted routers in your price to make your bid look more attractive while not hurting your profit margins.
Without an effective inventory management system in place to ensure accuracy down to each and every item, you might be missing out on higher profits.
Custom business proposal templates key to boosting ROI
When it comes time to put all of your information into a quote, you could try to throw together an Excel spreadsheet or Word document with your logo at the top and just do a little “SAVE AS” for each new proposal.
But you already put a lot of time into collecting all of the accurate parts and labor costs and inventory availability information needed to build a quote. All of your hard work could be wasted if your final proposal doesn’t capture all of the right information or looks unprofessional.
To ensure the highest possible profitability and boost your ROI, find a business proposal software that allows you to create customizable templates.
After a little set up on the front end to connect to your inventory management system, a business proposal software will allow you to insert the real-time cost of your parts and labor and specific — serialized or not — assets with very little or no manual entry. And less manual entry means your quote will be less time-consuming to create and more accurate. Just like how your field technicians can provide better and faster service the more they experience a similar issue.
Plus, you can customize the business proposal template to reflect your company’s brand with the right logo (not stretched out or misplaced), fonts and color scheme. You’re providing advanced technology services and products. Reflect that professionalism and expertise in your quotes and you’ll boost your ROI.