Traveling to your client is the only way you can perform the services you offer. That travel costs you money. Once you are at the customer’s location, the time you spend discussing their request costs you more money. There are only two sources from which those costs you incur can be paid: you or your client. Who should pay?
The answer is simple. Legitimate business costs must always be paid by the customer. Logic dictates, as a PHC service contractor, you should charge your clientele a minimum service call charge so you can recover those costs and afford to service their needs. That service call charge can be waived if you get the job and include your travel costs in the price you charge for the task.
If you don’t charge your clientele, you eventually will run out of the resources necessary to deliver excellent service. When excellence diminishes, mediocrity rises and the value customers receive fades. Then, your reputation as a contractor who delivers excellence disappears. Customers are left with less value for the dollars they spend on your services until they decide not to avail themselves of your devalued services anymore.
Your Vehicular Cost
Let’s look at the cost of a service vehicle. For example, let’s assume the following vehicular costs. You paid $30,000 for a truck inclusive of racks, shelving, tax and financing. The vehicle lasts five years, which makes your vehicular replacement costs $6,000 per year. Your insurance expense is $2,000 annually. Registration, vehicular inspection, oil changes, tire replacement and other maintenance and repairs not covered by warranty cost $1,200 yearly. You put 15,000 miles on the truck every year; get 12 miles to a gallon of gasoline; and pay $2.50 a gallon—an unpredictable expense—for an annual fuel expense of $3,125.
Your annual vehicular expense for one service vehicle under those circumstances would be $12,325. If your costs were more, the number would be greater. Although any of these expenses may vary, I don’t believe the costs in totality will be less. You might keep your truck longer and/or buy a used truck. But then, repairs and maintenance costs would increase dramatically. And, when you consider that down time due to repairs will not allow you to bring revenue into your business, your costs will further escalate.
To determine vehicular costs per hour, you must also realize there are only 1,708 maximum sellable hours per technician in a 40-hour/52-week year when you consider two weeks for vacation, six holidays and one nonrevenue-producing hour per day. Now, ponder the fact that, other than the liars, no contractor sells all available tech hours all the time. That means if your cost is calculated based on your maximum available tech hours (which it should be), your cost is really greater on a per-hour basis, depending on the amount of hours actually sold.
Figure 1 indicates the minimum annual vehicular cost to your business for one vehicle in totality and per hour, dependent upon the number of hours you sell in a year. (This figure is approximate, due to computer rounding of numbers.)
If you dispatch yourself or an employee to a customer's home or business for a repair, replacement, maintenance, service or estimate (which takes one hour, inclusive of travel time), you have, at minimum, incurred a vehicular expense between $7.22 and $14.43. And, that figure does not include your other related expenses for labor and overhead; these must be added to your travel expense to truly determine the amount it costs you to initially address a customer's request.
Your labor and overhead expense
In the U.S., it minimally costs contractors between $100 and $250 per hour for labor and overhead to have one qualified tech in a service vehicle if 100 percent of available hours are sold. When we take into consideration the minimum vehicular expense of $7.22 when all hours are sold, that range of other related labor/overhead costs must be altered to between $92.78 and $242.78.
Average travel time to your client is at least 15 minutes, but it's probably more. Speaking with your client regarding their request is at least another 15 minutes. If those times are greater, your cost will be higher. Figure 2 indicates the minimum cost to you to send yourself or an employee to the customer’s home or business to address their request for a repair, replacement, maintenance, service or estimate. The numbers are based on the aforementioned $100 to $250 labor and overhead cost range, inclusive of travel time.
As you can see, it minimally costs you $50 to $250 in travel to speak with the customer about their request. If you are a contractor who gives free estimates, wake up and smell the coffee. There is no such thing as a free estimate. Somebody has to pay!
The money you lose
By not charging a minimum service call charge, you shortchange your business, yourself, your family and your employees. Figure 3 shows the least annual amount of the shortchange at the minimal costs shown in figure 2, if you did not charge customers the cost you incur for one “not-so-free” estimate per workday, based on 244 tech workdays per year.
If you give more than one “not-so-free” estimate per day, the amount you shortchange your business will be greater than shown in Figure 3.
You must decide if you or your customer pays for the costs you incur. As a coach who shows contractors how to attain the Contractor Profit Advantage, I know you should charge a minimum service call charge. Not charging a minimum service call charge is a disadvantage to your business.
If you don’t charge a properly calculated minimum service call charge, don’t moan and groan about a lack of funds or not maximizing your revenue potential. Proceed to the nearest mirror and ask the person you see why your business isn’t charging a legitimate fee for the recovery of resources spent on behalf of customers.
As a business tool to help you, I created my Readily Available Pricing Information Digest, which is customized to your labor/overhead cost factors. It provides you with selling prices inclusive of the aforementioned travel/discussion time spent with customers for the first task of a service call. It also includes selling prices for each additional task of the same visit—which do not include travel time, since you are already there performing the first task.
If you need assistance arriving at the costs you really incur so you can enjoy your Contractor Profit Advantage; any contracting business coaching; or to order my Readily Available Pricing Information Digest, give me a call. ;
Richard P. DiToma has been involved in the PHC contracting industry since 1970. He is a contracting business coach/consultant and an active PHC contractor. For information about the Contractor Profit Advantage or to contact Richard, call 845-639-5050; e-mail firstname.lastname@example.org; mail to R & G Profit-Ability, Inc. P.O. Box 282, West Nyack, N.Y., 10994; or fax 845-634-7236.