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You may not believe this, but the average service tech underbills the customer anywhere from $10 to $30 per hour. You're probably thinking that can't be true because if so, then your techs cost your service department anywhere from $10,000 to $30,000 per year. Unfortunately, that is reality.
The question is how can technicians underbill the customer? If you are still charging the customer by the hour, underbilling is easy to understand. The tech was on the job for two hours and 15 minutes, for instance, but may only write down two hours on the service ticket. Or perhaps the tech used three parts on the repair but only wrote down two on the bill. Lastly, the tech should have marked the parts up 80 percent but only marked them up 50 percent. As stated, underbilling is pretty easy to understand if you are charging by time and material.
Perhaps you realized the underbilling problem when you were charging by the hour. The solution seemed simple enough: switch to flat-rate pricing. The price is written in black and white in the book so your firm couldn't underbill the customer—right? Wrong.
Actually underbilling is just as big a problem when the company is on flat-rate pricing as it is on time and material. The source is different but the end result is the same: you are still underbilling the customer by $10 to $30 per hour!
The average tech performs 3.2 repairs per service call. However, the average number of flat-rate repairs listed on the ticket is only 1.5. Why is that? It comes down to the thickness of your flat-rate book. Most exceed 1 to 2 inches, which means there are lots of repairs listed.
Put yourself in the techs shoes. The tech completes the repair/s and now it is time to fill out the job order. The flat-rate book is thick and the tech may not be familiar with it. In addition, the office is pressuring the tech to get to the next call. The tech's solution could be to just mark up one or two of the repairs and move on.
Hence, when he missed a repair in the book the company lost the labor, parts, parts markup, overhead cost and profit. If that happens several times a day, then your situation is one in which the techs underbill the customers by $10,000 to $30,000 a year. What's the solution? Conduct flat-rate drills in your service meeting—and on a regular basis.
Underbilling exercise
To find out if you're company under-bills or not, perform this simple exercise:
How much "should" your tech charge for every hour on the job? To find out, add the hourly rate you charge (time and material or the internal rate if you are on flat-rate pricing) to the average parts sales per hour. Average parts sales are about $21 per hour. Now add the average markup on those parts which again usually averages 100 percent. Lastly, add the trip charge or diagnostic fee if you are on flat-rate pricing. Assume your hourly rate is $125 per hour.
This means that a tech "should" generate $187 of income for every hour billed. Let's find out if that is the case. Take any period of time and for simplicity we'll keep it to one tech for the week. Look at your service tickets and add up the total income the tech generated for the week and divide it by the actual number of billed hours.
The tech's gross income for the week was $3,040 and he billed out 21 hours for the week. That means the average income per hour generated by the tech was:
$3,244 per 21 billed hours
= $154.47 per hour
Remember the goal was to generate $187 per hour, so how much is the example costing the company, in terms of under-billing, for a year? Let's assume the tech bills out half his time for the year or roughly 1,000 hours. This tech underbilled the customer by this amount:
($187.00 - $154.47) X 1,000 billed hours
= $32,530 for the year
It seems hard to believe that our tech underbilled the customer by $32,530, but he did! Check out the numbers at your office and see what you find out. The numbers may be staggering.
If you want to know to the penny which techs are underbilling and by how much, consider the new performance-based software program, ProfitMaxx. For more information, call Grandy & Associates or attend a free 30-minute Webinar. To sign up, register at www.GrandyAssociates.com.
| Hourly rate | $ 125 |
| Parts per hour sold | $21 |
| Markup of 100% on parts sold | $21 |
| 1/3 of the trip charge or diagnostic fee, which is $60 | $20 |
| Total projected income per hour billed | = $ 187/hour |
author: By Tom Grandy