affected by your sales mix . However , even more important is setting the proper target for each category of revenue . This is particularly important when your costs are rising rapidly due to inflation and supply chain issues , as they have been in recent years .
The next thought for many dealers is , “ yeah , I could raise my labor rates and GM rates , but won ’ t I lose customers ?” Yes , you may lose a few jobs here and there , however the increased profit on the jobs you maintain will far outweigh the lost profit on highly price-sensitive jobs . In fact , based upon the industry shortage of techs , we often see dealers paying significant overtime to keep up with their backlog . In these cases , they get the double benefit of lowering their overtime expense while making more revenue overall .
We already covered an example of the impact of an increased GM rate , so we will now cover a labor rate example . For a sample company , let ’ s assume a fully burdened hourly labor cost of $ 185 and a target labor margin of 30 %. That translates to an hourly labor rate of $ 264 . So , if a business has 5 full-time techs and is charging a labor rate of $ 199 / hour , they are losing over $ 380,000 / year ! This includes a conservative assumption of -10 % loss of business due to raising their labor rate . Yep , this is a big deal .
Minimizing Downside Impact
There are two key cost drivers that every Service department should track and optimize , chargeable callback ratio and excess calls on equipment covered under a contract . Chargeable callbacks are unintended repeat visits to the same home within 30 days for a related issue , whereas excess calls are for unrelated issues .
Both of these costs can quickly eat away your profit if you are not closely managing them . Many chargeable callbacks are limited in what can be billed to the customer and some are not billable at all . While excess calls covered under a contract may be billable , the coverage limits profitability and , in extreme cases , the labor and travel costs can turn the contract into a loss leader in just a month .
We have seen some instances of doubledigit visits to the same home within 30 days . At a cost / visit of $ 75 , a $ 299 service contract with limited billable work can be upside down by more than $ 450 in just a month . With the service exception reporting we provide for our clients , they are able to proactively minimize the biggest losers and grow their profitability . Even without extreme cases , the annual cost savings can be significant solely based on the volume of total calls .
Maximizing Upside Opportunity
Similar to cost , there are two key revenue drivers that every Service department should track and optimize . In the case of revenue , however , the drivers are more related to process vs . metrics . First , your Service department can benefit from an effective system for consistently crossselling excess calls into new installations . Not only does this reduce the cost of excess calls , but it also increases your billable hours . If you have also raised your labor rate , as noted above , there is a compounding effect on your revenue growth . An added benefit is that your workforce productivity will increase , and you can complete more jobs in the same amount of time , when you are not constantly fighting fires associated with excess calls .
The second vital piece of Service department upside is an effective system for delivery drivers and service techs proactively asking customers about the maintenance of their equipment . As the face of your company and your customers ’ trusted advisors , your frontline workers are a valuable asset for growing your service department . Dealers who structure this system with the proper training and accountability systems , can grow significantly while also cutting advertising costs .
Conclusion
As you can see from the five sections above , there is tremendous potential for profit growth within nearly every Service department . In fact , after taking a brief survey within our Angus Energy team of industry experts , averaging 20 + years of experience , none of them has ever seen a company that is doing everything perfectly . There are some companies doing very well in all areas , however this group represents 10 % or less of the industry . For the remaining 90 % of dealers , you ’ ve just found your hidden gem ! l FON
34 MARCH 2023 | FUEL OIL NEWS | www . fueloilnews . com