Why do service companies charge so much? As an owner, or perhaps a manager of a service company, this is not a difficult question. However, to those writing the check for the invoice your technician just presented, the answer is not so obvious. The average homeowner has no clue as to what it costs to provide the service that you do.
What about your service techs? Unless you do a lot of financial training in your organization, your employees are more in the camp of your customers about understanding your overhead. Sure, they see all the “stuff” that it takes to run the business, but they have no clue of the costs.
By doing a detailed cost analysis of your business expenses with your employees and bringing that number right down to the cost of overhead per hour, you will give them a reason to feel confident about your pricing. Then go further and explain that you can probably only bill for five or six hours per day, and you will start to see the lightbulbs turn on. You will begin to dispel the myth that $80 per hour of what you charge goes in the owner’s pocket.
Have a company meeting and ask them to list all the overhead line items in your company, which does not include field salaries, by the way. Be prepared with a list of your own (I came up with about 65 items). Write them on the board in the front of the class for all to see. Now ask them what they think each of those line items cost. Help them with the numbers, fill them all in, and do the math. Total it all up for the year, then break it all the way down to billable hour. This exercise will take a while, but I promise you that this will be the most valuable training you ever do with your employees.
In the end, everyone from the people that answer the phones to the helpers on the installations will help defend your pricing rather than criticize it. They will have more confidence in the numbers when selling a job, which will mean higher average tickets and higher closing ratios. You will probably even see them be a little more careful about what goes in the garbage and what gets returned for credit. The bottom line, you’re assuming they know this stuff, but they likely don’t. This inexpensive education is a win-win for all, so, do it ASAP!
For more on this topic, check out Episode 24 of The HVAC Jerks podcast.
Publication date: 6/20/2019