As a service contractor, you have a general idea of your expenses, which includes items such as rent, wages, insurance, equipment, utilities, as well as many others. But have you considered what unapplied time does to your overhead?
Unapplied time is the number of hours your field staff is on the clock, but you can’t bill for their time.
According to research about service departments by the Carrier Corporation, during a regular work day a field person is able to bill for about four hours of repairs, yet their company still has to pay them for a full eight hours. The rest of the time is commonly spent driving, picking up parts, and callbacks. Naturally, most companies offer paid time off and this must be added to unapplied time as well.
But you can’t bill customers for every hour of the day your tradespeople are on the job. After all, in order to keep a business running and professional there are tasks that must be done internally, such as meetings, cleaning the shop and washing the vans. So, what should your service department do about unapplied time?
The key is that your unapplied time absolutely must be included in your hourly rate. For example, if you estimate that you must charge $70 per hour to make a 10% profit when you’re staff is on the job, you likely need to double that in order to turn that same profit for the entire day. Again, you pay your staff for eight hours but can only bill for roughly four.
But how can you push your labor rates up without getting blow back from your customers? The answer may be switching to flat rate pricing. Since flat rate systems focus on total repair price instead of hourly rates, customers are less likely to push back on the prices.