Fixed Rates

[kwatt]

I’ve had a few conversations this week with several repairers and a few others in the biz and I feel compelled to vent off a bit on fixed pricing. I’m not talking about price fixing, of course we all know that doesn’t go on, it’s pure coincidence that a lot of the labour rates are the same and that all seem to look at each others rates.

But what’s got my goat is refrigeration, it does extend to other work though.

There’s several schools of thought here and I tend to subscribe to the ones that suit me. That may not exactly win me many popularity contests, but I’m still here whilst many others are not.

Many years ago a certain person from Cumbria, Ernie Fearon, made an excellent point that I’ve stuck with to this day… we are not here to indemnify manufacturers, insurers or anyone else from their responsibilities or costs. We do not hold the status of “insurers” and therefore why are we forced to accept the cost liability by working on a fixed rate?

Interesting view.

When you think about it we’re paid to do a job, to repair a product. The duration of the repair and the costs involved to reach the customer as well as the stock (if required) to get the call done are all our costs. Now, in any normal business, you take your costs then add a margin to ensure a profit. Many of us know this as we sell appliances, you add a margin to make a profit to the cost of the machine taking into account the cost to deliver etc., even Tesco add a margin to a base price, it’s dead simple.

But you also have to work out the true margin to establish a true picture. To do that you need the cost to ensure that you calculate the margin correctly, plucking numbers out the sky just doesn’t cut it. I’ve never been to a business school or on a business course in my puff, but I was taught how to count and how to apply margins properly.

So what are you to do when the costs are not fixed and the goalposts keep moving?

Quite simply, you can’t.

What We Need

What we need is accurate failure rates, products or anticipated call volumes and the type of repairs required historically on any contract to price it properly. Without this information you are taking a best guess based on what knowledge that you have on the products.

Where refrigeration is concerned you get hit with “system repairs are less that 5{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} of the total call volume”. Uh-huh, what that doesn’t tell you is that system jobs quite often account for 25-30{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} of the time and, that’s time you’re not doing something more profitable and I’d far rather have the guys running about changing PCB’s in washers or elements in ovens than mucking about with fridges. Funnily enough the engineers are far happier as well with that.

Then we get to the product spread. The questions you have to ask are, can I stock spares to service this and what will it cost me to stock spares for this? If the cost to stock takes more than three to six months to recover the investment then it’s not worth the hassle IMO. Ask your bank, I’m sure they’ll want to see some form of ROI within six to twelve months and, if you don’t perform, they will be on your case as well.

As an aside, in the Excel downloads there’s a nifty little contract calculator that I’ve used for a few years as it saved me time and energy working it out every time. But you need an anticipated first fix percentage as well as knowing what it costs you to get to a customer’s door, which is vital in all this.

Swings & Roundabouts

Dear God I hate that term, every time I hear it I conclude that I’m being ripped off.

We hear it all the time when rates are discussed, “oh but its swings and roundabouts, you’ll win on some that makes up for the ones you lose on.” Well, I’ve very rarely won on any of them. In fact I can point you in the direction of many a repairer that will tell you exactly the same, but it’s normally made to look good and can be very tempting. Generally, it’s not.

Work it out, do the sums, you really need to sit down and think very hard about new work before committing to it and know that you will make money from it, not lose it. Most repairers are there to make a profit, not act as a charity or insurer for the client.

And I’d ask you to ask yourself just this one question; do you really think that the rate on offer was set in your favour?

The classic example I can give is NESN with the Mastercare contract. I calculated that, since I held no stock for it, that the investment in stock would take at least eighteen months to recoup. That to me was unacceptable and so I walked away from it, quite frankly they were not paying enough to make it worth my time bothering with it or investing MY cash into doing THEIR work. Sorry, but I’m not that stupid that I’d pay my own money to work for free for a year and a half, but I wish I could get employees that would do that. Oh, that’s right, that’s why some of the WP’s don’t employ their own engineers… costs! Oh and the little problem of actually getting engineers which we also suffer from, but we’re not paid enough to train any, Catch 22.

If we really have to have swings and roundabouts, why is that it so rarely works for us?

Don’t get me wrong, I like fixed rates, we even use them for chargeable work but we do have a sliding scale that is brand and product dependent as I realised a few years ago that one price for all just wasn’t working. Our average repair price out of warranty now sits about the £70 mark, more than £20 higher than it was three years ago with no drop in volume and no complaints.

But then that’s the system being employed to benefit my business, not someone else’s.

In that period we have not done one single chargeable refrigeration job. Had we done any of any significance I would have expected that figure to rise quite substantially reflecting the additional time spent on them.

But that’s the for me key, time.

Time Costs Money

It’s an old adage, but a very true one and one that we should all pay heed to. Even as a sole trader your time is costing you money, if you don’t price your time then you have to ask if you are running a business or is it an extended hobby that just happens to pay a bit? I’m not trying to cause any offence with those (or any other) remarks, but I think it makes the point crystal clear.

What you have to consider is, as I stated or alluded to earlier, if the manufacturer, insurer or WP had to employ an engineer (or several) and the back end support staff to do what they ask of you how much would it cost? If the only option was to swap-out appliances, what would that cost?

Now re-evaluate your value.

There’s always of course someone else that will do work at a lower rate and yes, we save money on being more efficient and leaner, but in the end it still costs money to have service and in a lot of cases you get what you pay for.

Take for example our old friends GBDAR. They pay about £31-33 per completed call which is way too cheap in the first place, but for that they expect you to call next-day (premium), stock spares at your cost, accept half that if someone else (beyond your control) writes the machine off and warranty the ENTIRE machine for 28 days and more besides! My opinion is that anyone taking that on wants checked out at the local funny farm, especially a multi-engineer business.

Which reminds me of yet another cost, a lower BER rate.

The thing is that quite often it appears that until repairers get their fingers burnt with rubbish like that many seem to grab any of the flotsam and jetsam that drifts around from WP to WP or insurer to insurer. And, let’s face it a lot of it is low volume, high-maintenance crap, just look at the Korean products as well as the branded Chinese rubbish of late.

Low volume means difficulty in stocking, especially with a diverse product range, which means increased double visits and increased costs. I proved this a year ago on Brandt, currently I’m looking at GEC refrigeration as, even at £50 a call, could well be a waste of time due to high spares costs, inability to stock and generally pain in the ass customers who think that they own the world because they can afford to spend two grand on a Yankee fridge. The point is, that unless it’s a clear cut “order spares before going” every one, without exception, is a double call and at £50 I’m losing money doing that, a phenomenon I tend not to like too much.

And that’s another thing about product or insurance/maintenance profile, consider the people that buy the things as that often has a great bearing on what is expected of you. I’m sure Alex or someone will soon pipe up on that point in respect to a couple of more, demanding shall we say, contracts.

That can lead to a huge increase of time on the phones and therefore a huge increase in admin time and costs.

Administration

Another often overlooked cost as it’s hidden to many of us. Recently I’ve had several conversations with one-man businesses and I was not really surprised to find that, even although they sit till 8 and 9 at night doing paperwork, that they don’t cost it. So tell me, how are you to get someone to do that for free if your business expands to the point where you can no longer cope on your own? And, even aside from that, what are you doing sat there working for nothing?

It’s easy for me as we pay Craig, so therefore I can account for the cost of him and add that into my cost-per-call.

But I wonder how many others out there actually calculate what’s going on with admin. Not a lot I’d guess from what I know.

Admin can also make or break a contract to fax reports, make calls complete calls on a propriety as well as your own as well as all the other little gems all cost in material and calls as well as time and, time costs money.

Conclusions

So, if you haven’t got what I’m on about here I’ll condense it.

Think about what you’re taking on and the rates that you take it on at. Think about the time that you will spend, for a system repair (just as an example) most people would get three other calls done. As usual it’s fine when you’re quiet and need something to fill the day, but often it’s cheaper to sit at home or have the lads in repainting the office or clearing up the stock than costing money doing crap jobs. And, when you get busy again or someone wants a holiday, you’re stressed out trying to cope.

In short, get the right rate for the job considering all the aspects, my advice is do not just blindly take what’s on offer and run your business as a business.

K.

[kwatt]

Re: Fixed Rates

Interesting, nobody posts to it but I have some figures for you, last month one business was running at a shade over £33 per invoiced call not including directors salaries and another at £29 per call made, so probably they’re roughly about the same in effect. Funny that as mine always comes out at about the £27-29 mark to chap a door as well.

This came up because I was asked to justify the fixed rate of £70 per call on refrigeration, well it’s really quite a simple calculation, although some of it is guesswork based on experience, I’ll explain…

The market has changed, there’s far more product diversity than we’ve ever seen before which has been led by lower manufacturing costs and therfore more niche products. As service agents we cannot stock for these as spares are more unique to a product which often leads to no chance of a first time fix. The problem with that is that it’s on first fixes that we actually make money, on double hits we currently lose as the above figures show.

So let’s take the market standard of £40 a call. At that rate you have to hit more than 72.5{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} of calls first time to break even with a per visit cost of £29 and that, trust me, is not easy these days.

If you also have a lower BER rate that pushes the first fix higher in percentage terms to compensate the lower income.

So, now apply that calculation to refrigeration, I’ll use Samsung as a classic example as I know it and the figures that we had on that work…

First fix rate was 40{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d}, system repairs ran at 5{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} of calls recieved on the contract.

To compensate for the poor first fix rate add 60{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} to your call cost, then for the system repairs calculate at 15{e5d1b7155a01ef1f3b9c9968eaba33524ee81600d00d4be2b4d93ac2e58cec2d} of total call volume, we only did about 100 call a year so, £15 onto that to compensate for triple calls needed for systems to allow for the time and you end up with an anticipated cost of £61.40 per call.

So, the rate of £70 allows me a whole £9 per call to make a profit, account for any exceptional costs, increases over the agreed time before a rate review, any “hassle” calls, increases in administration, increases in stockholding, replacing equipment and any other costs you care to think of. I don’t think that’s bad value and it’s less than some people are taking as a “management fee” to admin centrally.

And, before some smart-a** comes up with the economy of scale argument (it’s a bit like the swings and roundabouts one that is), all that volume allows you to do is lose money faster if you’re not careful. The engineers do not get more efficient the more calls you give them, if anything the reverse, just ask Expert.

K.

[bonzaco]

Re: Fixed Rates

Ken – Guess no one responded because we all agree with you. To illustrate how some manufacturers are out of touch (or just greedy) my local competitor charges £65 per call and £50 if he has to revisit. Only does chargeable work and drives a Merc. We on the other hand charge £30-40 per call (depending on manufacturer) and drive a bucket on wheels. My lord I beleive you case has merit.

[A1TEC]

Re: Fixed Rates

Reading the above with interest and totally agree, i don’t do work for third parties as Ken says they want you to do it for next to nothing.

I do understand it is the life line that some busnesses depend on to survive but if all the independant businesses stopped doing the third party work, surely the wp’s and others would cave in within a week to meet reasonable rates for the work carried out.

In short the wp’s etc are parasites living off the independant business because they can’t fix the appliances them selves.

They are non producers if they were not there joe public would call their locall engineer them selves.

The way i run my business is to offer good service at a fair price.

Cheers

John.

[Author]

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