By Mike Procopio
Blue Cow Software
How much do you charge customers for an annual service contract? Is it enough? Many fuel oil and propane companies set a service plan price and hope they hit the mark. But without analyzing the data behind their service costs, they could end up taking a big financial loss.
A superficial look at expenses can reveal some – but not all – of the actual costs of delivering on a service plan’s promises. You can estimate labor costs and the cost of parts that may be included in service plan coverage. But you also need to factor in “hidden” costs such as vehicle depreciation, insurance, payroll taxes, employee benefits, and travel costs. These can quickly add up and turn a profit center into a losing proposition.
The good news is that all that information – and more – should be readily accessible through your company’s management software program. Historical data on service calls (including those covered by a service plan and calls outside the plan) will give you a basis for building a pricing model that includes all costs and related expenses.
Look for “hard” costs like compensation rates for service technicians and average “per repair” costs for non-reimbursable parts and materials. If your plan includes discounts on parts be sure to factor that into your price planning. Then add in “soft” costs such as depreciation, tool acquisition, benefits, payroll taxes, insurance (personnel and vehicles), and travel. Now look at how many service calls you make during a year, when they occur, and whether or not they are major repairs or minor fixes. Don’t just pull up last year’s data. Go back 3 to 5 years to identify trends.
Analysis of this data should paint a fairly accurate picture of the actual cost of a “typical” service call. Factor in the profit margin you want to achieve and you’ll have a much more accurate price for a service plan.
There should be some adjustment factor for unusual circumstances. For example, use a heat mapping application to spot clusters of similar service calls over the past few years. These might indicate neighborhoods where houses were built at the same time, with heating systems that were installed at the same time. These systems might now be failing in a similar tight time frame, a trend which should be factored into service plan pricing for that area.
Doing a little due diligence before setting the prices on your service plans is an effective way to help ensure you are not shortchanging yourself. Use the data already available to build a solid pricing model that will give customers the peace of mind they want, while making sure the plan is profitable.