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Is your admin overhead sending you broke?

Let's have a short quiz. There's only one question and I bet you don't know the answer.

What percentage of your service income does your service administration cost you?

This figure cannot be found by looking at your latest P&L statement. Why? Because I bet you didn't include the time your field techs took to complete whatever form you use while they are in the field.

If there is one thing that we find that service organisations are blind to it is the question of true administration costs. There is only one way you can get an accurate figure, and that is to automate the collection of that kind of data. A time sheet will not be close.

Let's take a typical scenario for an on-site service call. We will assume for the sake of this exercise that the scope of works is clearly known, the tech is properly trained, and he has any required parts with him when arriving on-site. Let's further stipulate that the job is expected to take one hour to complete.

If the tech is paid $30.00 per hour and you charge the customer $100.00 per hour, your net income is $70.00 less parts, right? Now, take off indirect expense costs (and here is where the fun starts). Let's say you have a service coordinator/administrative assistant/receptionist.(some one who booked the call, scheduled when it would be done and raises the invoice when the job is completed.), and you pay $20.00 for that admin work. A little for heat, light and power, some WH&S insurance, motor vehicle registration, insurance, fuel, oil, general maintenance, tyres. Oh, then there's a little for rent, telephone, photocopier and furniture leases.

OK. You get the point and maybe it's not a little, but a large portion of that $70.00 is consumed on all these "little" things. It will come as no surprise to you that there may be less than 10% left that you can truly consider to be nett profit. Now, here's the thing. If you are using paper forms and your field tech is completing them by hand (either while on-site, or when he returns to base), then you just blew your nett profit and don't even know it.

One clue that indicates if this is really the case is if your P&L declares a nett profit, but you never have that money sitting in your bank account unencumbered.

How can this be? Your admin person raised the job in your CMMS and either partly completed the form for the tech, or the CMMS did that for you. That paper form has to be completed with the job details by someone; either the admin person or the tech. That form then has to be updated back into the CMMS, or your accounting system (or both!).That's at least two levels of duplication. If the form work takes only 5 minutes per hour (and trust me when I say that is a conservative estimate) per job, that is 8.33% off your bottom line that is not being tracked properly. If your P&L shows a 5% nett profit and you are using a system similar to this example, then you are going broke at the rate of 3 cents in the dollar. Doesn't sound like much, but if your turnover is $1 million per annum, then you are going to be short by more than $30K at the end of the year.

Sobering news I think. That is why I say that this is the one thing where we find that service organisations are blind. These "hidden" costs are sending them broke.

I am being conservative with my figures. In the main, we see far worse over and over again. If you have a service department with 5, 10, or 20 field techs and you are still using paper forms, then I truly do not understand how you can remain competitive. When you take into consideration that technology is ALWAYS cheaper than admin staff, there is no good reason to remain with out-dated and expensive management systems. Over the coming holiday break, why don't you check out Active Ink?

Posted by Mark Chimes
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