The Cost of a Callback
Wednesday, April 1, 2015
Callbacks are not only very expensive to the company, but they are often the difference in making an acceptable overall net profit in the service department! Let’s run some numbers.
- Calculating the EQCR - The first thing we need to determine is what we call the equivalent charge-out rate, or EQCR. This number represents the dollars we expect the technician to collect for each hour he or she actually bills the customer. Let’s assume your internal hourly rate for your flat rate pricing system is $150/hour (fill in your number to make the example real). We then need to add to the $150 the average parts “cost” per hour. The norm within the industry is that for each hour billed, the technician sells $20 worth of parts. Also, the average markup on those parts is 100%, or another $20 per hour. That makes our EQCR $190/hour ($150 hourly rate + $20 parts cost per hour + $20 markup on the parts per hour)
- KPI - Now let’s talk about the key performance indicator, or KPI, for callbacks within the industry. The KPI is 2.75%. It is an established fact that of all the parts produced nationally, roughly 2% fail due to poor mass production. That means if a technician exceeds a callback percentage of 2.75%, the callback is not a parts failure, it’s an installation problem caused by the technician. If a tech has 100 service calls per month that means he or she should have no more than two, or at worst three, callbacks during the month.
Economic Impact on the Company’s Bottom Line
Callbacks are very expensive in three ways:
- Lost profit on a job: In most cases the customer does not pay for the callback. Let’s assume the technician’s total time on the callback is only an hour (usually longer) which includes driving to the customer’s location, completing the job that was not done properly to begin with, and then driving back to the office or to the next call. That is an hour of time at $190 per hour the tech worked, but the customer did not pay for. Cost to the company = $190
- Lost potential income: The hour we “lost” doing the callback could have been used to make another profitable call. The “lost income” was $190.
- Total Loss: That means the one callback has a net effect cost to the company (between the lost profit on the initial call and the lost income on the call that could not be made over the same period of time) of $380 dollars.
If a tech has three callbacks per month, at a cost of $380/each, the cost to the company over a period of a year is $13,680 ($380/call x 3 callback a month x 12 months). The $13,680 ASSUMES the tech hits the industry KPI of 2.75% callbacks. It the tech has an average of 6 callbacks a month, the loss doubles to $27,360/year!!! Ouch! Callbacks can truly be the difference in the company making an overall net profit in service……or not! Remember the loss of $13,680 was for ONE service tech. If you have two service techs the number doubles and three techs will triple the number!!!!
The final impact is customer dissatisfaction. Retuning for a callback upsets the customer as they have to be inconvenienced by having the tech come a second time while, at the same time, endure the effects of the equipment not working. Frustrated customers sometimes go elsewhere the next time they need service. That equates to a lost customer. Also, remember the schedule had to be adjusted back at the office to accommodate the callback. Bingo, now the scheduled customer that was to be serviced must be called and “rescheduled” for the repair. Again, we have irritated our VALUABLE customer base.