Maximizing Profits from Your Service Center

Maximizing Profits from Your Service Center

By Diane M. Calabrese / Published February 2022

Photo by iStockphoto.com/Dmytro Lastovych

Profit is good. Maximum profit is better.

     When a service center is humming along, doing brisk business and getting positive feedback from happy customers, there may seem to be no reason to change anything. Sometimes, though, the smallest changes can increase profit.

     Shore up and sharpen practices. Unless all expenditures are taken fully into account, there’s going to be a misunderstanding of how profitable a service center is. 

     For instance, there’s good reason to know the full cost of a single repair. “It is necessary to charge out to each repair job the cost of solvent cleaners, shop towels, vinyl gloves, zip ties, electrical crimp fittings, etc.” says Rick Benham, president of Kepner Equipment Inc./Chaffee-Ward equipment in Canandaigua, NY. Why?

     “Those items may seem like a small and insignificant expense to ‘throw in’ on a repair bill, but at the end of the year all of it adds up to a pretty big number,” explains Benham. Such a tabulation brings clarity to both the customer and the service center operator. 

     There are some definite ways to subtract from profit, and obviously they should be avoided. Benham gives us one example. “Never repair a machine with used parts just to save you the time of having to order new parts and to save the customer a few dollars,” says Benham, “That practice will hurt you a few days, a few weeks, or a few months down the road.”

     Benham gets to the heart of the function of the service center: to give the customer, not only the most expeditious turnaround, but also an excellent outcome. Restoring a piece of equipment to full and flawless function is the surest way to satisfy a customer.

     There’s a large and growing body of academic literature on what constitutes excellent customer service. Ways of delineating the elements vary, but always among them are the product, price, and place. 

     Customers may want quality without paying for it, but they know that price is correlated with a quality product. In a service center, the repair is the product. (If price is high and results are poor, takers for the product vanish.)

     Accessibility is a factor in all sales. Customers who need an equipment repair will generally choose the most easily accessible place that provides the best service. Service providers who can go to a customer’s jobsite and pick up a machine to repair and return it may, over time, increase their profitability. 

     When a repair is the service provided, the costs built into it begin with the assessment and estimate (of time and cost). Some customers may try to get a firm estimate of cost via email or phone, but providing such estimates can drain profit in two ways. 

     One, they take time. Two, they may have to be revised when the machine is in view. Revision takes time. Profit drips away. 

Nuts and Bolts

     Superconducting chips may get most of the attention in 2022, but nuts and bolts still bolster industry and commerce—both literally and figuratively. So, let’s turn to some “nuts and bolts” advice on how to maximize profit from a service.

     What’s a “must” to make a service center profitable? “In this day and age, I would say the most important tool for us is a good service management software to schedule, account for, and process service calls as well as invoice the customer,” says Jim O’Connell, president of Hotsy Pacific in Modesto, CA.

     “All parts pricing and labor pricing are in the service management system, and it syncs with the billing system,” explains O’Connell. “Our service management software integrates with our financial program, so we can produce an invoice from service very efficiently and quickly.”

     Such software speeds communication among all parties involved. It also reduces errors. “We can email the service order to the customer from our service techs in the field,” says O’Connell. “Using such software also eliminates mistakes due to spelling errors or incorrect part numbers. Service management software makes it much easier to manage and hold the service team accountable.”

     Is there any factor that would make it more difficult to have a profitable service center? “I would say, ‘Never allow the service department to set up pricing for service or to discount labor at any time,’” says O’Connell. “This is a management function based on overhead, desired margin, and labor costs.”

     O’Connell also recommends, “Have set labor schedules, either flat rate or hourly, for specific jobs.” For example, a pump rebuild equals one and one-half hours or $145 at flat rate.

     “Such pricing takes the pressure off the service tech as well as giving the customer an accurate price when quoting repairs,” says O’Connell. “Also, a flat rate schedule eliminates the call from a customer questioning the fact that the service tech was only here for two hours, but you charged me for three hours.”

     A very important factor to be considered when fine-tuning service center profit is what a service technician should be billing for labor per month, says O’Connell. “The goal is to bill at least 100 percent of their paid hours.” 

     O’Connell gives the example that if the labor rate is $100 per hour, the service technician should bill at minimum $16,000 (eight hours per day times 20 days per month) per month in labor. “So obviously billing depends upon the experience of the technician as well as any other assigned duties, such as delivery of equipment, prep, detergent delivery as well as restocking their trucks,” he explains. “You also have to consider PTO, comp time, sick days, etc.”

Quality and Communication

     Take quality outcomes as the foundation of a profitable service center. In addition to the recommendations from O’Connell and Benham for enhancing profit, there are several ideas from the academic literature that are worth sifting through and using, as appropriate.

     Perception can overtake reality in some settings. If it does, it can diminish the excellence in results of repairs. According to some literature, even a high-quality product will be diminished by negative reviews (word-of-mouth or electronic). 

     Consequently, ensuring that communication between the service center personnel and customers is professional and cordial is a must. Service technicians are busy and engaged in their work, but if they can balance their primary responsibility with pleasant answers to questions—even the repetitive ones from customers—they will maintain a consistently positive perception.

     No one wants to hear, “They do great work, but they are really difficult to deal with.” They want to hear, “They do great work, and they are so easy to deal with.”

     Business experts caution that even loyal customers can turn to a competitor if they have a negative experience. Estimates vary wildly on what it costs a business to replace a customer lost with a new customer, but some put it at as much as six times more expensive.

     Given the expense of filling a gap in a service center schedule, should any incident occur that might drive a customer to another provider, an owner should consider taking action. Often, just a few words from an owner can smooth over a rough encounter at the service center. Take the time.

     One of the surest ways to prevent negative interaction between customer and service center is to provide the most accurate information about the when (it will be ready) and the problem (if it’s not apparent, be candid that it may take time to detect). Customers appreciate honesty. 

     If a service center is waiting for parts because of supply chain disruptions, and times for delivery are uncertain, tell the customer. Avoid overpromising, such as, “We could be lucky and get the delivery tomorrow,” when the most truthful answer is, “It could be as much as another week.”

     Larger companies trying to solve delivery logistics issues have allied with one another to pull and move parts—sort of a brokering system of their own. Smaller companies can do some of the same. If supply chain issues persist, members of professional organizations or friendly competitors (possibly in different parts of the country) can set up systems to do their own sharing. 

     It might seem counterintuitive to sell a part to a competitor who has an urgent need for it to make a repair, except it’s not when the competitor is willing to reciprocate. In the end, service centers across the collaborating network of competitors enhance their profits because all have speedier access to components they need.

     Ultimately, maximizing profit from a service center hinges on doing everything possible to establish an efficient and effective work environment, including up-to-date tools, lighting, space, and software, as well as professional interaction with customers. 

     Finally, only give pertinent information. Avoid giving too much information. Customers in need of a repair or routine service want to know when their equipment will be ready. They do not want to know about issues vexing the service provider. (Remember, they have business-related issues too.)

Facts, efficiency, and excellence maximize profits.

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