Have you been shocked by the hourly rate you pay to a technician on a recent servicing call? Our rates are not quite at the $200 per hour rate, but many in our industry are (whether you know it or not due to flat-rate pricing). However, when all costs of a business are factored in, this rate is not as outrageous as it seems.
Let’s first take a look at the actual cost of a technician coming out to your home or place of work. To do this we will introduce some basic accounting terms:
- Fully Loaded Cost – With benefits, state and federal taxes the hard cost for a competent journeyman technician is around $60 per hour in Everett, and about $80 in Seattle; we call this ‘fully loaded cost’. These are costs based on union rates, however, even non-union firms must be competitive to attract high quality labor.
- Fully Burdened Cost – The cost of the technician’s truck and tools needs to be accounted for, as does the office staff that answers the phone and manages the operations along with the shop he (in 2015 most techs are still male) is dispatched from. If you add all these costs together, divide by the hours of all technicians the number comes out to roughly $50 per hour in our shop. While this may vary, a full service shop will not be below $40. Add this to the above loaded cost and you get a ‘fully burdened cost’ of $110 per hour.
- Effective Burdened Cost – The average tech can bill for about 75% of his time due to a variety of factors: while we estimate 30 minutes for travel to the job, it averages closer to 45 minutes on time cards; we cannot charge for ‘customer talk’ time; we cannot charge for technician training or office meeting time; we honor warranty work to customers that is not chargeable (sometimes due to tech mistakes, sometimes the manufacturer, sometimes hard to diagnose issues, etc.), and there are other un-chargeable tasks. If you take the $110 burdened cost and divide by 75% you get an ‘effective burdened cost’ of about $150.
- Profitable Charge Rate – Note at the $150 per hour ‘effective burdened cost’ does not include a penny of return for the risk of investment by the ownership. Contracting is highly risky (only restaurants have a higher bankruptcy rate) so a 10% return on investment used in this calculation is very fair. Using a 10% return the rate to make a very modest profit is $165 per hour.
The next question is “But there are other companies out there who charge half that rate or less!” Let’s take a look at four of the main ways of how these companies can do this:
- Cheaper Techs – We live in a society that does not support a skilled blue-collar workforce. There are plenty with university degrees and lower skill service industry, but the number of young folks going into the trades decreases each year compared to the demand for labor. Our technicians are amazing, and they are rarer to find than any other type of worker, we’re able to keep them because we treat them well and pay them even better.
- Lower Overhead – We choose not to have a super skinny staff that has difficulty communicating with customers; we choose not to work out of a garage, and to provide our technicians with excellent tools and each with a company vehicle. We feel this has a value to our clientele, and this professionalism allows us to keep our technicians happy to work as a team with the office.
- Tighter Leash – While we closely monitor all tech productivity, and have GPS on all company vehicles, we feel that techs need the time to do their jobs properly, we honor customer issues with our work and fix our (and our suppliers) mistakes at no cost to the customer. Customer service does not come cheap.
- Bankruptcy or Struggle for Survival – I previously mentioned that it is incredibly common for HVAC contractors to go out of business; leaving their customers in a lurch for warranty issues and no provider on that hot or cold day where someone needs to fix an ailing system. For each bankruptcy there are a half dozen firms who struggle weekly to make payroll. This is no way to run a business for either the owner or the employees.
A company in a major metropolitan market like Seattle who must pay a premium for techs, and have these techs sit in traffic, should be charging $200+ per hour. Once you know all the facts you can see that a company charging up to $200 per hour is not ‘ripping off a customer’ but in reality simply trying to cover their costs and charge a fair rate of return.