You can put unused material back into the warehouse to reduce your waste, but you can’t put labor on a shelf.
Since you can’t “inventory” your unused labor for another day, service businesses such as plumbers, electricians and HVAC technicians have a lot of “wasted” labor. That’s one reason labor is so expensive; you can’t inventory it. It has to be used right now, or it’s gone.
Unsold labor is an expense that plumbers, electricians, HVAC techs and other field service businesses must account for when deciding how much to charge for their services. Sure, you can try to reduce wasted labor by employing best practices, but you still must charge enough to cover your unsold labor that’s impossible to inventory.
You might be wondering, “How do I know how much labor is being wasted and how much is that costing me?” We’ll help you do the math.
In the service business, take your upper midrange technician and multiply his hourly rate equivalent times 1.3 for payroll burden. Now, to ensure that labor is only 20% of sales, multiply that number times 5.
For example: $20 per hour x 1.3 = $26 dollar per hour cost with payroll burden. $26 x 5 = $130 hourly rate to charge the customer.
Now if a technician gets paid for 8 hours but sells only 3.5 hours per day, it changes how much you have to charge.
Here’s the math:
Daily Labor Sales requirements = 8 hours x $130 = $1,040 in required labor sales each day, but since you are only are selling 3.5 hours a day in this example, your hourly rate is calculated like this:
$1,040 / 3.5 Hours = $297 dollars per hour required to earn the needed $1040 per day.
WOW – $297 per hour sounds expensive!! But, remember that’s only accounting for the 3.5 sold hours, not the entire 8 hours that the technician was working. Since we cannot inventory labor, it needs to be accounted for regardless of whether the job is quoted using time and material or a flat rate. And, to be able to accurately account for the job cost, it’s important to track technicians’ sold hours in order to set up your pay system.
Tracking sold hours and time worked can be a huge, time-consuming headache, and training your technicians to accurately track their time can be an absolute nightmare. That’s why you need Zip Solutions’ field service management software. It includes a fantastic dispatch board that seamlessly integrates with our HVAC, electrician and/or plumber software on your technicians’ mobile devices out in the field. This empowers them to easily and accurately track their hours, and it gives you a bird’s eye view of your sold hours and “wasted labor.” You can then use this data to make informed decisions on setting your effective hourly rate (for time and material or flat rate pricing) and compensation packages for your technicians. Zip Solutions makes it so much easier to make major decisions for your plumbing, electrical or HVAC business.
See it for yourself. We’ll show you how to easily calculate your business’s pricing and compensation plans. Schedule a Demo today to start your journey towards increased profits and greater financial security.