Service contractors that work on complex equipment and systems all understand the importance and value of repair revenue for the overall success and profitability of their business. Most companies also recognize that the opportunity for repair work is often found while providing recurring services such as preventative maintenance work or system inspections. Unfortunately, most companies do not have formal workflows or systems in place to effectively convert deficiencies and problems reported in the field during routine visits to quotes and, ultimately, repair work. Those that do often have patchwork and minimal processes with few controls in place. Furthermore, without these systems in place, companies are unable to measure the key metrics necessary for a successful repair program. Obviously, a system is necessary to generate metrics, however, a great system can’t be developed without understanding that the ability to measure key metrics is a fundamental requirement. As the quote goes:
“If you can’t measure it, you can’t manage it.”
Before setting off to build or fix your company’s internal processes, here are the 6 key metrics that are critical to a successful repair program:
1. Ratio of recurring service revenue to repair revenue
This ratio is generally easy to calculate and is the best overall indicator of how effective a repair program is. Simply total your company’s recurring service revenue from preventative/planned maintenance jobs, inspections, cleanings, etc and compare it to the total revenue over the same period of time for repair work. Obviously, your company should strive to constantly improve this number, but strong industry benchmarks include:
- Mechanical services – $1 of PM revenue to $4 of repair revenue
- Fire protection – $1 of inspection revenue to $1 of repair revenue
For example, a Fire protection company performing $5M in inspections should expect to generate an additional $5M in repair work from deficiencies found on those inspections.
The remaining metrics will all help drive this core ratio.
2. Percentage of recurring service jobs that result in new quotes
This metric takes into account a few steps in the process:
- Opportunity Discovery – During recurring services, how often do your technicians discover new deficiencies, problems, or service opportunities that are worth quoting?
- Lost in the shuffle – How often are these reports making their way back to the correct personnel in the office?
- Office accountability – What percentage of reported opportunities can office personnel convert into quotes?
Obviously, technicians won’t discover quotable opportunities during every recurring service and this percentage will vary significantly by industry, however, all opportunities of sufficient value should result in a quote. the second and third metric above should be very close to 100% once a reasonable process and/or system is put in place. I only mention them here because many companies I’ve observed fall short on these activities due to an absence of any system whatsoever.
Ultimately, this leaves the overall percentage in the hands of your technicians and the easier it is for them to report these opportunities to the office, the higher the percentage will be. Your techs are far less likely to handwrite complex descriptions than simply snap pictures, record videos, and provide voice recordings to the office summarizing their findings. Mobile technology is a tremendous aid when working to improve this metric.
3. Average quote turnaround time
This average will vary by industry and repair complexity, but the simple takeaway here is that turning quotes around fast yields significant results for your overall quote approval rate and it should be possible for commercial service contractors to turn the vast majority of their quotes around in 24-48 hours. More transactional repair quotes that fit a templatized format should be sent to the customer no later than the day after the opportunity is discovered. Quotes that require substantial part cost lookups should be turned around within 48 hours depending on the availability of the necessary cost information.
4. Quote approval rate
This is a simple metric determined by dividing the sum of approved quotes sent to the customer in a certain period of time by the total number of quotes sent during that same period of time. For example, if 40 of the 50 quotes sent in June were approved, the approval rate would be 80%.
Note that this will be a lagging metric as quote approval can take place well after a quote is sent to the customer. Therefore, this statistic will not be accurate for a given period of time until all quotes are responded to or expired. Alternatively, if the quotes you send to customers tend to age for long periods of time, you can calculate an estimated approval rate by dividing the total number of quotes approved in a given period of time by the number of quotes sent in that same period of time. For example, 40 quotes were approved in June, and 60 quotes were sent in June, yielding a 67% approval rate. As long as you account for fluctuations in the number of quotes sent from month to month, this can be an effective, up-to-date measurement.
Many factors impact quote approval rate, but the top 3 factors that we’ve found to positively impact it are:
- Quick turnaround. The faster the customer has a quote in hand from the date of last service, the more likely they are to approve the quote.
- Include pictures. Showing your customers exactly what is wrong with their equipment is much more effective than describing it in text.
- Send an online quote. Make it very easy for your customer to say “yes” by providing them with an online quote with 1-click approval as opposed to paper, emails, PDFs, scanners, etc.
5. Quote gross profit per administrative hour
One of the metrics that will help your company make good decisions about how much admin time should be dedicated to creating a given quote is the gross profit of all approved and unapproved quotes generated per hour of administrative time it took to create those quotes. Alternatively, this can also be calculated by totaling the gross profit of repair work and dividing by the quote approval rate. Ultimately, this will help you determine a gross profit goal per hour, day, week, and month for your office staff. This goal will help your team quickly determine how long it should take to create quotes of all sizes with any margin.
For example, if the goal for a team member dedicated to creating quotes is $32K of gross profit for all quotes generated in a month, they should aim for about $1.6k of gross profit quoted per day and $200/hr. A small quote with a gross profit of $200 shouldn’t take more than an hour to generate. A larger quote with a gross profit of $2k shouldn’t take longer than 10hrs to create.
6. Quote gross profit per technician labor hour
Let’s face it, one of the biggest challenges in your business is hiring good technicians. This causes high labor costs with a shrinking margin due to unchanging customer expectations of how much they should pay for skilled labor. Fortunately, repair work often represents a unique opportunity to generate revenue independent of labor costs thanks to the margin on the parts sold. However, high margin alone is not necessarily a great indicator of whether or not a job was worthwhile. A better measure of whether a job is good for the company is gross profit per labor hour. For example, let’s compare the following scenarios:
- Job A – $12K in revenue with a margin of 40% requiring 60 hours of technician labor.
- Job B – $20K in revenue with a margin of 15% requiring 10 hours of technician labor
A simple gross profit comparison suggests that job A is better for the company, however, this simple calculation ignores the fact that job B had a low labor requirement. Job A calculates to $80 of gross profit per labor hour, while job B calculates to $300 of gross profit per labor hour. With your available labor force, would you rather perform one of job A or 6 of job B?
If you are unable to track these metrics now, consider new processes and systems that will enable you to do so. Simply tracking these numbers will not improve anything for your company, however, it is the first step in understanding how to make improvements. In order to leave you with something to think about, I’ll close with a quote that is a little more extreme than the one I used in the introduction:
“If you can’t measure, it doesn’t exist”
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