Do You Know What Non-Billable Time Costs Your Company?
Those of you that have read my articles in the past know that a constant cost that comes up is the huge cost of non-billable time. Well it’s been awhile so guess what…we are going to talk about it again! Why? Because, non-billable time is the single highest cost of doing business in your entire service department.
The typical service tech is only able to, on average, bill out about half their time each day. No, that does not mean each day of their week they only bill 4 hours. What it does mean is that when you look at the entire techs year, on average, they are billing out about 4 hours a day.
Let’s look at some numbers:
Vacation – Lets assume the tech gets two weeks of paid vacation a year. Vacation totals 80 hours a year, which is 3.8% of their total time for the year.
Holidays – The average company has at least the six paid holidays a year. Holiday time accounts for 48 non-billable hours a year or another 2.3 % of the tech total time.
Sick Pay – The average company provides 5 paid sick days a year. Well, five day is 40 hours or another 1.9% of the techs total paid time.
Shop Time – This is a scary number. Most techs average at least 15 minutes in the shop in the morning and another 15 minutes in the afternoon. That is 30 minutes a day at the absolute minimum. Most are in the shop longer. When we delete the vacation time, holiday and sick days that leaves us 239 days to work. Thirty minutes shop time for 239 days a year totals another 119 hour or another 5.7% of their total time that cannot be billed to the customer!
Travel Time – Some shops charge port-to-port, but the vast majority of contractors still charge only for the time they are on the job. The typical tech runs five calls a day. Assuming the average travel time between calls is 15 minutes, that is another 75 non-billable minutes a day during the 239 days they can actually work. That totals another 299 non-billable hours a year. Travel time alone accounts for 14.3% of their time a year.
Now let’s do a little math and find out what our total non-billable time:
Vacation: 3.8 %
Paid Sick Days: 1.9
Shop Time: 5.7
Travel Time: 14.3
Total Time = 27.8%
Now add callbacks, warranty work, and company meeting time to the list. No, we are not through yet. Think about now much time is spent waiting on no show customers. And by the way, did you ever have a tech come to the shop to help you put up stock, do a small job around the office, or perhaps work on a vehicle. Of course you did, and all that is time you paid for that you cannot charge to a customer.
Now, let’s consider one last thing. Have you noticed there is a shortage of techs nationwide? Good techs are hard to find. Now think about those slow days when you have less than a full days work for your tech. What do you do? What SHOULD you do? Well the right thing to do is to send them home, but your mind tells you to find something for them to do, so they continue to get their 40 hours and don’t start looking for other jobs. More non-billable time!
Guess what? If you add the above time to the 27.8% we already generated our techs are easily generating 45% to 55% of their time as non-billable time.
Non-billable time dramatically affects what you need to charge per hour and it dramatically affects the overall profitability of the department.
First, let’s talk about your hourly rate. Let’s assume 50% of the tech’s time is non-billable and your tech is costing you $22/hour by the time you add in matching taxes. Fifty percent of the 2,080 hours a year would mean the tech has 1,040 non-billable hours a year. The cost of non-billable time is $22,880.
Now assuming the tech actually bills out the other half of his time that means they also have 1,040 billable hours a year. Of the final hourly rate, whatever it comes out to be, $22/hour of it will we the cost of non-billable time.
Think about this for a minute. The cost of non-billable time is $22/hour and the cost of the techs time while he is billing is $22. When you add just those two things together the service rate is $44/hour. The $44/hour does not include any company overhead. It also does not include any of the office salaries. It is no wonder the “real” hourly rate most service departments need to be charging is well over $100/ hour!
Now let’s look at lost revenue. Let’s assume while the tech is actually billing the customer he charges out an average of $150 per hour, which includes his hourly rate, parts, and parts markup. Now let’s further assume you put some tracking in place and you are able to reduce your 20 hours of non-billable time by three hours a week during the 50 weeks or so the tech can work. Turning three hours a week from non-billable time to billable time would produce an additional $22,500 in gross sales, most of which will be profit! Does it pay to track and reduce non-billable time? You bet it does.
Getting control of your non-billable time and increasing your hourly rate will help you stay profitable. Are you ready to make the change?
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