As An Appliance Service Business, Do You Know What Your Cost Of Doing Business Is?

“YOU” Must Know What Your Cost Of Doing Business Is!

This is kind of a catch phrase in the Appliance Service Industry but certainly something that applies to all businesses. If you don’t know what your “Cost Of Doing Business” is, also referred to as “CODB”, how in the world do you know if you are making a profit or not. The truth is, you don’t.

This is one of the most critical numbers you need to know when it comes to tracking your Key Performance Indicators in your business. You have to know as an average what it cost you to send a technician to a customer’s home to diagnose and/or make a repair on a product.

You see there is a lot more to running a successful service business than just calling you competition and finding how what they charge for a service call and then just matching them or even worse, undercutting them to get the business. You have no idea how they came up with their number. They may have done the same thing from someone who did the same thing, who did the same thing and before you know it, you are way below what it cost to operate your business profitably and you don’t even know it, until it’s too late.

So What Is Involved In Determining My Cost Of Doing Business

First off, you must be able to break that cost down to a “Per Hour” or “Per Completed Call” basis to run your Successful Service Business. In other words, how much money do you need to charge a customer just to show up at the door so that you charge enough to pay all your bills that you have to pay on a monthly basis. And this is before you even make a repair to a single product. That’s a scary thought! I have to pay for stuff before I make a repair. Yes you do and there is a lot involved to make that happen.

Let’s Take A Closer Look At “CODB”

You have to pay for loans or truck payments, liability insurance, health insurance, telephones, employees in the office, utilities, licenses, vehicle repairs, gas, subscriptions to manufacturers for tech support, tools & equipment, computers, office products & supplies and the list can go on. These items are known as indirect cost and if you are going to stay in business, they have to be paid, regardless of whether or not you make the first service call. And I assume you, as the technician, want to get paid don’t you? So, on top of that, you have to add whatever you decide you are worth and then if you need a part, you have to pay for the part.

These last 2 items are what is known as direct cost. In other words, these items are a direct result of the work or repair you do for the customer and they don’t have to be paid unless you actually do some work. Oh, and let’s not forget about that little thing called “PROFIT”. We have to add that in as well. You don’t want to just break even do you? Don’t you want to put a little back for some rainy days. Profit is not a dirty word, is it! After all, isn’t that why you went into business, to make a profit! So make sure you include Profit in your calculations when you are running your numbers.

So How Do We Calculate Our Cost Of Doing Business

There are several programs out there that will help you calculate your cost of doing business and I will list some websites for you to check them out.

But for now, I will boil it down in terms that make it as simple as possible.

1. You need to know your average Per Hour Labor Cost

2. You need to know your average Monthly Expense Cost

3. You need to calculate your Hourly Breakeven Cost

4. You need to determine your desired Profit Margin

5. You need to calculate you Gross Billable Hourly Rate with a profit margin built-in (If you don’t plan on making a profit, you shouldn’t be in business!)

6. You need to determine your Efficiency Factor (The number of completed calls you can complete in a day.)

7. You need to calculate your Average Completed Call rate (If you are doing any warranty work, this is the number you will need to determine if what a manufacturer is willing to pay you will allow you to make a profit.)

Parts Profit

One thing I did not do above was profit generated on parts sold. If you wanted to do that, this would lower the actual gross hourly billable rate. I personally don’t recommend doing this but it is your choice. If you add it in, It will reflect a more accurate “CODB” number but things change during the year & I would prefer to use the profits from parts as a little cushion fund. You be the judge on this.

Final Thoughts!

Knowing you “Cost Of Doing Business” is a powerful tool, especially when negotiating price for warranty service. Once you know this number, you are equipped to making informed decisions and not running the business from the seat of your pants. If you decide to cut your profit margins, then it becomes a true financial business decision that you make knowing all the facts.

Another important fact to remember about your “Cost Of Doing Business” is that this is not a one and done concept. This number needs to be recalculated anytime a major change is made in your operation. Whether it be an added technician, inside support person or a major advertising implementation. These changes can have a significant impact on your “CODB”.

If you are interested in learning more detail about how to calculate your cost of doing business, then please visit my website: and download the “Cost Of Doing Business” Calculator.

Source by [lakajira]

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