“Pride comes before a fall” is an old saying, a warning that undue praise of oneself leads to failure and loss. As a young PHC contractor, I remember a counterman at the supply house I frequented telling me he had never met the second-best plumber.

When he said that, I could only smile and agree. The contractors I had met by that time seemed to fit his statement to a tee. This was especially noticeable when they gathered at the supply house to tell each other how great they were at the trade. 

Their stories made it sound as if they never made mistakes. In turn, they stated that they never had callbacks for any work they had performed. 

The fact is that all PHC service contractors incur callbacks and must deal with customer relations and the expenses related to the two. 

Callbacks originate from one of three sources. The first source is pilot error — the most common of which can be addressed by proper training and hiring procedures. 

The second is a manufacturer’s defect, which can be addressed by purchasing top-quality material. However, even then, contractors don’t control manufacturing procedures, so defects can still be found in top-quality material. 

The third callback source is when the customer is mistaken about a callback being a callback. However, even this situation comes with an expense for the contractor. 

Callbacks and customer relations are operational business expenses. They must be calculated and added to your operational business expense budget if you are to arrive at your true operational business costs and compute properly profitable selling prices for your services.

In addition, callbacks and customer relations are examples of intangible operational business costs: the total sum cost of a callback isn’t seen in actual dollars and cents being paid for by your business.

If you must pay for additional material to remedy a callback, you see the cost you incur for that material. And when you pay your techs to fix the situation, you will know the cost you incurred for the labor involved, usually after the fact.

However, the time you spend addressing callbacks/customer relations is lost and deducted from the maximum available revenue-producing hours you need to sell. Therein lies the intangible portion of your true operational cost as it pertains to callbacks/customer relations.

Other intangible business expenses incurred in a contracting business are unapplied labor, breakage and loss, bad debt, accidents, premature equipment failure, etc. However, for this column, I’ll only address the callbacks/customer relations operational business expense.

Callback/Customer Relation Cost

The first thing to consider is how to calculate the callback/customer relation cost to your business as a legitimate operational business expense.

Using a per technician example, there are 2,080 paid hours per tech in 52 weeks/year at 40 hours/week. However, you don’t have 2,080 available revenue-producing hours to sell due to other factors that must be considered.

For example, if you give your tech two weeks/year for vacation and personal time, six holidays, and lose one nonrevenue-producing hour per tech each work day, you will only have 1,708 potential revenue-producing hours per tech available for sale to the public.

Once you calculate all your projected tangible business expenses for the year for each tech, you might think that all you need to do is divide your projected tangible business expenses by the maximum number of hours you have to sell. That’s when yet another intangible business cost pops up: unapplied labor. To keep it simple, I won’t address that issue here.

Intangible business expenses have costs to your business, and all legitimate business expenses must be reflected in your budget for your business to recover them. 

Your company’s history should give you an idea of any material costs and labor-related expenses you project to incur in any given year or fiscal period for callbacks/customer relations. 

If you haven’t recorded this data, you’ll need to make an educated guess. However, you must start recording the data from now on to ensure the accuracy of a wise business person instead of the erroneous numerical factors of a haphazard guess-timator.

Tech Hours/Callback

One of the factors you need is knowing how many hours are spent on average per tech to address callbacks/customer relations in any given year or fiscal period.

When trying to arrive at the number of those hours, you must take into consideration not only the time to perform the service at the consumers’ location, but also the time it takes for the tech to leave what he was doing before the callback, as well as the time to get back to that task.

So, if you only calculated one hour/tech/week spent on callbacks/customer relations, you would have 50 hours of intangible business expense (and that very well may be a low number when all factors are considered), giving you only 1,658 maximum revenue-producing hours per tech per year (1,708 hours – 50 hours = 1,658 hours). 

The business cost for one qualified tech and one properly equipped service vehicle in the United States is somewhere between $100 and $250 per tech/vehicle hour, dependent upon the geographic area, a properly calculated budget and the fact that all available tech hours are sold all the time.

With that in mind, at the low-cost range of $100, the annual business cost of one tech/one service vehicle would be $170,800 ($170,800 ÷ 1,708 hours = $100).

However, if only 1,658 hours are sold, the cost per hour rises to $103.02 ($170,800 ÷ 1,658 hours = $103.02). That’s an intangible business cost of $5,007.16/tech annually ($3.02 x 1,658 hours sold).

If you thought your annual number of callback hours per tech was 100, the cost per tech hour becomes $106.22 ($170,800 ÷ 1,608 hours = $106.22). That’s an intangible business cost of $10,001.76/tech annually ($6.22 x 1,608 hours sold).

At the high-cost range of $250, the annual business cost for one tech/one service vehicle would be $427,000 ($427,000 ÷ 1,708 hours = $250).

However, if only 1,658 hours are sold, the cost per hour rises to $257.54 ($427,000 ÷ 1,658 hours = $257.54). That’s an intangible business cost of $12,501.32 per tech annually ($7.54 x 1,658 hours sold).

With 100 annual callback/customer relations hours per tech, the cost per tech hour becomes $265.55 ($427,000.00 ÷ 1,608 hours = $265.55). That’s an intangible business cost of $25,004.40/tech annually ($15.55 x 1,608 hours sold).

It is imperative that you realize callbacks and customer relations are not the only intangible business expense that service contracting businesses incur. Other intangible business expenses will also affect your bottom line.

In addition, if you do not consider your intangible business expenses in your budget, you will not get the results you want from your business.

Don’t let pride come before your fall. Identify all tangible and intangible business expense factors and sell your services in a properly profitable manner to succeed in attaining your goals as a businessperson.