The cost of travel

By Richard P. DiToma, L.M.P.

A consumer who had never availed herself of my contracting firm’s services, and who only wanted an estimate for a task she might want to perform, took objection to the fact that we would charge her for driving to her home to see the circumstances needed to address her request. She said, “I don’t want to pay for an estimate.” And since I certainly didn’t want to pay for her window shopping, I tried to explain why my contracting business had a minimum service call charge to send a technician to her home.

I started by informing her in a pleasant manner that it costs money to buy trucks and keep them in good condition. In addition, the technician driving to her home to address her request wants to get paid. I also informed her that if we paid for the cost of sending a technician in a truck to address the requests of consumers without recovering those travel expenses, we would soon not be able to afford to address consumer requests. Additionally, in anticipation of her making the absurd remark so many ignorant consumers make — “that’s the cost of doing business,” I told her that consumers must always pay for the costs businesses incur because they are the people doing the consuming. I added that it wouldn’t be fair to charge other consumers for her consumption of our resources. She told me, “Don’t send a truck and technician. You come in a car.” 

That’s a true story. I guess, in her mind, cars don’t have any costs attached to their operation. And, she has decided that I shouldn’t be paid for the delivery of professional information that took years to gather.

Fortunately, she is not the rule. By tracking statistics over the last 30 years, I have found that only about 16% of callers don’t make an appointment due to the service call charge. And, that number would decrease dramatically if more contractors did what they are supposed to do, that is, charge service call fees for window shopping. I’m certainly not going to try to appease 16% at the cost of losing the money which can be brought in by those consumers (84%) who own up to their responsibilities by paying for their consumption of our resources. The only reason the 16% exist is due to the ridiculous practices of contractors who shoot themselves in the foot by giving free estimates. Those contractors are also doing a disservice to our noble industry. If all contractors charged service call fees, consumers would realize that if they wanted a contractor to come to them there would be a fee they had to pay.

Many consumers don’t realize, and certainly don’t care about, the costs contractors incur in addressing their requests. They only want to know the cost they will pay to have a contractor perform a service for them if they decide to have it performed. Ignorance turned into stupidity and fear keep many contractors from charging a proper fee to recover the costs they incur sending a qualified person in a vehicle to the consumer. But, in these times of surcharges and increasing prices on products/services due to $4.00/gallon (and rising) gasoline, contractors have the perfect explanation that consumers know to be a stark reality of the times.

In an effort to clear up the mystery of the costs contractors incur operating a service truck, figure 1 shows a service truck with five-year life expectancy and 75,000 miles used (15,000 per year). The example truck’s purchase price is $30,000.00. The chart shows sales tax of 6%; financing charges of $5,000.00 over five years; vehicular insurance of $1,800.00 per year; and inspection and registration fees of $200.00 per year. Any of these expenses may vary as they pertain to you. But you do incur expenses for those items in the operation of a service vehicle. Even if you pay cash for the vehicle you incur financing charges because you could have been earning interest on that money.  Additionally, figure 1 shows estimated costs for maintenance and repairs predicated on the five year life expectancy. You might keep a vehicle longer, but, keeping it on the road longer than five years will make repairs and maintenance much more expensive.

Notice that figure 1 shows a gasoline expense, equal to the original purchase price of the truck, to drive 75,000 miles at $4.00 per gallon of gasoline and a 10 mile per gallon rate. The volatility of the oil industry might make the price per gallon go down, but, more than likely it will remain close to this amount or rise.  The end result of the chart is a vehicular cost of $1.10 per mile. And that doesn’t include the technician and overhead expenses attributable to the operation of the truck.

Figure 2 shows that same expense interpolated into a minimum hourly cost of $9.68. It is based on 1,708 potentially sellable hours in a 40-hour, 52-week year after deducting two weeks for vacation; six holidays; and 244 daily preparatory hours which cannot be sold per year per technician. If you don’t sell all 1,708 hours the cost increases.

To further demonstrate the cost of travel, Figure 3 shows the labor/overhead expense you incur for traveling to the consumer to address their requests based on a $100.00 per hour labor/overhead cost for one service technician/truck. Few if any of you pay less than $100.00/hr. Regarding the $100.00 amount, I should state that it is my firm opinion that across the length and breadth of our great country that the overhead cost per technician/truck attributable to a service company is minimally $75.00 per hour. On that basis, there is only $25.00 per hour left to cover technician salary and salary related expenses.

Many of you pay more than $25.00 per hour to cover technician salary and salary related expenses. And many of you have higher overhead costs. That means, by using the $100.00 per/hr. labor/overhead cost, I am on the low side of the cost contractors incur. But at $100.00 per hour of cost to you, I’m sure most of you will be shocked at the minimum cost of a service truck you incur regarding traveling to your clientele. I am also of the belief that the hourly labor/overhead cost for a technician/truck can easily rise to $200.00. Some may pay more than $200.00.  Thus, figure 4 gives the travel cost at a $200.00 per hour labor/overhead cost level.

That’s it! As they say, “a word to the wise is sufficient.” Those are the numbers. If you want to pay for the consumer’s window shopping, go right ahead. But, it’s not the intelligent businesslike thing to do. As a matter of fact, it’s down right stupid.

If you are smart and want to succeed, you’ll start charging a service call charge. If you don’t, then don’t bellyache about the industry. As they say, you can only be part of the solution if you are not part of the problem. You can only solve the problem by ignoring the temptation to give free estimates, and, embracing the sound businesslike concept of acting and getting paid like a professional.

As always, if you need my assistance, give me a call at 845-639-5050.

          

Richard P. DiToma is a business consultant and contractor with 36 years of experience in the P-H-C industry. He conducts seminars, evaluates business operations, publishes customized price guides for contractors and offers continuing support.

His book -- “Solutions Management Theories & Methods for the Contracting Business” -- deals with solving pr-oblems contractors face; identifying & calculating costs; developing proper profitable prices; addressing consumer questions; hiring and evaluating technicians; and logical management procedures

It’s also available as a “Workshop On Demand” for individual businesses (from one person to multi-person businesses); contractor groups  (organized or informal); trade associations; and wholesalers to the trade.

Date: Arranged according to your schedule

Location: Wherever you wish. Richard P. DiToma will come to you -- or you can come to him. Contact Richard to find out if there is a workshop coming to your area.

His other book -- “Readily Available Pricing Information Digest 2006” -- for the plumbing-heating-cooling contractor service price reference book is available with plumbing &/or heating &/or cooling section(s). To receive more info about his services, to order his books or to contact Richard at 845-639-5050, by fax at 845-639-6791 or via email at richardditoma@verizon.net