Callbacks
“There is never enough time to do a job; but there is always enough time to do it over”. I guess you’ve heard that one before. It applies very often to call backs on service and retrofit work. What’s the best way of recovering the cost?
The cheapest way is to not incur the callback in the first place. I would recommend that you minimize the amount of call backs by monitoring your numbers and making sure that you minimize the amount of call backs by training and supervising your technicians effectively. See the article on the 3 M’s.
Now that you have done that would you like to recover your direct costs AND your overhead AND make a profit on call backs. Does that excite you?
If so, listen up!
I recommend building in a percentage for “callback allowance” on each service and retrofit call—say two to three per cent of the direct cost of the job—and mark it up for overhead and profit. Include it as you would any other cost.
Upon job completion, record a debit to the job cost with the call back allowance and credit your balance sheet’s Callback Provision Account. (The balance on this account will be added to taxable income at year-end. Your accountant can explain this in greater detail). Every time you get a callback, debit the Callback Provision Account with the cost.
At the end of the year, you can see the account’s balance. When it is negative, your callbacks are costing you more than two or three per cent allowance of the cost of sales. When the amount is positive, you know callbacks are costing you less. This information empowers you to make decisions, such as:
- Do you need to provide more training and/or supervision?
- Do you need to allow more time for jobs?
- Can you improve your final checklist?
- Is there a diagnostic problem?
- Should you provide incentives?
- Do you need to adjust your call back allowance (up or down)?
It is essential to track callbacks by technician, and most will involve only a few of them (the “80/20 Rule”). Make sure you focus on the activities of those technicians and avoid upsetting the ones with little or no callbacks. This way you can either help those who specifically need help or replace the ones who will not learn.
Cost of the callback
There are several elements to the cost of the callback:
- Direct cost is the easiest figure to establish; you use the same process as you would on your job costs, using the same rule to determine whether costs are ‘direct’.
- Impact costs are where less definitive areas suffer; it takes additional time to get up to speed on the job. Issues arise over reorientation and set up time, adverse weather and site conditions are also impact costs.
- Overhead, including supervision, are also incurred at the normal rate on a callback.
- You aren’t making any because you are not charging anyone for the callback.
- Lost opportunity. Your productivity goes down because you are doing work you cannot invoice out. This may mean that customers have to wait longer for service. You may even have to hire another technician to cover the hours lost to callbacks.
By building in a percentage for callbacks into each service or retrofit call, you actually recover your overhead, profit and lost opportunity because you compensated by increasing sales in the first place. And you make even more money when you don’t spend the full two or three per cent. You can also cover your impact costs by increasing the percentage.
The cost that we should never forget, however, is ‘perceived indifference’. In fact, customers change providers 68 per cent of the time because of it. Callbacks often make customers feel you are indifferent to their needs. So take responsibility and make sure the customer is satisfied and compensated for the inconvenience you have caused by not doing the job properly the first time.
The market is very competitive. When you’re not on top of your game, people will react accordingly. Your employees, suppliers and customers can all sense when a company is undisciplined. It is then that you lose your best team members and customers. Don’t get sloppy over callbacks. It causes you to lose existing customers and you get fewer referrals. Only satisfied customers provide referrals.
Tip for the day: If you are making money on your call back allowance, keep it, don’t reduce prices. This way you make Super Profits on call backs. Now that’s a turnaround for the books,
Your Plan of Action:
- Identify how much direct cost callbacks cost you and determine whether this is an acceptable level.
- Set up a system using a percentage that reflects reality for you (which may or may not be two/three per cent).
- Implement a monitoring procedure and corrective strategy program.
- Work with your team to reduce callbacks
- Build an allowance into each quote to cover the cost of callbacks.