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Fitting the Pieces Together: A Guide to Office Operations for the Liquid Waste, Portable Toilet & Septic Pumping Industries |
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We are going to look at the business issue of which is the service to offer a customer, a second unit or a second service and when one is better financially than the other.
Now, let us look at some basic financials that we can use to help decide when to offer each service. We are going to briefly look at five areas:
Cost of a unit
Inventory of units
Hourly labor rate
Hourly or mileage rate for a truck
Mileage calculation
We will use these financials to help in deciding if a second unit or a second service is a better solution.
A new unit costs approximately $500.00 (one time cost to acquire the unit). If this $500.00 was put in the bank, it could earn 6% or $30.00 per year or $150.00 for 5 years. If the unit lasts 5 years before it is re-cycled for parts, the unit fixed cost is $500.00 plus time value of the purchase price, i.e., $150.00 or $130.00/year/unit or about $11.00/month.
The number of available units you have for service can strongly effect which alternative you use. Each unit is capable of generating revenue. How much revenue depends upon how it is used. If the unit is used for a long term rental/service at a construction site, the dollars of revenue per month is lower than if the unit is used in specials where the unit is rented/serviced only on week ends. Remember a unit assigned to a customer is not available for rental/service to other customers which may generate a higher profit. It is a good idea to calculate a measure of gross profit for specials vs. long term rental/service as a guide when your inventory conditions start to get low.
This is the dollars paid to have a worker and the equipment used per hour to deliver a unit. Costs that should be included in this are:
Hourly rate of worker
Insurance, i.e., social security, health, etc.
Uniforms, vacation prorated for a work year, i.e., 2000 hours.
Portion of office staff prorated over total worker hours,
Etc.
A rule of thumb is $20.00 per hour. Thus, a worker needs to generate 40 x $20 or $800.00 per week in revenue to equal the dollars spent by the company.
The vehicle mile or hourly rate is the prorated cost of purchasing, maintaining and running the truck for use by the company. Some of the costs that should be considered include:
Cost of vehicle prorated over the life of the vehicle in miles or hours.
Insurance
Maintenance
Repairs
Consumables, i.e., tires, fuel, oil,
License and registration fees
Etc.
a rule of thumb for a new vehicle is $40.00 per hour, or if a vehicle does an average of 40 mph, $1.00/mile.
The mileage to/from the service location depends upon the starting point. If you have several locations near one another that are serviced at the same time, you should use the mileage from the nearest service location and not from the yard to determine your costs. This use of the current customer locations is a strategic difference between your company and the competition. Once you have a service base, adding an additional stop costs significantly less than if you have to travel to a new area. This is why it is so important to know your existing service locations. By using this existing service base, you can mine higher profits by knowing the cost benefits of servicing clusters of customers.
Now that we have some financial yard-sticks, let us look at several business conditions that would suggest a second service or a second unit and see which alternative is best. Some that we have run into include:
This customer knows that usage is the problem. Education on the different service options is needed and not details on how many people a single unit can handle. If the customer is not near other locations, a second unit is a best bet in that the cost is the time to service the second unit, i.e., 5 minutes of driver and truck time or $3.00 plus the cost of the unit, i.e., $11.00 per month.
(And You Know That It Has Been Properly Serviced)
Education on the number of people a unit can handle and service options are both required. The customer has the wrong expectation of the service level for the unit. Before you can get to the selection of an alternative service, i.e., more units or additional services, you have to overcome the issue of trust because the wrong expectation of service level was set. In this case, a second unit is s very VIABLE alternative. Other solutions, like service logs in the unit, can aid in recovering your customer’s trust, but the bottom line is that the customer depends upon your company to keep them informed of the service needed. When a customer complains of service, it is important to recognize that you have lost an opportunity to increase your company’s sales.