The basic purpose of any business is to make money. Service agreements are usually a fantastic way to do this but they can have the opposite effect if you simply set them and forget them. Sure the customer might keep renewing the agreement but what if doing so is costing you money? Your costs will change over time. Prices go up on gas and parts, employees want raises, and the customer's equipment keeps getting older. So the trick to staying profitable is to review the profitability of each agreement before you renew them and make adjustments where necessary.
Before you can truly check the profitability of your agreements a couple of things have to happen. First, you must setup a labor cost for each technician. Second, you have to create an invoice for every agreement dispatch you complete. Let's walk through both of those items.
To set a technician's labor cost, go to Dispatch | Enter Technicians. Edit a tech and you'll see Overhead Reporting in the bottom left-hand corner of the General tab. Enter the technician's pay rate and overhead value here.
Overhead is simply an extra amount that represents what it really costs to keep the tech in the field. It can include the technician's health benefits, taxes, workman's comp, and even things like rent & electricity if you want it to. Overhead can be entered as either a direct dollar value or as a percentage of the technician's pay rate.
After you have set those up for each employee it is probably a good idea to implement some security so that everyone doesn't have access to this data. Please take a look at this knowledgebase article to see how to properly setup users to protect this valuable information.
Now that the technician's labor costs have been entered, you need to create an invoice for every dispatch you create. To do this, get in the habit of going to the Invoice List and clicking Add followed by either Create From Dispatch or Import From Mobile (if you are using the ESC Mobile software).
When you do this you'll see a list of all the dispatches that have been completed but not yet invoiced in ESC. Simply select one to bill it. If the dispatch you select was created by a service agreement, you will generally not have to add anything to the invoice as the labor cost and any parts you associated with the agreement will already be there. Simply click Save and you're done.
This is how the cost of the agreement is calculated. We know the technician that performed the work, the time he spent and the parts he used. The invoices that are created directly by the service agreement module will track the income the agreement generated for us, so now we just have to compare the two to see if we want to renew the agreement again for the same rate. This should be done at the beginning of every month before you Post Monthly Invoices.
To do this go to the Agreements pull down menu and select Reports → Agreement Profitability Report. Set the Expiration Date range to the first and last of the current month and click Preview. Pay close attention to any agreements that have a low profit percentage. When you find those, compare the Actual Revenue with the Contract value on the report, if these match then the Actual Cost of the agreement was higher than you anticipated.
In those situations you should probably consider increasing the price of the agreement before you renew it or at least add a note to the tasks on the agreement to send a technician with great sales skills to the customer on the next visit. That way you can convince them to upgrade their equipment which should generate extra revenue and seriously reduce the cost of maintaining the agreement for the next several years.
To do either of these actions, simply click the agreement number on the report to drill down into it, make the change and save it, then press Alt+Tab to return to the report and move onto the next low profit agreement. After you fix those agreements, go ahead and post your monthly agreement invoices by selecting Agreements → Post Monthly Dispatches. Doing this will ensure every agreement is profitable and is making you money.
Written by Eric Rausin
Featured in September 2012 Newsletter