How do you know which of your field service engineers are most successful and most profitable?
These two things are not the same, and each requires more than one key performance indicator (KPI) to get at a 360o view of the truth.
Here’s an example of why this is so: if you simply compare what was invoiced against the actual time and other costs spent on the job you will get a basic view of the profitability of that job at the exact time the first visit was completed.
However, one or more of the following scenarios might apply, which means that your view of profitability is somewhat distorted:
- The job was profitable but the original quote under-estimated or over-estimated the time taken. If you under-estimated and could not charge the full amount the job was not as profitable as it should have been. If you overestimated and the engineer did not take another job in the time left over you have also left money on the table;
- Your accounting system did not allocate the job to a specific engineer or allocated it to the wrong engineer;
- Some time-related costs were not or could not be charged to the customer;
- Parts were not fully charged to the customer;
- The work was not satisfactorily completed and a recall visit was necessary, which had to be carried out for free or at cost only;
- There was no recall but the customer was dissatisfied and switched to another supplier for future services.
Thus there are numerous reasons why you might be getting a false picture of the profitability of your company and/or individual engineers if you are relying only on an accounts package or a spreadsheet. Here are some of the software solutions that you will need if you are to properly assess how well you and your engineers are doing.
First, however, it is essential to grasp the difference between profitability in terms of financial and management accounting. (Apologies if this is already familiar to you but it is worth taking into consideration here.) Basically:
Financial accounting has its focus on the financial statements that you or your accountant generate and provide to external bodies (the tax authorities, your bank, and shareholders if your company has them). These include the balance sheet, income statement etc. Here, profitability is essentially the difference between money actually coming into the business and money going out.
Management accounting has its focus on providing information within the company so that its management can operate the company more effectively, for example to ensure that costs are minimised and income maximised through effective pricing and invoicing.
To illustrate this with an example: supposing an engineer does a job and for whatever reason you do not charge the customer the full value of his time for job. Your financial statements are not going to tell you this, but if your management accounting is working effectively, you will identify these weaknesses and the “money left on the table”. You can then take corrective action so that this does not happen in future.
And that is the key word: future. Whereas financial accounting is like looking in the rear-view mirror of your car, i.e. at what has happened in the past, management accounting is also forward-looking, i.e. what you should do now and in the future to make your company more profitable.
Thus the two are related: the corrective actions that you take (or fail to take) now and in future will have a significant impact on your future financial results.
Timesheets for accurate cost tracking
Let’s start with effective tracking of your main cost and revenue-driver: time. Time that is not fully charged or not used optimally reduces your profitability. Therefore, you need a system that records labour costs in full based on engineers’ time onsite and engineers’ time spent travelling between jobs, retraining etc.
This is difficult and time-consuming to do manually, so ideally the information should be captured automatically from the engineer’s mobile device. If you do this systematically you will not only improve your ability to manage costs against jobs but also to calculate the profitability of individual engineers over time.
Profit reports by job
Of course, your employees’ time is only one cost, even if it is the most important. Other costs include parts and perhaps sub-contractor fees. How much mark-up are you making on these for individual jobs, categories of jobs, and overall?
Together with time expended, you should be able to look at profit reports by job, consolidate these and produce reports to help you understand how your business is performing. This allows you make positive changes.
Profit reports give you a clear overview of how much money you have made on individual jobs. By including the engineer responsible as part of this report you can see which engineers produce the most profit for your company.
This is vital information for understanding which engineers are most valuable to your business and which engineers need further training.
Essentially, if you have all of the information relating to specific jobs and specific engineers all in one place, it is relatively simple to run profitability reports on jobs, engineers and the company as a whole.
Tracking the cost of recalls
A recall is when an engineer has to make a second visit (or more) to a customer, for any reason, for example because the job was not carried out properly to the customer’s satisfaction first time.
If this time is not invoiced it will not appear in your financial statements but it certainly represents a cost, both in terms of the time spent fixing the problem and the “opportunity cost” i.e. the time could have been spent elsewhere on billable work.
Your cost-tracking solution should take account of this to help you identify which engineers have the highest and lowest recall rates and the main reasons for recalls.
Only by doing so can you take the necessary corrective actions that will improve your profitability. I have dealt with recalls extensively in another blog which you can read here.
Cash flow management
Another major contributory factor in profitability is cash flow. Cash is the lifeblood of any business! A cash-strapped company can easily be pushed to the brink, even when all seems to be going well. So you need to keep a close eye on the money you’re owed and the money you owe your suppliers.
By the time this information is on your quarterly or annual financial statements it may be too late. Therefore, your job management solution should also help you to identify overdue payments, enabling you to chase late-paying customers for the money they owe you and ensure that you have enough cash in reserve to cover your debts to suppliers.
Finally, your long-term profitability is not simply determined by current costs and revenues, but by something very important and at the same time very intangible: customer goodwill, i.e. your company’s reputation among its clients.
A good way to find out what your customers think of your company and its services is to carry out immediate satisfaction surveys asking them to rate how satisfied they were with a specific job.
In this way you will be able to identify which engineers are the best “ambassadors” for your company – not just in terms of their technical competence, but also in terms of the “softer” factors such as providing advice and simply being friendly.
For important customers such as businesses or major landlords, it might be an idea also to carry out periodic surveys asking customers to rate you over time.
These can also be very useful marketing tools and can counter any bad publicity you may receive through online reviews (especially as dissatisfied customers tend to be most motivated to answer these).
Conducting satisfaction surveys manually is of course highly time-consuming, so can present a major cost. However, if individual surveys are conducted immediately onsite by engineers using their mobile devices, there is no such cost, or hardly any.
Moreover, if you have a well-managed customer database, sending periodic satisfaction surveys by email or by post can not only be automated but easily combined with promotional offers.
If you're interested about increasing your engineers performance you should have a look at our best practices guide.