Consider all costs

Sunday, September 25, 2011

A. Many providers aren't really sure if they are making a profit in repair. Whether the equipment is customer-owned or company-owned, the first step is to capture all of the costs involved with repair.

Sounds obvious, but quite a few providers really don't capture all the costs involved with running a repair department.

The most common approach used in other industries is to determine the cost of a single hour of repair labor. And, to simplify and abbreviate the process a bit, we won't distinguish fixed vs. variable costs, likewise with direct vs. indirect labor. As worthy as those distinctions are, we can add those refinements later. 

Start with the hourly wage for average technician, add burden (typically about 30% to 35%) to cover FICA, etc. And also add benefits such as retirement and health insurance.

Next we need to consider other labor that supports the repair department. Estimate the proportional allocation for clerical support (not including customer service reps (CSRs), we'll do that separately) and managerial support. For example, if you estimate that there is about six minutes of clerical support per repair hour, the allocated cost for the repair is 10% of the fully-burdened clerical hourly cost. Likewise with managerial support, including allocations to cover senior management oversight as well as service manager support.

Estimate allocation of CSRs, scheduler and service writer. We need to include the cost for the time spent speaking with customers, determining insurance eligibility, obtaining authorizations, etc.  

Add allocation for billing and documentation for repair labor to cover the cost of preparing the claims for reimbursement and responding to denials.

Overhead: Include share for utilities, floor space, liability and other insurance, office supplies, etc. 

And finally, add indirect costs that are specific to repair, such as tools and equipment, shop supplies and tech training.

And now we're ready to add it all up. It very likely will be a larger number than you expected, but it is a critical number that will (a) guide your productivity goals to achieve profitability, and (b) accurately identify problem areas. HME

Dick Fuller is the owner of Richard Fuller Consulting. Reach him at or 636-451-6220.