2003 Spring Volume No. 1

Break It Down... Do You Know Your True Costs?

by John Camphouse, C.F.O.

Click here to download "Determining Your Operation Costs" work sheet.

How well do you know your business? While you may be an expert in service and customer care, do you know what each service call costs you? How quickly can you figure your costs for a 50-unit special event? Is it less expensive to pay overtime or hire a new person? What does a new customer cost you? If a new customer is off your usual route by ten miles, how much more does that distance cost you?

If you don't know the answers to these questions, perhaps it's time to take out a sharp pencil and a calculator and begin to figure your true costs. This is one of the best exercises you can do for keeping your business running in the black.

How Does It All Break Down?
Seventy percent or more of your costs are related to service calls. Tracking these costs should start by finding out how many service calls you make in a given period of time; then, determine your average cost per service call.

The following are some important numbers you could calculate to use whenever pricing jobs. The numbers we use are fictitious—every business will have different costs.

1. To calculate the average total cost per service call

SERVICE TRUCK costs
Start by adding up your annual figures for:
Financing costs (interest paid per year) $ 2,000.00
Depreciation (cost divided by est. life in yrs.)20,000.00
Fuel4,000.00
Maintenance 3,000.00
Insurance800.00
Taxes and licenses700.00
Total annual transportation costs:$30,500.00
The related cost per service call and per mile
Truck costs per service call:$1.83
(costs divided by # of service calls)
Truck costs per mile: $0.31
(costs divided by # of miles/yr.)

Dumping and water hauling costsAdd up your annual figures for:
Dumping charges$ 10,000.00
Water charges1,000.00
Total annual dumping/water chrgs.:$11,000.00
The related cost per service call and per mile
Dumping/water hauling costs/service call: $0.66
(costs divided by # of service calls)
Dumping/water hauling costs per mile: $0.11
(costs divided by # of miles/yr.)

Direct Labor Costs
Add up your annual figures for:
Employee wages including overtime$ 60,000.00
Payroll taxes (employer's share)4,000.00
Health, dental or other insurance costs 12,000.00
Profit sharing or other benefits2,000.00
Total annual labor costs:$78,000.00
The related cost per service call and per mile
Direct labor costs per service call:$4.69
(costs divided by # of service calls)
Direct labor costs per mile:$0.78
(costs divided by # of miles/yr.)

Fixed Overhead Costs
Add up your annual figures for:
Rent or mortgage on land, bldgs., property
Property taxes$ 1,500.00
Property and liability insurance1,500.00
Utilities6,000.00
Telephone2,400.00
Office payroll & payroll taxes30,000.00
Office health insurance1,200.00
Office other benefits1,000.00
Office equipment expenses1,500.00
Other
Total annual overhead costs:$45,100.00
The related cost per service call and per mile
Fixed overhead costs per service call:$2.71
(costs divided by # of service calls)
Fixed overhead costs per mile: $0.45
(costs divided by # of miles/yr.)

Direct Supply Costs
Add up or calculate what you spend in a year for supplies for
servicing the units, and the depreciation on the units themselves:
Restroom units (500 units x $500 / 5 yrs. depr. )$ 50,000.00
Chemicals24,500.00
Paper towels, toilet paper10,000.00
Soap500.00
Paper towels500.00
Cleaning fluid600.00
Gloves and cleaning tools250.00
Total direct supplies costs:$86,350.00
The related cost per service call and per mile
Direct supply costs per service call:$5.19
(costs divided by # of service calls)
Direct supply costs per mile:$0.86
(costs divided by # of miles/yr.)

Total Costs
Total costs from above areas:$235,950.00
Total cost per service call:$15.08
(costs divided by # of service calls)
Total cost per mile:$2.51
(costs divided by # of miles/yr.)

2. Find or calculate how many service
calls you make in a year:16,640
(example is 2 men x 4 service calls per hour
x 40 hr week x 52 weeks)

3. Estimate the number of miles per year
expected from your trucks:100,000
(example is 2 trucks x 50,000 miles per year)
4. Add up the number of units you own and the
number of days in a month or year that they are
rented out. You can then easily find out your total
cost per rented unit per day.
Total number of units owned:500

Next, add up the number of days each unit is rented
in any given month. Then, convert that to an annual number
by multiplying times 12.

For example:
Number ofTotal days
# of unitsdays rentedrented
each monthall units
300216,300
200306,000
Total51
Total # of days in service for all units per month:12,300
(Total # of days rented each month times total # of units)
Total # of days in service for all units per year:147,600
(monthly figure times 12)
Your average total cost per rented unit per day:1.70
(annual total costs divided by total # of days in service in a year)

No Need to Fret
For many, tracking costs this detailed can seem overwhelming. It need not be that way. Get everyone, including yourself, involved in keeping track of expenses by putting copies of receipts and invoices in envelopes for each category. This way, you will have everything broken out at the end of the year to help you figure out your true costs. Until you have accurate figures, use "best guess" estimates to get started.

BONUS!
You can obtain a copy of your own service cost spreadsheet directly from
our web site at www.polyjohn.com/servicecost.html

Industry Info

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