Comments On Trip Charges / Comments On Break In Story / Comment On Whats Going On It AZ- August 26, 2013

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Ken,

With regard to trip charges (8/15/2013):

Flat trip charges are common practice in many service industries. Some contractors include the first 15-20 minutes or an hour of on-site labor (thus creating a minimum service charge). It's all a matter of your business preferences and policies. You want to favor simplicity if your field service people are writing and presenting their invoices at the conclusion of each service visit. My policy for the trip charge has been to bill just for the trip itself (i.e., all labor is billed on other lines). I bill the trip on a one-way basis assuming that the next client pays for the next lap, but you have to factor into your flat charge the cost of those end-of-day trips home, while excluding unpaid commuting time.

We usually waive the travel fee when the total of labor and parts exceeds a certain (presumably profitable) figure. It alleviates the appearance of “nickel-and-diming.”

Around 1984 I added up the prior three years of costs for all the travel time and mileage for every service visit. Then I calculated the average trip cost. I used the results as a basis to calculate my “standard flat trip charge.” However, a lot more fine-tuning is in order. When you do this, some of your calculation may need to be subjective, market-driven and seasonal. For example, you could lower the fee temporarily if you need to drum up some work or raise it when you’re overloaded and using expensive subcontractors. If two or more service persons are needed on the job and they travel in separate vehicles, you have to be sure that's correctly factored in. Also factor in the expense of transporting occasional trainees who aren't essential to the task. That load will be different in times of growth, compared to those "hard times" employing a minimal staff.

Obviously, this flat fee has to be regularly adjusted, particularly for inflation. Logic says you need to at least recover your vehicle costs and the time getting your service technician to the customer's door. Strictly-sales-related trip costs need entirely different treatment. Combination sales/billable-service visits may complicate things if they occur frequently. It's better to derive your cost data from payroll records rather than your service billings because there are unfortunately a few un-billable, wasted runs, parts pickups, lunch runs and warranty trips to cover.

As you would expect, on one extreme, my neighbor, who lives virtually across the street from my office, immediately complained about the "high" trip charge that my technician imposed. I explained the methodology of setting the fee, adding that there's no way to predict where within the overall service area my tech will be when he's dispatched to their place. [And then I tweaked his bill.] The conclusion I drew is that the flat fee has to be equitable.

I then experimented with "zoned" travel fees. The wider your service area, the more complicated it gets. Multiple points-of-origin further complicate things. Some technicians may be dispatched from home, not from the office, making their travel time less than their standard unpaid commute. (Now there’s a competitive edge!)

My study revealed that overall, my vehicles averaged roughly 34 miles per hour. But certain expressways and some frequently-used routes that are always congested make a simple distance-based formula hard to deploy. In effect, some distant areas reached by expressway have lower travel costs than nearby congested or hard-to-park areas. The cost of time spent in traffic can far outweigh the per-mile operating cost of the vehicle. Newer computer software and resources may provide solutions.

At the other extreme, we have a few really distant clients who obviously can't be serviced profitably using the standard flat fee. We deal with their travel on an individual basis. One idea: You might charge the standard flat fee to go a certain distance and then bill the rest of the way to that job on a time-and-mileage basis. After you tabulate their trip cost a couple of times, you'll have a reasonable number to use for "their" future flat fee.

Then there is the problem of "commercial versus residential" and discounted service to veterans, seniors, etc. All the same things that influence your hourly and monitoring rate charts can influence your flat trip charge. So there ends up not being one flat trip charge, but a range of nominal fees that cover the spectrum of your clientele.

The next problem: unless you’re billing actual time and mileage, it's not a good idea to pull an arbitrary trip charge amount out of your hat while you're on the job writing the bill. Also, if the client calls to schedule a visit and asks, "What will it cost me?" then you need the answer at your fingertips. The lack of a predetermined fee will cost head scratching time and the fees will vary all over the place. Clients like consistency. Our database has a field with the flat fee plugged in for a standard service call to each client. To set it for a new client, we start with a nominal fee that's based on an average system. Then we adjust it for our experience getting there on the sales and installation visits plus obvious deviations from the norm. Going forward, we review the fee after each new experience – maybe not with a calculator, but asking ourselves, “Is it logical?” We also review it at renewal time, when we're adjusting that client's monitoring rate. Thus, every tech who goes to that job (almost regardless of skill or pay scale) will be charging the correct "flat fee" and you won't be embarrassed by bills that vary unexplainably. If you have a client who’s a frequent "No Show," bounces checks, has a severe parking situation or is otherwise problematic, you can adjust just that one client's "flat fee" (and their other rates) accordingly. All these extra tweaks assume that you know your customers and your business.

Technically, it can be problematic to unilaterally and arbitrarily adjust these non-monitoring, on-premise service fees for inflation and other factors without providing notice. Here's one component of my residential repair contract addressing that issue in advance:

"COMPANY’s hourly labor charges may vary seasonally, according to market and other conditions and without notice. Due to the possible lengthy passage of time between visits, CLIENT is solely responsible for ascertaining COMPANY’s applicable hourly labor charges prior to each new visit."

Not meaning to create a collusive situation, I could comment that the flat fee mentioned in the inquiry of 8/15/2013 might easily stand to be doubled, although I don't know their market area, client makeup, pay scale, overhead load, vehicle costs, inventory and tooling on board or the scope of the service area. You have to do your own math. You also have to decide as a matter of policy, how much of your profit, if any, you want to derive solely from the flat travel fee.

I’ll close with one of my golden rules: “If you never get a complaint about the price, it’s probably too low.”

Happy trails to all,

Lou Arellano

Pennsylvania

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