The cost of coming back

The job you did twice and billed once

February, a house on Rockvale Road. Wes Hollander's crew pulls a dead twenty-year-old system, fits a new one, walks Mrs. Petrey through the thermostat, takes the check, closes the job.

April, she calls back. She isn't angry. The house is cool. There's a noise. Ty takes it because Ty ran the pipework and would rather see it himself. Two hours door to door, he's found it and fixed it. The drain line runs very slightly uphill, so water backs up instead of draining away, and the noise is air pulling through it. He re-hangs the line, checks the pan underneath, tells Mrs. Petrey she did the right thing calling, and is gone by lunchtime.

He doesn't write an invoice. There's nothing to invoice. He taps the ticket to complete and drives.

Two hours of Ty and the truck cost Wes about $290. None of it will appear anywhere in his business. Not in job costing, because no revenue attached. Not in the warranty file, because nobody called it warranty. The only trace is a service ticket with no dollar sign on it.

Wes goes back out on about one job in eight.

Wes ran the numbers twice

First for the largest the problem could possibly be. Then for the part actually caused by going back. Take the hours you paid technicians for last year. Take off the hours billed to jobs. Take off vacation and training. What's left is paid time that no invoice explains.

For Wes that was 2,300 hours across four technicians, which at what he pays for a man and a truck is about $330,000. Across 1,900 completed jobs, $175 a job. That is not the answer. It's the outer edge of the answer, and most of it is legitimate.

He had three years of job notes and service tickets read, and every visit that turned out to be a return matched back to the job that caused it. 228 of them last year, averaging two and a half hours door to door.

Driving and loading are real, and Wes already recovers them through the rate he charges, even though no invoice says so. Jobs that run long are an estimating problem. What's left is $43 a completed job, and across 1,900 jobs that's $81,700 a year. In a four-truck shop, $81,700 can be the whole of what the owner takes home.

What $43 does to the next proposal

Here is the same job, quoted twice.

Which doesn't make the new number easy to send. Putting 5% on a price is the part operators lie awake over, and it's a different kind of hard from arithmetic. Two things are worth knowing while you decide. Every shop you bid against is carrying its own $43 and none of them have counted it either, so the figure you're all quoting against is the wrong one. And if your market won't take the increase, the $43 still earns its keep, because it tells you which job types and which crews produce the returns, and fixing that is worth the same money.

Why his books never showed it

The system Wes fitted on Rockvale Road was made by Carrier, which is listed on the New York Stock Exchange and therefore has to open its books once a year. Somewhere in those books is what Carrier's own promises cost it: what it owed at the start of the year, what it paid out, and a line for the promises that turned out to cost more than it had guessed. In 2022 that number opened at $524 million and closed at $551 million.

Carrier's obligation isn't Wes's. Carrier is covering equipment it built, and Wes is covering an afternoon of his own labor. What they share is that both are work you do after you've already been paid. Nobody has ever asked Wes what he set aside. No auditor, no bank, no customer, and nobody has asked whoever he's bidding against either. The number isn't missing from his books by accident. There was never a line for it.

The promise you can't put a number on

Wes owes another visit. Some operators owe whatever the failure destroyed. For decades Terminix sold termite contracts that renewed every year, and on many of them the promise was repair. If termites got through, Terminix paid for the damage to the house. No ceiling on the repair, no date it expired, renewing as long as the customer kept paying. Against that, the annual fee covered a man walking around the building once.

Then the ground shifted. Formosan termites spread through the Gulf counties, and once they're established nobody has ever got rid of them. The houses became more dangerous. The contracts didn't change, because signed contracts don't. And the bill arrives late. Treat a house in 2009, find the damage in 2018.

So Terminix went after the contracts. It couldn't rewrite them, because a renewal on a lifetime agreement is the customer's to exercise. The lever it reached for was price. In 2019 the annual fee in Mobile and Baldwin counties went up, in some cases to ten times what it had been. The Alabama Attorney General took a different view. In November 2020 Terminix settled with the state for $60 million, took a $49 million charge, accepted a cap on its own price rises for seven years, and put the old contracts back at 2018 prices.

Ten minutes, before you commit to any of this

Open the last twenty zero-dollar service tickets. Mark the ones that trace back to a job you had already closed and been paid for. If you find two, this is already big enough to measure properly.

Then the $43, or whatever yours turns out to be, goes into the cost build-up on your estimating template, above the margin line, where you see it and the customer doesn't. Read your own agreement for the sentence describing what you do when a customer calls after the job, and if the verb is pay or cover damage rather than repair or replace, that one wants a ceiling.

Published with this issue · the full arithmetic, how to count returns when nobody opens a ticket, the four kinds of promise, and the three-week version. Axiom Research · The Operator's Brief · No. 03