SOP Friday: Trip Charges and On Site Minimums
Karl Palachuk / Karl Palachuk
The really good news about remote support is that it’s a lot more profitable, particularly if you have employees. Let’s use the example of a client that’s 20 miles from your office and it takes about 30 minutes to drive there and park. So an on site visit takes about one hour longer than the time you are actually on site.
If you pay an employee to make that visit, you (should) pay 56.5 cents per mile for the mileage reimbursement. So that’s $22.60. And let’s say your tech earns $20/hr so your real cost is about $25 just for the travel time. At this point you are out $47.60 just to BE on site. If you have to pay for parking, it’s easily more than $50. A senior engineer might be twice that.
Note: Even if it’s you and not an employee, you need to make the same calculation. This is critical to understanding your cost of delivering service!
Do You Charge for Trips?
You have two basic options for recouping these costs: Charge a “trip charge” or charge a minimum that guarantees you will be profitable.
Most MSPs have a minimum charge rather than a trip charge. For whatever reason, there is some resistance to a charge just for showing up. Having said that, every consultant I’ve talked to who does have a trip charge says they have no problems with it. They just make it part of their policies and clients know it’s coming. So it becomes a non-issue.
Luckily, in our business, a one hour minimum is normally enough to guarantee that we’re profitable. If the travel to and from a client’s office costs you about $50, and the next hour on site costs another $25, then you are making some profit as long as your hourly rate is $76 or more.
Of course you don’t want a profit of only $1 for two hours of your employee’s time. At $100/hr you will make at least $25.
|Microsoft MapPoint Driving Zone|
To make the on site minimum work, you need to make sure that you keep travel time within the 30 minute drive time. One cool way to do this is with Microsoft MapPoint. See the graphic.
First you plot your office. Then choose the option to define a drive time zone of 30 minutes. MapPoint will draw the zone automatically.
From there you can make a few adjustments. But it’s a great start on determining your “One Hour Minimum” drive zone.
If you’re a Microsoft Certified Partner or a MAPs subscriber, then you have access to MapPoint. If you haven’t played with it, this is a great place to start.
When you write your policy about “local” travel, this is your local travel area. Within this area you should find most of your clients. Within the zone (your local area), there is a one-hour minimum.
Outside this area you need a higher minimum. It might be three hours or four hours. It depends on the distance. In Sacramento, we have a nice compact area around the metro area. But we have a lot of clients in the Bay Area – a minimum of 1.5 hours drive each way with perfect traffic. So those clients have a four hour minimum. On average, 3-4 hours is needed just for travel. So even an hour on site costs us a lot of money.
So, here’s the basic outline for your SOP:
1) Do you have a separate Trip Charge? Yes/No
2) If no, what is your on site minimum for local travel?
3) Is there a second “zone” for travel (e.g., 31-60 minutes of travel time)?
4) If not, how do you calculate on site minimums for non-local travel?
Train Your Employees To Stay Profitable
It is very important that your employees understand the cost of travel time. There are hard costs (e.g., the $50 calculated above) and there are opportunity costs. If you pay someone to drive two hours a day and do not charge for that, you have lost the opportunity to have that person bill out two hours of labor for remote support.
Encourage technicians to group their travel in order to minimize it. For example, combine client visits so that you don’t have a trip all the way back to the office between clients.
Discourage on site visits for tech support unless they are really necessary. We can close more tickets and bill more hours if we work remotely.
Control travel in general. Your employees should not be “running errands” like driving to the store to get a network cable. Plan your day. Have enough supplies on hand so that such trips are unnecessary.
This is the kind of policy that might seem trivial, but it can have a significant effect on your profitability — even if you are a one-person shop. Time spent driving is always less profitable than time spent working. And with remote support being so widely available, there are fewer and fewer tasks that have to be done on site.
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About this Series
SOP Friday – or Standard Operating System Friday – is a series dedicated to helping small computer consulting firms develop the right processes and procedures to create a successful and profitable consulting business.
Find out more about the series, and view the complete “table of contents” for SOP Friday at SmallBizThoughts.com.
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All material Copyright (c) 2006-2013 Karl W. Palachuk unless otherwise noted.