Technician Route Management  
By Dan Gordon, CPA

Is your business a finely tuned machine? Or is it lethargic. Perhaps it is sick.

If it was a person and you took it to the doctor what would he say?

Can we give your business an operational physical? You bet!

The following article is the first in a series that will attempt to make recommendations for a cure to common symptoms of operational problems facing the PMP.

Are your profits as high as they should be?

Perhaps the problem is poor routing. Profitability is affected by two factors: Revenues and Expenses. This point is illustrated in the chart below:

Routing will affect both revenue and expenses. Let's start this discussion by introducing the concept of selling time. The savvy PMP understands that he performs pest management but he sells time.

Time is perishable and must be sold before it is lost. The easiest comparison would be selling fruit. Fruit must be sold quickly or it will rot and become worthless.

Understanding this concept we can conclude that every action performed that makes more efficient use of time will provide higher profits. The single largest expense for a pest control company is LABOR. Pest control companies for the most part compensate their technicians one of two ways or a combination of both:

1. Technicians are paid an hourly rate. This rate climbs by 50% (overtime) after the technician works 40 hours in any given week,
   
   and or;
   
   
2. Technicians are compensated as a percentage of their route or as a percentage of the dollar value of the jobs that they complete.

Having said this, if our object is to increase profitability, we need to fit more work into less time. I am not suggesting that we provide less quality. What I am suggesting is that we improve efficiency. This increases profitability in two ways:

1. With our technicians who are compensated using an hourly rate, fitting more work into less time increases profitability by increasing total dollars of profit.
   • Example 1
     Let's say we have a technician that earns $15.00 per hour. Further, let's say that he can complete one job in an hour that produces $50.00. In this case our labor percentage is 30% (15/50 = .3).

     This means for every $100.00 of revenue we have a profit of $70.00 (ignoring all other costs)

   • Example 2
     Let's say we have a technician that earns $15.00 per hour. Further, let's say that he can complete two jobs in an hour that produces $50.00 each or $100 total. In this case our labor percentage is 15% (15/100 = .15).

     This means for every $100.00 of revenue we have a profit of $85.00 (ignoring all other costs).

   A tabular representation of the above:

   Particulars Example 1 Example 2 A Technician Earns $15.00/hr $15.00/hr He can complete 1 job an hour 2 jobs an hour Production $50.00 $50.00 X2 = $100.00 Labor % 15/50=0.30=30% 15/100=0.15=15% Profit per $100.00 of Revenue $70.00 $85.00

   By fitting more work into one hour we have been able to increase our profit by $50.00 per hour. Here we have increased our revenue in dollars and decreased our labor expense as a percentage of revenue.

2. With our technicians who are compensated as a percentage of their route or as a percentage of the dollar value of the jobs that they complete, fitting more work into less time also increases profitability by increasing total dollars of profit:

• Example 1
  Let's say we have a technician that earns 25% of dollars produced.
  Further, let's say that he can complete one job in an hour that
  produces $50.00.

  In this case our profit is $37.50 ($50.00 – (25% x $50.00) =$37.50) (ignoring all other costs).

• Example 2
  Let's say we have a technician that earns 25% of dollars produced. Further, let's say that he can complete two jobs in an hour that produces $50.00.

  In this case our profit is $75.00 (($50.00x2) – (25% x $100.00)) =$25.00) (ignoring all other costs).

A Tabular representation of the above:

Particulars Example 1 Example 2 A Technician Earns 25% of $ produced 25% of $ produced He can complete 1 job an hour 2 jobs an hour Production $50.00 $50.00 X2 = $100.00 Profit [$50.00-(25%x$50.00)]=$37.50 [($50.00x2) – (25%x$100.00)]=$75.00

By fitting more work into one hour we have been able to increase our profit by $37.50 per hour from $37.50 to $75.00 dollars.

In this case we increased the revenue by $50.00 per hour while holding our labor expense constant as a percentage of revenue at 25%.

In a nutshell, the above examples demonstrate the simplicity of our business model. This is not to say that servicing customers in the pest management business is a simple business. It is to say that the business model under which we operate is simple. IT IS OUR TIME THAT WE SELL! Therefore, in managing our operation the most important item becomes managing time efficiently.

Utilization

One of the most important benchmarks in judging how efficient your routing is what I call utilization. Utilization is a calculation that CPA firms and law firms use to see how productive their accountants and lawyers are at billing their time. However this calculation fits our industry perfectly. Quite simply, utilization is the following fraction:

Total Technician Hours Spent at All Stops During the Time Period _____________________________________________________

Total Technician Hours Clocked in (Paid Hours) During the Time Period

Example: Let's say that your technician spent 30 hours at various jobs doing actual work for a one week period. Let's also assume that according to his time card he was punched in and paid for 50 hours. His utilization would be 60% (30hrs worked / 50 Hours Clocked in).

This means that he was producing revenue 60% of the time he was clocked in. Where is the rest of his time? travel, lunch, goofing off ? (Not at my company!!). In fact 60 % is a decent utilization percentage providing you are getting a reasonable dollar per hour for your work.

Let's say your average dollar per hour on your accounts for the day is $75.00.

• Case 1
  With a 60% utilization you're actually taking in $45.00 per hour. If your technician clocks in 8 hours for the day, he will produce $360.00 for the day ($75.00 x 60% x 8hrs).
  
  
• Case 2
  If his utilization is 75% he will bring in $450 ($75.00 x 75% x 8hrs).
  
  
• Case 3
  If he is 40% utilized he will bring in $240 ($75 x 40% x 8hrs).

These numbers are using the same $75.00 per hour but varying the utilization percentage.

This point illustrates the fact that there are two ways of increasing daily revenue:

1. Raising your prices (dollars per hour). This is not always feasible.
   
   
2. Increasing your utilization by making your routing more efficient.
   

Is utilization a theoretical calculation that you really can't measure? Absolutely not!! There are three steps to calculating utilization:

1. Make your technicians record the time in and time out on each service ticket. Calculate the total number of hours recorded on all service tickets for a given day serviced by a given technician.
   
   
2. Get the number of clocked hours for the day from the technician's time card or time sheet.
   
   
3. Calculate the Utilization Percentage.

Utilization provides a very important method of bench marking your routing efforts. In addition, it is an effective tool in rating technician efficiency. However you should be careful when rating technicians against each other as poor routing may beyond a technician's control.

In certain instances low utilization may be necessary such as times when you are building a new territory.

Conclusion: There are two methods to increase your profits. Increase revenues or decrease expenses; and those are the only two methods!

Being in a service business we do not sell a product. Our product line is our people. Therefore, if we try to save money on our product line by offering a less competitive salary and benefits package, we will attract an inferior work force and ultimately provide inferior service.

If we can't save money by cutting salary expenses we can only add to the bottom line by becoming more efficient. By routing our technicians in a more productive manner you can actually increase your revenue (per hour) and decrease your expenses (labor as a percentage of revenue).

In order to implement this strategy you will need a bench mark to measure the effectiveness of your efforts. This bench mark will be utilization. It should be calculated on a daily basis and discussed with your techncians and office people as part of an overall strategy to increase the profitability of your firm.

Dan Gordon is the owner of PC Opportunities, a consulting firm, in Budd Lake, NJ, he has spent over 12 years as an accountant and CFO in the Pest Control Industry. His services include accounting, tax preparation and profit maximization programs. Mr. Gordon can be contacted at (908) 684-0627 or at dangord@optonline.net for further information.