There are 6 major approaches to service fees. (You may also think of the service fee as a “show-up” fee.) Some contractors use only one fee type, while others use a combination approach.
There are times when not charging a service fee will actually win you the sale. Yet, not charging a service fee could cost you thousands in profits. So, what should you do in your business?
In this article, I’m going to unpack the 6 common service types. You will learn the “why” and “how” of a service fee. I will address service fees for both Residential Flat Rate and Time and Material Service Companies.
The 6 Service Fee Types
#1 – Combined Truck Service and Diagnostic Fee
Combining the fee for truck use and the tech’s diagnostic is the go to standard for most Residential Flat Rate Companies. When you use this fee, you present it as a single option to the homeowner.
Mrs. Smith, we charge a service fee. This service fee covers the cost of our tech’s diagnostic time, the service use of our vehicle, and provides you with an upfront list of options after the diagnostic.
For most Residential Flat Rate Companies, this is your best option.
#2 – Diagnostic Fee Only
To the homeowner, this would not sound different than the above scenario.
However, there is a difference. The difference is that the business owner chooses not to account for the expense of operating his service vehicle. Which is a mistake in most circumstances.
#3 – Truck Service Fee Only
Time and Material Companies will often add an additional service fee for the use of their trucks. Since they are already being paid for their diagnostic, this fee is to cover the wear and tear on the service truck.
Mrs. Smith, we charge an hourly fee for our service. We charge this fee from the time we arrive at your home to the time we leave. In addition, we charge a truck service fee for the wear and tear on our service vehicles. When our tech is done, he will present you with your total for today’s service.
There are some Residential Flat Rate Service Companies that do not charge for their diagnostic, but do charge a truck service fee.
Yes, it can be a little confusing, and can seem like a play-on-words. But, there are companies that legitimately don’t charge for the expense of their diagnostic labor, but do charge for using their trucks.
In most cases I do not recommend this approach.
#4 – Waived Service Fee with Repair
Many companies will waive their service fee with repairs. This can be a good approach if you have multiple repairs. However, it can be very damaging if you have techs with low add-on rates.
Mrs. Smith, we charge a service fee. This service fee covers the cost of our tech’s diagnostic time, the service use of our vehicle, and provides you with an upfront list of options after the diagnostic. If you choose to do the work with us today, then we will waive the service fee.
If you are going to use this approach, then you need to decide in advance at what point you will waive the diagnostic fee. Make sure that decision is based on actual job costing information.
#5 – Billable Hours
Many Time and Material Companies charge for their time “portal to portal,” or by “billable hours.” These fees cover the time from the point the tech leaves his last job to the time he shows up for his next job. All fees are included in this “portal to portal” approach. This is one way that a Time and Material company can bill more hours than they actually work.
Mrs. Smith, we charge an hourly fee for our service. We charge this fee from the time we leave our previous job to the time we leave your home and arrive at our next job.
Residential Flat Rate Application
There are times when some Residential Flat Rate Service Companies will charge an hourly amount for a complicated diagnostic. This most often occurs in troubleshooting issues that are not straight-forward.
Mrs. Smith, the particular challenge that we have today is much more complicated than what our service fee will cover. If you would like me to further troubleshoot, we will need to start charging an hourly rate to move forward.
This type of diagnostic charge is introduced by the technician upon the discovery of a complicated diagnostic problem.
Presenting Time and Material Diagnostics is an option for a Residential Service Company. However, I highly recommend that Residential Flat Rate Companies have a Flat Rate Service Fee for complicated diagnostics, as opposed to using Time and Material.
#6 – No Service Fee: The Replacement System
Not charging a service fee is usually reserved by companies that have a sales system in place, and can thus capitalize on the opportunity that presents itself.
You will often see sophisticated service companies with a strong Residential Replacement division utilize this approach as a “free estimate” or “proposal.”
While there is no service fee, there is a trade-off for the homeowner of both time and commitment.
In order to give up the initial fee, most service companies will request that the homeowner provide them with the opportunity to deliver a professional presentation. This comes with a time commitment, and a commitment of the homeowner’s presence during the call.
Mrs. Smith, we are happy to provide you with a free estimate for the Drain Replacement, Roof Replacement, Air Conditioning System Replacement, Electrical Panel Replacement, etc. In order to do that, we will require 2 things.
#1: We ask that you give us at least 90 minutes to perform a proper evaluation, and review our findings with you.
#2: We ask that both you and your husband be there to review the information with our specialist.
I recommend this approach be used when you have a big replacement opportunity.
Which one is right for your business?
There are very good reasons why a company would choose one, or more, of these models to implement.
Most of those reasons revolve around two principles of business:
#1. Supply and Demand
#2. Cost Per Opportunity
However, that’s a conversation for another time.
I want to know how you use service fees in your business. Let me know by commenting on Facebook and Linked In. If you want to talk business, then feel free to send me an email.