The Hidden Cost of Service

Many technicians wonder why the company bills $100 an hour for their work even though they make $20 and hour. The implication is that if they could collect the $100 for themselves, they would be rich! What follows is a short article I did a few years back in an attempt to answer that specific question. Some of the dollar amounts quoted can vary a good bit from one location to another, and also vary with time. But the basic principles remain the same.

The Cost of Providing Service

The cost of operating a business is an investment which is made with the expectation of receiving a financial return. Logically, why should someone invest a large sum of money in an air conditioning business if they are not going to make at least as much money as they would earn at the bank on that same investment?  For example, look at investment required to purchase a truck, tools, and supplies to put a service truck on the road. A modest truck with minimal tools and parts would easily be $120,000. If the business owner invested in bank notes and bonds, they would earn $6,000 to $12,000 with far less trouble or risk. But that is just the start. 

The original cash investment will not depreciate with time but the service truck will. After 5 years the truck and tools will need to be replaced. So $120,000 must be collected over the span of 5 years to replace the initial investment. That brings the annual total to $30,000 to $36,000 just  to recover your original investment and make a return comparable to bank returns. But there is more.

The truck will need insurance, maintenance, and gas if it is to make any money. This can easily run $100 a day. A service technician will be needed. If the technician is earns $20 an hour, their cost to the company is at least $30 per hour by the time mandatory obligations like social security, unemployment insurance, and health insurance are factored in.  Over a year this works out to $67,600 per year. But wait, there is more.

Unless this is a one truck service company, the company needs a place of business. This represents a much larger investment than the truck, but it is spread out over several trucks. Besides the obvious cost of owning or leasing the business, there is the cost of utilities, maintenance, and insurance on the building. These costs vary widely from one business to another, but it is common for the business overhead cost to be at least as much as the truck cost, so add another $30,000 to $36,000 per year for this truck’s share of the business overhead. 

A tally of these costs reveals that the truck will need to make $139,600 per year just to preserve the original investment and make a modest return that could be gained through bank deposits and bonds. Assuming that the truck is busy 52 weeks a year, 5 days a week, it needs to make $67 an hour just to recover the company’s investment. Also note that this cost does not stop if the truck is not working. If the truck averages 6 billable hours a day, the rate must increase to $90 per hour to cover the cost. 

Notice that the company now must charge $90 an hour to simply recover their cost even though the technician is only earning $20 an hour. If the company does not collect this much money, it will lose money and the technician is out of a job.  Please realize that these figures are for illustration only, every company’s costs are different. What is consistent from one business to another is that there are many costs besides the obvious ones and that failure to recognize and account for these costs will certainly result in failure of the business. 

Keep Outside Combustion Appliances Outside

Every winter I hear a few sad stories of people getting ill or dying because they decided to operate an outdoor combustion appliance inside their house. Most often, this occurs during a power outage. One example, someone decided to bring their charcoal barbeque grill inside the house to cook because it would also provide heat and they wouldn't have to stand out in the cold. They didn’t realize that burning charcoal creates lots of carbon monoxide. Their daughter got deathly ill, so they rushed her to the hospital. Fortunately, that got everyone out of the house and she recovered. Charcoal tells you right on the bag not to do that, but we don’t all read the instructions. You also hear about people running generators inside. Last year in Atlanta, a family died of carbon monoxide poisoning due to carbon monoxide from operating a generator in their basement overnight during a power outage. Gasoline engines should never be operated inside. A simple rule for staying safe is: if it is normally operated outside, keep it out there. Although there are probably many creative ways to use outdoor tools and appliances inside, there is usually a reason they are designed to be operated outside. I am sure most folks involved in HVACR already know this, but many of your friends and acquaintances may not. So do folks a favor, pass the word that charcoal grills, generators, and gasoline powered tools should stay OUTSIDE!  

Is Your Building Automation System Safe?

You may not think network security is a big issue with HVAC systems. After all, who would want to hack into an HVAC control system, and for what purpose? It turns out that hacking an HVAC password can be very lucrative. The infamous Target infiltration has been traced to a hack of an air conditioning contractor’s password. That’s right, the security breach involving millions of credit card purchases made at Target stores all over the country was due to hacking the password for the air conditioning controls. The building control system was connected into the same network as the cash registers. So when the thieves got past the HVACR security, they had free reign of the Target system. I feel that whoever decided it was a good idea to have the cash registers and the thermostats linked on the same network is really more to blame than the HVACR guy – but I am obviously biased. 

This should be a wakeup call to any HVAC or building automation contractor doing networked controls. Insist on a separate network. Or at least, put the HVAC and building stuff behind a firewall. What you should absolutely NOT do is accept the responsibility of just tying in to the existing network. A manager or building owner might suggest that you could just tie in, not realizing how dangerous that is. I don’t know a great deal about network security, but I do know that the more people know a secret, the more likely it will become public. Similarly, the more access points and passwords you have into a network, the less secure it will be. If all that is at stake is the boiler reset schedule, then maybe that is OK. However, if the bank financial records are tied to the same network as the HVAC, the disaster potential is great. On a brighter note, there seems to be no evidence that the Target thieves messed with the thermostat setting.

Scholarships for HVACR Students

The HVACR Industry needs people. Several organizations with an interest in the HVACR industry are offering scholarships to encourage more students to study for a career in HVACR. Why? Specifically to address a critical shortage of trained technicians the HVACR field. They need applicants for these scholarships. They will pay you to study a field with a chronic lack of trained people so you can earn a good income when you graduate. In a time when jobs are hard to get, and college costs are high, here is an industry willing to pony up cash as an incentive to train for a profession with a true career ladder, good paying jobs, and very good employment prospects upon graduation. These jobs cannot be outsourced, they will not be replaced by automation, and they require education and training to perform – you won’t be replaced by unskilled laborers. HVACR jobs are nationwide – really world-wide, so you are not tied to a particular company or location. There are many types of positions, so advancement is common. Here is a short list of promising scholarships.

AHRI Ted Rees Scholarships
The scholarship is named after Ted Rees, a longtime president of ARI. Money has been donated by many AHRI member companies as well as other businesses in the HVACR trades. To find out more about what you can do to apply for a REES Scholarship, check out http://www.ahrinet.org/rees+scholarship.aspx

Grainger Tools for Tomorrow Scholarships
Grainger awards many Tools for Tomorrow scholarships throughout the country which include both financial support and a tool kit. See scholarship details at
http://www.grainger.com/images/TFT-Fact-Sheet.pdf

Hilmor Retool Your Future Scholarships
Hilmor Retool Your Future is an awesome scholarship. This coming year they will select 6 winners who will receive $5,000, tools, and a trip to the AHR show. The contest for the coming year has not opened yet. Stay in touch with Hilmor at Facebook to get details on the new contest when it is announced.
https://www.facebook.com/hilmortools

Nexstar Legacy Scholarships
The Nexstar Legacy Foundation has a mission “..to recruit More Quality Technicians to the Industry.” They sponsor scholarships to make this happen. Check them out at http://nexstarfoundation.org/

PHCC Scholarships
The Plumbing, Heating and Cooling Contractors Association, PHCC, offers scholarships through the PHCC Scholorship Foundation. Check it out at
http://www.phccweb.org/Tools/content.cfm?ItemNumber=10677&navItemNumber=10156