By Peter Lyle DeHaan , PhD
A few years ago I bought a new car. Although it wasn’t my practice to take my car to the dealer for maintenance, a new car changed that habit. After all, there was warranty work to be considered and their coupons for low cost oil changes were enticing.
About the time my auto servicing behavior was firmly altered, the warranty ran out and the discount oil change incentives stopped. Still, I continued returning to the dealer for service. It was smart marketing on the part of the dealer. Too bad their efforts were thwarted.
It was time for my regular oil change and I had a list of other things that needed attention. Since I’m not a mechanic, I try not to tell them what needs to be done, but rather inform them of symptoms. I want to make sure that I don’t ask for, and pay for, a tune-up when the problem may be a loose vacuum hose. It only took one passive-aggressive mechanic to do exactly what I said, while ignoring the real problem, to drive this point home.
When I dropped off my car, I said, “It is time for an oil change. Also, the car pulls to the right and it starts hard and runs rough.” I left anticipating that they would change the oil, do a front-end alignment, and give the car a tune-up. I estimated the cost would be about $100.
Later, I was somewhat taken aback when I was presented with a $175 bill. As I read the paperwork, my mild surprise changed to anger. Here is what it said:
- Change oil: Oil, lube, filter, labor: $24.95
- Car pulls to right: Test drove car; recommend front end alignment: $19.95
- Hard to start: Instruct driver not to press gas pedal while starting vehicle: $56.00
- Runs rough: Perform engine analysis; checks okay; do tune-up in 3,000 miles: $75.00
So, for $175 I had my oil changed and was given some costly advice. My complaints to the service manager accomplished nothing, so I left and never returned. Once again, my local mechanic, who I trust to do good work and to be fair and honest, is servicing my cars.
Like many businesses, car dealers measure the work their employees do. Mechanics are checked to make sure they are productive throughout the day, that they document and bill for all of their time, and that they complete their work within the “standard” allotment. Mechanics who meet expectations are given raises and promotions; mechanics who don’t, even when it’s in the customer’s best interest, are given poor reviews, lower raises, or let go. Some garages pay their mechanics based on billable work. Therefore, the more they bill, the more they make. I think I’ve been to those places, too. At one shop specializing in unusual foreign cars, it seemed every bill was always around $500. They weren’t in business long.
Other people also bill by time. Lawyers and accountants come to mind. I have been advised to never use an attorney trying to make partner. In order to get the attention of the other partners, he or she will need to log over 2,000 billable hours a year and their clients will pay the price.
I once called my CPA’s office to discuss converting my IRA to a Roth IRA. I talked with the junior member to whom I had been assigned, asking if there were any other tax ramifications I should know about. She said there weren’t and suggested she do an analysis for me. “No, that is not necessary.” I replied, “You confirmed what I needed.” “But we just got this new program that I want to try out,” she begged. “Will you let me do an analysis for you?” Thinking that I was doing her a favor, I consented. The call took less than a minute. A few days later, I received a one page spreadsheet telling me that I should switch to a Roth IRA and a bill for $100. The managing partner agreed the charge was unwarranted, but insisted that I pay it anyway! He promised to “make it up to me later.” I quickly found a different tax advisor.
Many years ago (actually, three decades), a friend landed a summer job repairing TVs. He was paid 20% of whatever he billed. Being enterprising, he analyzed the rate chart and quickly determined how he could add $35 to each bill for only a minute and a half of additional work. He would take the back off of the unit and hit it with a burst of compressed air, charging $8.00 to “clean chassis.” Next, he would squirt the tuner with cleaning spray, charging $10.50 to “lubricate tuner.” Then he would turn on the set. If the filaments of the vacuum tubes glowed, he would bill $16.50 to “check all vacuum tubes.” With these rudimentarily tasks completed, he would then repair the problem and add to the bill accordingly. He earned a lot of money that summer.
It has been said, “What gets measured, gets done and what gets paid for gets done better.” Consider what you are measuring in your organization and what you are paying for. The intent, no doubt, is to improve your operation, be it to pursue greater efficiency, increase production, decrease costs, or maximize revenue. But carefully consider the consequences. In an effort to please you, maximize their rating, or earn a raise, are your employees directly or indirectly encouraged to do things that ultimately drives away customers, lowers quality, or hurts your business?
If you monitor productivity, does your staff, either intentionally or subconsciously, alter their work habits to appear more productive? Does staff assume they need to work faster, thereby setting aside quality? If your customer service staff, programmers, or project managers track project time, is unnecessary work preformed? Are time logs padded? Do they think they need 2,000 hours of “billable” time a year to get a raise?
Do your commissioned sales reps sell what isn’t needed or wanted so that they can meet their quota or earn a bonus? Do you have a “no credits” policy, either stated or implied, that leaves staff with no viable solution for frustrated customers?
Lastly, consider billing. One only needs to look at phone company bills for examples of how to do it wrong. First of all, does anyone really understand their telephone company’s bill? Can the phone company reps comprehensibly explain it? Often they can’t. Consider the countless surcharges, fees, and taxes tacked onto each bill. These ancillary charges are blamed on the FCC, credited to an esoteric law, or attributed to local or state government. On my long distance bill I pay more for other charges than for usage.
What message do your invoices send? Are they easy to understand and read? Can your staff correctly and concisely explain every line item and charge? Are you billing surcharges and blaming it on outside forces?
Yes, there are sound business reasons for each task that you track and measure; these practices can leave your business stronger and more fiscally sound, but there’s also a risk. Don’t be “penny wise and pound foolish” when it comes to measuring your business; being astute and pragmatic – from the customer’s perspective – will ultimately produce the result you want.