Three key factors driving up field service costs in 2022

Cost matters––to field technicians and service delivery companies alike. For service leaders, getting work done at an optimal price point is absolutely critical.

But rates are subject to market conditions, and this can be a double-edged sword. Over the past year, technical resource costs in the field services space have risen roughly 10 percent across the board, with some variance based on type of work and service-level agreement (SLA) turnaround. Market conditions are impacting the field service bottom line across three dimensions: travel, labor, and equipment costs.

Understandably, this is a painful development for managed service providers that depend on skilled labor to provide core offerings. But by analyzing industry data alongside broader market insights, field service leaders can plot a route forward through this period of unprecedented field service opportunity. 

What is driving up field service costs?

The cost of labor is rising across industries. According to the U.S. Department of Labor, the average wages of private-sector workers increased by 5% over the course of 2021. This effect is more pronounced in certain industries, and it is relatively high in the information technology space. In 2021, the wage growth for IT workers who switched jobs was 12.2%. 

High demand for these services is playing a role in this increase, but the dramatic rise is also being driven by the fact that much of this work is maintenance-driven and therefore comes with a stringent SLA. As the SLA responsiveness window tightens, the pay rate goes up.

Three key factors are behind this growing demand: rising inflation, the great technology retail reset, and the evolving field service workforce.

Factor #1: Rising inflation levels

If you’ve so much as glanced at the news recently, you’re aware that inflation levels in the United States have reached their highest levels since 1982. The current annual inflation rate is hovering around 8.3%, with the possibility of rising further.

This impacts nearly every dimension of field service. Gas costs are up 47%, and overall travel costs have increased by 6%. Additionally, equipment costs are up 18%, which impacts all types of work including cabling, printer, CCTV/alarms, pro A/V, digital signage, and more.

Factor #2: The great technology reset in retail

Cost increases are also at least partially attributable to the once-in-a-generation technology refresh currently underway in retail.

The pandemic put pressure on retailers to support multiple modalities including in-store, online, and “buy online pick up in-store” (BOPIS). Retailers want to provide continuity between brick-and-mortar stores and corresponding retail websites, which means increased demand for connected devices. Lingering labor shortage issues have also sped up the industry’s adoption of self-checkout technology, increasing the need for point-of-sale work.  

Retailers are thinking expansively about the technological future of their operations. In fact, a recent IHL Group 2022 Retail Experience Market Summary shows that “winning retailers” (i.e., retailers with sales growth of 10% or more) are spending 47% of their IT budget on new systems and innovation.

Factor #3: An evolving field service workforce 

According to TSIA, 46% of field engineers are over the age of 50, having joined the industry alongside the technology investments of the 1990s. This means that a potential labor shortage was already looming over the industry before COVID-19 exacerbated the issue.

What’s more, the labor shortage has had a paradigm-shifting impact on entry-level work. Young people just entering the labor force are gravitating toward types of work that don’t demand the levels of travel and technical expertise associated with field service. Attracting young professionals to the field service space will be a major concern in years to come.

Retaining technicians will also be key. Burnout is causing many to quit, change careers, or hesitate before reentering the field service workforce. The Service Council indicates that 60% of field service engineers aged 26-40 aren’t sure they’re going to stay in the profession.

What’s next for field service leaders?

As market conditions continue to drive up field resource costs, field service leaders will have the difficult task of protecting margins amidst competing market forces. It will be more important than ever to take a hard look at operations and make judicious decisions around cost-effectiveness and coverage. For field service leaders, market intelligence is now more important than ever, serving as the true reflection of the market reality and direction. Field service leaders must also embrace a strategy that employs the right mix of variable and fixed labor with a focus on optimizing coverage to reduce travel. This will be critical when it comes to managing the fluctuations of the macro labor environment and reducing the impact of rising travel costs.