Protecting margins amid competing market forces
October 25, 2021
October 25, 2021
By: Shawn Fields, Senior Field Services Strategist, Field Nation
Current macroeconomic trends have put service providers between a rock and a hard place.
Supply chain disruptions are impacting the availability and coordination of parts and materials needed to complete jobs, and equipment costs are rising.
At the broadest level, inflation is impacting every industry. This, in conjunction with the current labor shortage (which is heightening competition for available labor, thereby driving up demand for technicians’ time), is predictably translating into higher technician pay rates.
At the same time, client expectations remain high. Opportunities for broad technological transformation have companies continuing to shop around for the best value available in service delivery.
These dual circumstances put service providers in a bind. Technicians are securing higher pay rates, clients want to reduce costs, and service companies’ margins inevitably suffer as a result.
In field service, there are some things that are simply out of your control. That’s why it is critically important to control the things you can.
As the world waits for the labor supply and independent contractor rates to stabilize, service providers need to think and act strategically. We’re here to help.
This guide is designed to give service providers that use Field Nation tips on how to protect their margins and navigate the current climate of increased pay rates and labor shortages. Additionally, the guide includes some best practices for leveraging the lessons learned in this period into a long-term strategy for building out labor options by becoming a “buyer of choice” among on-demand technicians.
With that in mind, this piece will cover steps that field service organizations can take to:
As market forces push the cost of labor upward, there are specific strategies that service leaders can put into practice to optimize their usage of Field Nation during this period of volatile market influence. These tips won’t reverse the effects of inflation or the current labor shortage, but they may make it easier to maintain productive relationships with on-demand technicians while also protecting your margins.
Talent Pools are a great resource for rapidly routing work to technicians you trust. That said, if you aren’t routinely updating your pools, it’s possible that you’re using overqualified technicians for relatively low-risk work, which often translates into higher rates. Consider continually adding new technicians to your Talent Pools or using Smart Talent Pools to maintain a fresh, diverse set of trusted technicians with multiple skill sets and skill levels that you can turn to based on the technical and financial demands of a particular project.
Every time your dispatch or operations team needs to re-open or re-post or re-review a work order, it impacts the profitability of a project. Building out your provider assessments can help your dispatcher quickly filter out techs that are wrong for the job before making a phone call, and leveraging SmartAudit can help by automatically approving work orders based on your custom, predefined criteria. Auto Dispatch also lets you set up rules that facilitate the mass deployment of work, which saves you time and money. For example, let’s say a dispatcher who handles 20 work orders per day has a loaded cost of around $50,000, which equates to about $205/day. If that dispatcher leverages automation tools and improves their productivity from 20 to 30 tickets per day, the cost per ticket falls from $10.25 to $6.84. That improvement of 10 tickets per day saves you half the cost of another dispatcher – about $25,000 in loaded costs.
Service delivery companies turn to blended rates to keep the task of determining cost streamlined. After all, if you’re setting pay rates for 1,000 jobs, it’s difficult to align each job with a different, hyper-specific rate. However, overreliance on blended rates can lead to overpaying for certain skill sets in certain geographies. MarketSmart™ Insights can help you in three areas here by helping you 1) deliver on the price you set while protecting margin, 2) set competitive rates to win RFPs, and 3) recapture deals lost in scenarios where a blended rate that just doesn’t “hit the mark” with a client.
If you’re using MarketSmart Insights on Field Nation Premier, you know that the tool gives you prevailing market rates that include a range between the 25th and 75th percentile of standard pay rates based on the type of work and the location of that work. This data makes it easier to flex your rates based on how much risk you determine is appropriate for a particular job. For example, if a job is for a high-value client who does a lot of work with your business, it probably makes sense to pay in the higher (75th percentile) range. In lower-risk scenarios, however, it might make sense to source a tech willing to take a rate in the 25th percentile and preserve margin. To make the most of this strategy, it may make sense to adjust the period over which Marketsmart Insights is gathering and averaging data from 12 months to 12 weeks. By exporting this 12-week data, you can access up-to-date ranges that better capture the state of changing independent contractor pay rates.
The platform-specific suggestions above save you money by diversifying your toolkit when it comes to building and maintaining relationships with technicians. The tips in this section are catered toward your relationships with your end clients.
In general, committed pricing contracts are not a great idea right now. They will lock you into a rate with your clients during a period of high inflation and precarious margins. Of course, long-term contracts aren’t inherently bad – they provide a steady stream of business, after all – but they need to be negotiated carefully. If you must sign multi-year contracts, make sure those contracts tie the rate increases to some type of inflation index. Steve Salmon, Field Nation’s VP of Business Development, had this advice: “I recommend making these inflationary adjustments based on the Consumer Price Index. Normally, these adjustments happen on an annual basis, but I recommend trying to adjust on a more frequent basis.”
The ARC/RRC method is a popular strategy for managing pricing in outsourced assets that accommodates volume fluctuations for the in-scope services. In essence, these methods establish price points for each resource unit metric (tickets, endpoints, servers, etc.) that are appropriate for baseline volumes of work. This allows service organizations to manage fluctuations in volume above and below that baseline with either Additional Resource Credits (ARCs) or Reduced Resource Credits (RRCs). For more details on how this method works and how it might add value to your contract negotiations with clients, consult the following resources:
If you know about an upcoming project well in advance, use that to your advantage. Plan ahead, engage on-demand talent at a market competitive price, and give yourself plenty of time to find the right technician at the right rate. Scenarios where you have quick turnaround times are more likely to result in higher pay rates.
Obviously, this is easier said than done. But if a contract is losing you too much money, sometimes the most cost-effective option is to make the tough decision to walk away, even if that entails paying some sort of penalty. Naturally, this is a last resort for most service companies, but when it comes to thinking broadly about how to protect your margins, it’s a good option to keep on the table.
Understandably, the immediate goal of service organizations is shepherding their company through a period of inflation, labor shortages, and precarious margins that are threatened by these two other issues. In the long run, it’s crucial that service organizations translate the lessons learned during this period into enduring best practices that set their businesses up for success.
Most importantly, it’s critical that service organizations devote energy and resources to becoming “buyers of choice” – that is, buyers who technicians know they can return to consistently for mutually positive outcomes. The next time labor is tight, your reputation for being a buyer of choice will boost your competitive edge among the marketplace of buyers that use Field Nation.
Here’s how to break this goal down into concrete behaviors that service organizations can put into practice:
Understandably, the complicated and overlapping factors shaping the current market dynamic can leave service leaders feeling as though they are working with a severely constricted set of options. But as this guide shows, there are several ways to lead your company through this moment and come out stronger on the other side. If you are looking for more insight on how to navigate these ongoing conditions, don’t hesitate to reach out to a Field Nation account or customer service representative with any questions you have.
"In field service, there are some things that are simply out of your control. That’s why it is critically important to control the things you can."
ABOUT THE AUTHOR
Shawn Fields brings more than 30 years of IT industry experience to Field Nation — with expertise aiding clients in retail, financial services, manufacturing, life sciences, food and beverage, state government, IT, and utilities. He has successfully led the entire spectrum of IT services in the outsourcing arena, advising notable clients like Intel, GE, Citi, NASA, Rockwell Automation, Coca-Cola, Honeywell, AT&T, Bank of America, Booz Allen Hamilton, SunTrust, Georgia-Pacific, Southern Company, Levi, and BMW. Additionally, Shawn had led innovation, design thinking and digital transformation projects for large clients across multiple continents.
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