Attention Servicers: It’s Budget Time Again!

As 2022 comes to a close, it’s time to plan ahead for the next 12 months

By Paul MacDonald, ServiceSource

It’s hard to believe it’s December, the last month of the fourth quarter. It’s that time of year when CFOs and CEOs determine profits, losses and tax-planning strategies. It’s also time for service managers to prepare their 2023 budgets.

I guarantee 2023 won’t be any better if you don’t plan for it to be!

If you haven’t already, now is the time to prepare your 2023 budget for the service department and set 2023 technician quotas. The budget exercise is essential to your success in service and to plan what will happen in your 2023 service operations. Profitable service doesn’t just happen; you have to plan for it.

Service departments fall prey to running wild without monthly goals and often fall behind desired results. A budget is essential to identify when things aren’t going as planned. Each month, compare your actual service sales to your budget. When the numbers are off, that is the time to ask why and take corrective action in the department’s day-to-day activities to prevent further disappointments.

To set your 2023 service budget, you’ll need your 2022 year-to-date financials to build your 2023 goals. First, decide how much to increase your service rates. Yes, like everything else, service rates should increase annually. You’ll have to understand your business costs and consider significant expenses, such as purchasing a new service van or tools and any department employee raises in 2023. And don’t forget to take inflation into account, which is currently at 7.7%. Whatever you paid to operate in 2022 will cost 7.7% more in 2023.

See: Don’t Let Inflation Deflate Your Service Department

You’ll also want to calculate department overhead to an hourly cost based on how many hours you’ll be open for service in 2023. This hourly rate is necessary to set your new service rates. A simple method is to take your 2022 expenses and divide them by the number of completed service calls you ran in 2022 and then add 7.7%. Don’t include technician wages in overhead, as you’ll account for those separately.

Service rates equal the technician’s hourly wage plus department overhead plus profit. Multiply the sum of those three numbers by your department’s efficiency (completed calls per day/technician hours paid). This calculation will tell you what your average invoice labor charge (including trip fee) must be in 2023 based on your cost. Then multiply that number by the number of calls you ran each month in 2022 to get your monthly service sales budget. And don’t worry about parts sales; their profits are the gravy!

I like to set service technician quotas for each month of the new year and share them with each tech, so they know what is expected from them for the next 12 months. To do this, I take each technician’s monthly revenue numbers from the prior year and add a percentage based on any changes I’m going to make to increase efficiency. Raising service rates by an inflation factor will become the minimum increase assigned to each technician’s quota. I also check to make sure the technician’s quotas are reflected in my previous exercise’s monthly budget.

With a service sales budget and technician quotas complete, you’ll be set to make profits in 2023, providing you set your service rates based on your recent costs and added a profit. Each month you need to review your sales to budget and technician labor sales to quotas. If they are off, find out why and make corrections to your workflows so that you can achieve your goals.

Profitable service operations require a 30:70 warranty to COD ratio. 

All self-servicing dealers get a pass for the hell they endured during the pandemic. But the pandemic and supply chain issues are over, and it’s time now to plan for service profits.

If you are not currently at 30:70, it will take some planning to sustain your warranty business and grow your COD business. Next quarter I will address increasing and attracting COD business to your service operations. Always remember that service feeds sales and sales feeds service. Your service operations differentiate you from the box stores, and consumers are looking for that service the box stores can’t provide.

While we’re on the topic of year end, don’t forget to roll over year-to-date sales and purchases in your business management system. Knowing how many 341241 Maytag belts you sold last year is crucial so you can buy appropriately and never run out in 2023. First call completes (FCCs) are also essential to profits in service, and having the proper inventory on hand and pre-screening every call is paramount to increasing both.

Happy holidays to you all!

AVB’s senior ServiceSource lead Paul MacDonald ran his own 38-tech service business and is a past president of the UASA. He currently operates the Expert Service Program, which helps servicers run their operations more efficiently and profitably. You can reach Paul at (647) 500-7785 or at

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