ForConstructionPros.com

I was making a presentation to a group of construction equipment dealers' used equipment managers last week and got into a heavy discussion about using their internal service department for maintenance and repairs vs. having their own team of technicians do the work. And of course, I immediately thought how contractors and equipment owners go through this same issue again and again, with many of you having a very hard time turning your work over to a dealer.

Well, I'm sure you've heard the saying: "Do what you do best and outsource the rest." It's a business axiom that seems to be picking up steam as companies strive to find qualified help to keep their businesses running effectively. Using contractors as an example, you can say they primarily "do things or build things" and are not really in the repair business, even though they find themselves in that position on a regular basis.

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Most used equipment managers are billed at a "best customer rate" for any repairs and maintenance required on their used inventory units. They need to get the equipment ready for sale, or they may rent or wholesale it. In every case, however, they need technicians to check the units out to have them ready for the transaction. Contractors have similar service needs, but with faster turnaround requirements.

The "best customer rate" is the service department billing rate charged to a dealer's best customers. Some of you may get that rate now, and therefore know what it is. It will be a rate to cover the cost of the employee, service department support staff, fringe benefits, payroll taxes and other direct costs. Normally, a service department will offer up 20%+ of its revenues to support overhead. It's really not a big spread when you take into account that a dealer's service revenues are approximately 10% of total sales.

The point here is that the service rate is really not going to be much different than what you will spend for similarly trained technicians. In fact, your internal work may cost you more because you don't have controls in place to assign and review work, or because experienced techs are doing routine maintenance, which dramatically increases maintenance costs.