Top 5 Service Business Stats
Blended Customer Billing Rates
Customer billing rate is what you charge all of your customers on average per unit of service. This information can be very useful when it comes time to figure out what bid on a new contract or forecast next year’s revenue. It can also give you a heads up if major customers start changing their request behavior or catch costly billing mistakes.
How it’s calculated...
Service Revenue
The total amount billed across all customers for the same service for a period of time (monthly/quarterly/annually).
TOTAL UNITS SOLD
The total amount of units (hours, days, jobs, etc.) billed out to all customers for the same service.
When creating a report its best to see the blended billing rate (by service) month-over- month and the overall average ytd (per service) on one report. It’ll help you to understand the seasonality of your business and allow for other practical business intelligence applications.
Example:
Last Chance is a company that provides temporary nursing and CART support provided $300k in Nursing services and $200k in CART services last month across all customers.
They charge their nursing customers by the half day and they provided 600 half days last month. CART customers get charged by the hour and they provided 1k hours of support last month.
As shown in the calculations, last month Last Chance on average billed customers $500 per half-day for nursing services and $200 per hour for CART services.
The units of service can be different (half-day v. per hour) for different services, but if you have multiple units within the same service you will need to do some conversions to ensure all the units are the same before performing the above calculation.
How you use it...
The application of this metric is simple and straightforward. It can inform how you plan resources during busy times and forecast future revenues for next year’s budget. Checking this number monthly as a part of your monthly close will give the opportunity to catch a billing mistake before too much time has passed, giving you the opportunity to fix any issue.
The most common applications are:
Help determine your next contract price bid
Catch billing mistakes
Identify changes in customer request behavior
Forecasting future revenue
Used in the calculation of advanced business statistics like Gross Profit Margin (GPM)
Once you get into the habit of tracking this number you will notice that as your business matures the blended billing rate should not move much month-over-month unless something major has happened. That is to say, the monthly trend data is just as important as the actual value of the calculated blended billing rate.
Reasons the blended billing rate might move:
2. Heavy swings in request volume from key customers with significantly higher (or lower) rates.
3. Invoicing mistakes! Such as not (or double) billing key customers or charging the wrong rate for a service.
At month close you calculate your blended customer rate and compare it to recent months blended rates or last years blended rate for the same month. If the blended billing rate is on par with recent months or with last year’s rate for the same month then your business is performing as expected and there is nothing more you need to do here.
But if you notice your blended customer billing rate has jumped up (or down) substantially, you can start by checking in the three (3) places mentioned above.
Digging around in these areas should reveal a satisfactory explanation as to why the blended rate has shifted, which will be good information to know. Or your research may reveal a customer invoicing mistake that you will want to correct right away. In either case, it’s time well spent to ensure your business is operating at its optimal capacity.
Not possible to show any billing info in dashboards, but from the Customer Billing report you can filter by the service and date range and then take the grand total/total time (in hours).
Blended Service Provider Pay Rates
The blended Service Provider (SP) pay rate is what you pay all of your SPs on average per unit of service. This rate is the cost counterpart of the blended customer billing rate discussed in the earlier section. Much like the blended billing rate, the blended pay rate information can be useful when negotiating rates with new SPs or forecast next years Cost of Goods Sold (COGS). It can also help you to catch costly SP payment mistakes.
How it’s calculated...
SERVICE COSTS
The total amount paid out across all SPs for the same service for a period of time (monthly/quarterly/annually).
TOTAL UNITS SOLD
The total amount of units (hours, days, jobs, etc.) sold to all customers for the same service.
* Often the number of units sold to customers and the number of units paid out to SPs do not match. There are many reasons that could cause this to happen. I recommend using the number of units sold to customers for the purposes of this calculation.
These stats should be presented on the same report as the blended billing rates (by service) month-over-month and the overall average ytd (per service) on one report. It’ll further your understanding the seasonality of your business and pave the way for advanced profitability metrics.
Example:
Revisiting the earlier example with Last Chance and their business providing nursing and CART services. Last month Last Chance paid out $180k in Nursing services across all SPs and $140k in CART services last month across all SPs.
They pay their nursing SPs by the half day and they provided 600 half days last month. CART SPs get paid by the hour and they provided 1k hours of support last month.
As shown in the calculations above, last month Last Chance on average paid SPs $300 per half-day for nursing services and $140 per hour for CART services. Just as we saw with the blended billing rates the units of service can be different (half-day v. per hour) for different services, but if you have multiple units within the same service you will need to do some conversions to ensure all the units are the same before performing the above calculation. Additionally, the units should be the same for both the customer billing rate and the SP pay rate within the same service. This will allow for a seamless calculation of the GPM in the next section.
How you use it...
This metric can inform how you plan resources during busy times and forecast future COGS for next year’s budget. Checking this number monthly as a part of your monthly close will give the opportunity to catch a payment mistake before too much time has passed, giving you the opportunity to fix any issue.
The most common applications are:
Help with SP rate negotiations
Catch payment mistakes
Identify fluctuations in SP Utilization (discussed later)
Forecasting future COGS for budgeting purposes
Used in the calculation of other advanced business statistics like GPM
Once you get into the habit of tracking this number you will notice that as your business matures the blended SP pay rate should not move much month-over-month unless something major has happened.
Just like the blended billing rate, the monthly trend data is just as important as the actual value of the calculated blended pay rate.
Reasons the blended pay rate might move:
2. An overall increase (or decrease) in SP rates.
3. Invoicing mistakes! Such as not (or double) paying SPs or paying the wrong rate for a service.
At month close you calculate your blended SP pay rate and compare it to recent months blended pay rates or last years blended pay rate for the same month. If the blended pay rate is on par with recent months or with last year’s rate for the same month then your business is performing as expected and there is nothing more you need to do here.
But if you notice your blended SP pay rate has jumped up (or down) substantially, you can start by checking in the three (3) places mentioned above.
Digging around in these areas should reveal a satisfactory explanation as to why the blended pay rate has shifted, which will be good information to know. Or your research will have revealed a SP payment mistake that you will want to correct right away. In either case, it’s time well spent to ensure your business is operating at its optimal capacity.
Not possible to show pay information in dashboards, but from the Service Provider Pay Report you can filter by the service and date range and then take the grand total/total time (in hours).
Gross Profit Margin
Gross Profit Margin (GPM) is the percent of revenue left after paying out the SPs providing the services to earn that revenue. In service businesses the largest cost is usually the cost of the SPs. Simply put your GPM will tell you what percent of every dollar of revenue will be available to cover your overhead costs and drive your company’s profitability. This arguably makes your GPM the most important metric to track the performance and long- term viability of your business.
How it’s calculated...
METHOD 1:
If you are preparing a report that contains the blended billing and pay rates discussed earlier, then this calculation method will work best when presenting the data all together in one report. The calculation is easily repeated for each service as all of the necessary data will already be in the report and in the correct format.
METHOD 2:
If you are working from your financial statements and do not have a blended billing and pay rate report available, then this method will get you quick and accurate results for GPM. Best practice is to have revenue and COGS broken out by service so that you can calculate GPM individually but if you do not have the data broken out by service you can calculate an overall GPM using this same method.
Example:
Continuing with our assessment of Last Chance’s business metrics we will calculate their GPM using Method 1.
NURSING GPM
CART GPM
Now we know that 40% of every dollar earned in Nursing and 30% of every dollar earned in CART will go to cover overhead and profitability. All things being equal Nursing services is a more profitable business than CART services, and a savvy business owner would look for ways to expand the Nursing service if possible.
How you use it...
Though GPM is an extremely important metric to track, but it cannot stand on its own. You might have a service line that has excellent margins but there is not much demand for the service. Meaning the requests you do get are very profitable but you don’t get enough of them to support your business.
Alternatively, you may have a service where you receive multiple requests daily but the margins are much more modest. The volume of these requests multiplied by the GPM earned on each dollar could in fact sustain your overhead and contribute to overall profitability.
One way to think about your services is to consider the high volume low margin work as “keeping the lights on” and the low volume high margin work as the “cherry on top” for the end-of-year bonuses.
Below is a simple table to demonstrate the relationship between margin and volume:
Not a bad thing as long as it doesn’t cost you too much in overhead to handle the request. Might want to consider making some incremental marketing investments to drive up volume.
A necessity to keep your business solvent. Focus on efficiency and keep your overhead down.
Cut bait and run. You are likely losing money providing this service and your resources are better used elsewhere.
The most common applications are:
BUDGETING/FORECASTING - Planning for future quarters or years most start with what revenue they expect to earn per service. Then you can apply your historical GPM (per service) to determine how much of that revenue will go to the SPs and how much will be left for overhead and net profit.
SERVICES - Deciding which services you should focus on versus consider discontinuing based on profitability (as described in the table above).
KEY CUSTOMERS/INDUSTRIES - Some companies will go one step further and look at the GPM by customers (or segments of customers). You may find that some customers are not worth the trouble and they cost you more than they pay you. You may also discover that particular industry types are performing much better for your business than others and alter your business strategy in those industries.
BENCHMARKING - Once you get visibility to your various GPMs you can come up with strategies, such as increasing focus on a particular industry or service, to increase GPM and/or revenue overall. You will know if those strategies are working or not based on the resulting trends to your GPM.
Reasons the GPM might move:
GPM is a calculated value that is a result of changes in other metrics. Blended bill/pay rates are a direct result of operational and strategic decisions, GPM calculated based on their resulting behaviors. If you notice your GPM moving up or down it will be because either/both of your blended bill/pay rates have moved and you will need to start digging around there to discover the reason for the fluctuation in GPM.
You can only see the GPM of contract days from dashboards, but to see the GPM overall you can go to the Gross Profit Margin Report. Once you filter for the service and date range you’ll see the GPM in the summary at the top.
FILL RATES
Virtually everyone in the business of providing services has been in a position where they are unable to fill a customer request. Your fill rate is the percentage of requests you are able to successfully fill for your customers versus having to turn down the work.
The fill rate concept and the formula used to calculate it is straightforward, but a business’ ability to accurately track fill rates is notoriously difficult. The # of units filled is easy enough to accurately capture as customers received invoices for these units. But what about the # of units requested? Many businesses will claim to have 99-100% fill rates but the devil is in the details on how well the # of units requested data is captured.
Think about it ...
In the real world why do requests go unfilled?
Maybe you don’t have enough SPs, which could happen for a myriad of reasons and almost none of them are good. You might have had some people call out that day and you are putting out fires trying to make the necessary scheduling adjustments. A customer submitted a request a few hours before they needed the service and you don’t have anyone to fill it. Maybe you didn’t have anyone covering the request inbox and the request was missed. This is the daily chaos known to virtually all service companies.
To accurately capture the # of units requested, you are effectively asking someone to log every and all requests even the ones they know will not be filled. Log every phone call, email, or other methods customers make requests during the most chaotic times. This is a very difficult ask, especially if you do not have a good system to log these requests.
The best practice for fill rate tracking is choose a reasonable method of capturing the # of units requested that you can consistently keep up with. That allows the trend data to be useful and we accept that the actual fill rate calculated is the best-case scenario and the true fill rate is likely a bit lower. And beware of companies boasting impossibly high fill rates as they are likely not logging all of their # of units requested.
How it’s calculated...
#OF UNITS FILLED
The total amount paid out across all SPs for the same service for a period of time (monthly/quarterly/annually).
# OF UNITS REQUESTED
The total amount of units (hours, days, jobs, etc.) sold to all customers for the same service.
*Any business unit can be used for both the filled and requested services as long as they are consistent.
Example:
We know from our earlier examples that Last Chance provided 600 hd units of nursing services and 1000 h of CART services. In checking the request log we find that 660 hd of nursing units and 1030 h of CART units were requested.
NURSING GPM
CART GPM
Based on the fill rates by service it is evident that Last Chance is performing better at filling their CART requests (97%) versus their Nursing requests (90%). Furthermore, if we utilize our blended billing rates and GPM we can determine how much Gross Profit Last Chance left on the table last month.
NURSING $
OPPORTUNITY LOS
CART $
OPPORTUNITY LOST
Last month Last Chance missed the opportunity to generate a minimum of $13,800 in Gross Profit across both services.
How you use it...
It’s true that unfilled requests is effectively money on the table that would have otherwise been earned, but that is not always a bad thing. Often businesses find that there is a sweet spot where a certain percent of requests going unfilled is actually more profitable overall than if they have resources on standby in order to ensure every job is filled. Sometimes the cost required to achieve 100% fill rate outweighs the benefit, and a 97% fill rate would have netted you more profit at the end of the day.
The most common applications are:
DETERMINE $ OPPORTUNITY LOST - As shown above the fill rate can be used to calculate how much gross profit was left on the table over a period of time. Now this does not include any extenuating costs for SPs or possible increases to overhead that may have been needed to successfully full those requests.
SP RESOURCE PLANNING - Using the trend data businesses may be able to identify recurring cycles in their # of units requested and plan accordingly. That is to say, during the busy times of year or days of the week a business could take on more reserve SPs because history has shown them that customers will on average make more requests. This will allow businesses to capture some of the $ opportunity lost at a minimal cost.
KEY PERFORMANCE METRICS - If you are looking at your business’s fill rate for a handful of customers (likely your most valuable customers), it is much easier to achieve an accurate fill rate calculation. The customers that are concerned with this sort of thing often have a good handle on their total # of units requested. Business providing superior services to those customers can use this metric to highlight their performances. In some cases, businesses could opt to seek performance incentives for exceptional fill rates.
Reasons the Fill Rate might move:
2. An increase in overall requests, short notice and/or hard to fill requests.
3. Shortage of SPs to fill requests.
4. Under performance or staffing of the operations team responsible for receiving and filling customer requests.
You could set up a dashboard widget for total requests and one for filled requests and then manually calculate it from there, but it would make more sense to use the Fill Rate Performance report. You can filter by the highest level group in the site for the desired rate range. Then you can see the fill rate performance, by metric, for all groups. Note that this is across all services, so if you wanted service-specific fill rates you’d have to manually calculate.
SP Utilization
SP Utilization is the percentage of the SPs time that is billable to a customer versus what was paid out to that SP. Many service businesses do not talk about or track SP utilization and it is the number one killer of GPM and overall profitability. In the day-to-day operations it’s very easily overlooked but fairly easy to track from a management perspective.
If you have ever found yourself looking at your financial statements and thinking to yourself: Where did all the money go? The answer 9 times out of 10 will be found in the SP utilization. It is so easy to overlook SPs being paid more units than are billable to customers, or to double book a request and have to eat the cost of 2 SPs while only being able to bill a customer for one. This is especially true of companies that are disorganized or experiencing accelerated growth for which they are not prepared.
How it’s calculated...
# OF UNITS SOLD CUSTOMERS
The total amount of units (hours, days, jobs. etc) sold to all customers for the same service.
# OF UNITS PAID TO SP
The total amount of units (hours, days, jobs, etc.) paid to all SPs for the same service.
*If your business has different types of SPs; such as some are staff or independent contractors. Then you will likely need to further separate out the SPs into smaller groups where they are scheduled and paid the same within their respective groups.
Example:
For the purposes of this example we are going to assume that Last Chance only deals with one type of SP per service. We know from our blended billing rate calculation that Last Chance billed Nursing customers 600 hd and CART customers 1000 h. After looking at the payroll register we have learned that Last Chance paid Nursing SPs 720 hd and CART SPs 1100 h.
NURSING
SP UTILIZATION
CART
SP UTILIZATION
In other words, nursing SPs were billable for 83.33% of the time they were on the clock and CART SPs were billable for 90.09% of the time. Just like with fill rate we can use SP utilization and blended pay rates to calculate the amount of $ lost to inefficiency.
LOST
NURSING $
LOST
CART $
Last Chance lost a whopping $50k in potential Gross Profit due to its SP Utilization efficiency.
How you use it...
The cardinal sin for service businesses is to pay out SPs for units that are not billable to its customers. And it happens all the time! Many companies do not take the time to compare the units they pay out to their SPs to the units they bill their customers. They look at the Revenue dollars and the COGS expense and get on with their businesses never knowing that if they looked at the units they might have realized the amount of waste within those numbers and come up with a plan to improve their inefficiencies.
The most common applications are:
WASTE REDUCTION IN YOUR COGS - Any $ savings in your COGS that result in the same number of units sold to your customers will fall directly to the bottom line and increase overall profitability.
CATCH PAYMENT MISTAKES - If a SP gets paid twice for the same request or maybe more units than they should have due to an error the blended pay rate will go up and SP utilization will go down.
KEY PERFORMANCE METRICS - SP utilization is a finite number and easily calculable after the all of the services are provided. Employees that have a direct and daily impact on SP utilization often do not have visibility to the bottom line. A business may decide that it is wise to make the SP utilization visible to those in tasked with making these decisions and offer bonuses or other compensation for excellent SP utilization performance.
Reasons the SP Utilization might move:
More times than not SP utilization is driven by daily operational decision making and mistakes. Often it’s a result of agreements made with SPs to incentivize them take requests or an oversight resulting in forgetting to cancel a SP from an assignment that a customer cancelled, etc.
The challenge with SP utilization is not calculating the overall rate, but rather to figure out why. A business needs the ability to drill down by SP type, then to the individual SP, and finally to their assignments day by day to catch these costly mistakes. Then take steps to correct the processes that led to those mistakes.
This is only an option for contract days in dashboards and there are no existing reports in Ūsked helps businesses realize service excellence through software and automation tools. If you are a business owner in need of an all-in-one solution, we would love to connect with you. Schedule your demo today! that provide this information. Therefore, the only way to get the utilization for all requests is to manually calculate.
Using the total time from the Customer Billing Report and the total time from the Service Provider Pay Report we can calculate this. From the examples above that would be 38hrs/38hrs X 100 = 100% SP Utilization for CART captioning.
If you wanted to calculate utilization overall services you could run the customer billing and service provider pay reports without limiting by service and then pull the total time from each to calculate from.
Ūsked helps businesses realize service excellence through software and automation tools. If you are a business owner in need of an all-in-one solution, we would love to connect with you.Schedule your demo today!helps businesses realize service excellence through software and automation tools. If you are a business owner in need of an all-in-one solution, we would love to connect with you. Schedule your demo today!