Running a field service business can be quite a challenge. Between managing your teams, keeping customers happy, and making sure you deliver top-notch services, it’s super important to keep your finances in check.
One thing that often gets overlooked is the difference between fixed costs (those expenses you have no matter how many jobs you do) and variable costs (expenses that change based on your workload).
Why is this distinction so important? Well, understanding and managing these costs can really help you to:
- Increase profitability by identifying where to cut unnecessary expenses.
- Make smarter decisions when pricing your services or investing in new tools.
- Achieve long-term stability by planning for both predictable and unexpected costs.
In this blog, we’re going to break down what fixed and variable costs are, why they’re important, and how you can use this knowledge to enhance your field service operations. Let’s dive right in.
Why Understanding Costs is Crucial for Field Service Companies
First, let’s define what we mean by “costs”. When we refer to costs we are referring to our company’s cost, not our customer’s cost. Our customer’s cost is our ‘price’ or ‘revenue.’ In all businesses, costs are defined either as fixed costs or variable costs.
In field service businesses, a lot of the costs are variable costs. In fact, the more variable costs you have as a percentage of total costs (vs. fixed or overhead costs), the better off you are and the more efficient you are.
The more variable costs vs fixed costs that your company has, it means you’re more profitable, too, as long as you are in control of your variable costs.
So, what are the goals of a successful field service business from the fixed and variable cost perspective?
Fixed Costs vs. Variable Costs: What’s the Difference?
To get started, let’s clarify the basics:
- Fixed costs are the expenses that don’t change with the volume of work. Think rent, insurance, or administrative salaries.
- Variable costs fluctuate based on the work you do, such as materials, fuel, or subcontractor payments.
For a successful field service business, you want most of your costs to be variable. Why? Variable costs only arise when there’s a job, making them easier to control and optimize.
What do fixed costs actually mean in a field service business?
Finding the right level of fixed costs is the easy thing to do. While you definitely want to limit your overhead or fixed costs, if you skimp too much, it can be a problem. If you ran your field service business out of your home and didn’t buy equipment and didn’t hire administrative staff, then your fixed costs would certainly be lo,w but so would your growth.
Fixed costs should be considered an investment, and that investment should provide you with an investment return. Sometimes those returns are somewhat hard to quantify, but that admin person certainly frees you up to quote more jobs and that office elevates your business from a ‘jack-leg’ operation when it was run from the ‘home office’ to a professional business that commands the respect of potential customers and employees.
Fixed costs need to reflect the investment that takes you where you want to be next. If you’re continually growing, so will your fixed costs, but if you get ahead of yourself then those investments will return less to your operation so be careful!
Understanding Variable Costs in Field Service
For field service, we want to make sure that most of our costs (expenses) are variable costs – those that are incurred only as a result of the services, products, or materials that we provide. If there is no job, then there is no cost.
Let’s take a closer look at how Swivl breaks these variable costs down into six categories, and then it calculates and captures these costs in real-time.
The 6 Types of Variable Costs in Field Service
1. Materials
These are materials purchased from a supply house specifically for this job, or these are materials that come from ‘stock’ which can be stored in the shop, warehouse or truck.
- Direct Purchases – direct purchases are immediately expensed to the job
- Stock – stock materials are initially stored and are an asset. Once they are allocated to the job, the cost of these materials is expensed.
2. Labour Burden
It isn’t just the hourly rate of the field technician that comprises the cost of labor. For every dollar that you pay your technician, there are taxes, insurance, benefits, and paid time off. This total cost is called the “Labor Burden” and is a truer reading of your cost of labor. How to calculate? If your books have been kept well for some time you can refer to your Income Statement or Profit and Loss Statement. You just need to add all of those costs together to find out the true cost of the labor and can be written as a formula – gross wages x 1+burden% = labor burden.
So if your labor burden rate is 30% which is pretty typical for a field service company for every $100 in hourly wages paid, there is an additional $30 cost when you include the cost of workers’ compensation, benefits, employer-paid taxes, etc. If your books aren’t perfect, start out with a 30% adjustment after some time quantifying these costs. So, take your hourly wage and multiply by 1.3 to calculate your labor burden.
3. Vehicle Costs
You’d be surprised how much it actually costs to move that work truck from the shop to the job site to the supply house and back a couple of times. When you calculate not just the fuel cost, which is easy to do, you still need to add an approximate cost of depreciation maintenance, and repairs.
With Swivl, each vehicle is detailed at setup, and the cost per mile is determined based on a series of form questions. The GPS tracker takes care of the rest and as that particular vehicle moves from one job to another and between the shop and the technician’s house, we can calculate with precision how much was spent just on that vehicle during the course of the technician’s time on the job.
4. Equipment
Many field service companies would consider their equipment as a fixed cost. Whether it’s a fixed monthly cost on a loan payment for a backhoe or a one-time tool expense for a jackhammer. For accounting purposes, they may be allocated as an asset and depreciated but we can do better when determining the actual costs incurred on a job.
Swivl allows you to list your ‘billable equipment,’ which are tools that are an investment and for which you can usually bill the customer for their use on a job separately from the labor. Through a series of questions, it will determine what the actual ‘cost’ is of every hour of use of that equipmen,t and the costs and revenues that these investments can generate may surprise you!
5. Subcontractor
A lot of field service companies rely on subcontractors, and my opinion is that they do it too much. There are some benefits to using subs, like the ease of not having to deal with payroll taxes and labor burdens because, presumably, its all baked into their costs. But so are the inconsistencies and lack of oversight or control.
Swivl simply provides a subcontractor scheduling function and billing and job media submission form so that you can post that cost immediately which eases the process of chasing them for the required administrative details.
6. Other Costs:
Swivl provides another manual input just to add things that may not fit perfectly into the other five categories. Think of items like permit fees, or maybe you bought some pizza for the crew!
Visualization
It helps to see data summed up and presented in a visually appealing way that makes sense quickly. Swivl provides this graphic for each job and each estimate.
How Swivl Helps Field Service Companies Track Variable Costs in Real Time
The best way to create estimates is to first estimate the variable costs of the proposed project. What will it cost the company to do this job? Small companies aren’t usually equipped with what they need to come up with these numbers, but with Swivl, they now do.
Swivl makes estimating costs for field techs simple. Old-school estimators of smaller jobs tend to just eyeball the job and guestimate what they think it’s worth. They may remember a similar job where they were able to charge X, so that’s what they’re going to do now. This strategy lacks structure and is prone to vulnerability. Don’t guess. Embrace a strategy that can scale.
Swivl provides the ability for a field technician or anyone to add some simple inputs that they should be able to accurately add to derive the expected costs for each segment.
Add some inputs, and Swivl will calculate the rest!
- Labor – just add the expected number of man-hours
- Materials – add expected materials from the materials list in the inventory module
- Equipment – add tools and hours expected to be used
- Vehicle – add how many trips to the job site with which vehicles
- Subcontractor & other – add expected costs
If most of your jobs are estimated before you provide the service, it can be telling to compare estimated vs actual costs. Swivl provides a comparison of estimated costs vs actual so you can analyze where the estimated costs were off, allowing you to hone accuracy and make adjustments to your estimating process.
Maximize Margins with Variable Cost Segment Markups
Swivl will take these cost estimates for each segment and apply the appropriate margins for each category to come up with the target revenue, which could be considered a minimum required revenue for that job. In the price book settings in Swivl, you will have defined the required markup for each segment. It may look like this:
- Labor – 100%
- Materials – 35%
- Equipment – 300%
- Vehicle – 10%
- Subcontractor – 35%
- Other – 50%
The reason why Swivl uses six segments of variable costs (labor, materials, vehicle, equipment, subcontractor, etc.) is because each segment will command different markups on those costs. For example, most companies will pay 100% to labor costs. If the company labor cost is $500, they will charge approximately $1,000. Typically you can’t do that with materials. Materials are typically marked up just 35%. So one job that has a lot of materials and not much labor is going to have a lower overall margin vs. a job with little materials and a lot of labor.
Job 1:
$1,000 materials cost x markup 35% = $1350
$200 labor cost x markup 100% = $400
Total company cost = $1200 Marked up Total = $1750 Margin = 45.8%
Job 2:
$200 materials cost x markup 35% = $270
$1,000 labor cost x markup 100% = $2,000
Total company cost = $1,200 Marked up Total = $2,700 Margin = 125%
So you can see, if you want to create an accurate estimate, Swivl’s variable cost segment markup is the systematic, professional way to derive customer estimates or proposal amounts.
How Real-Time Variable Cost Insights Drive Success
While accurately estimating variable costs can help field service companies come up with a minimum amount or a competitive amount to propose to customers, we use actual variable costs to determine the profitability of a job. Companies who can get these costs, allocate them to the right job and display them in meaningful ways simply have a distinct advantage over their competition.
Collecting these costs with speed and accuracy can be difficult, but with Swivl, it’s easy. As field techs are clocked into the job, Swivl calculates and updates the labor burden minute by minute. As materials are purchased for each job, Swivl allocates the cost to the job. Vehicle costs are calculated and assigned with GPS accuracy, and equipment costs are calculated as the techs apply the hours used.
Knowing your variable costs in real time helps you make better decisions when you need to make them. Are the right materials being purchased and the right volume? Is labor being used efficiently? Is the right equipment being used? Knowing your costs in real-time is the basis of excellence in pricing strategy. Without it, your profitability is a guess at best. With it, profits can be maximized or targeted at a specific level that entices higher volumes from your customer. (more on this with volume vs margin post)
Flat Rate Pricing and Variable Cost Transparency
Flat rate pricing is what most companies use for most invoices today. It’s transparent and easy. It can be problematic when flat rate pricing doesn’t move with cost increases.
Why doesn’t it move?
Because most small business owners and managers don’t have the tools to know when their costs are inflating. In the past few years, we have witnessed unprecedented wage inflation, and as costs increased, prices often did not. The result? Lower margins.
By having a better grasp of your cost structure monitoring costs in real-time and spending the time to analyze variable costs and margin contraction the owner and manager can be more nimble and adjust flat-rate pricing when needed to maintain consistent profitability. (See cost, margin and pricing strategy)
Breakeven Analysis
By understanding and quantifying variable costs and margins, we can define a breakeven or an amount that needs to be billed to cover the fixed costs. After the breakeven is reached, profit and value are created.
By tracking variable costs, you can calculate your breakeven using the calculation of fixed costs divided by contribution margin, where contribution margin is the price of the job minus the variable costs.
If you’re utilizing Swivl to gather all of your variable costs for each job, Swivl will calculate each job’s contribution margin (or simply ‘margin’). Swivl will also calculate your month’s average margin. You just add up your fixed costs and divide it by the margin and voila!: Your breakeven, or dollars that you need to invoice to pay for all of the overhead (fixed) costs.!
Try this breakeven calculator to see what yours is
Conclusion
Understanding and managing fixed and variable costs isn’t just about crunching numbers—it’s about gaining control over your business’s profitability and scalability. With tools like Swivl, field service businesses can gain real-time insights into their cost structures, create accurate estimates, and make informed decisions that improve efficiency and boost margins.
By leveraging the right tools and adopting a systematic approach to cost management, your field service business can not only survive but thrive in an ever-changing market. Ready to make the leap? Start analyzing your costs today and pave the way to sustainable growth.
