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Michael Stone: The Cost of Callbacks

When a previous client calls, you’re always hopeful it’s because they have another project in mind and they want you to do it.

Sometimes, though, it’s because something is wrong with the work on your last project, and they want it fixed. There’s a water leak, or a door is sticking. Paint is peeling, or the carpet is wrinkled. A handrailing is loose. Some shingles blew off, or the siding is coming loose.

Whatever it is, you have to stop what you’re doing and return to the job. If it’s because of a mistake made by you or one of your subcontractors, you’re responsible for the repair, especially if it’s still under warranty. It’s a callback, and callbacks cost you money.

I recently came across a worksheet I used years ago to calculate the cost of each callback. This exercise sheds light on what it actually costs you to go back and fix something on a job.

Total labor expense: $___ x _ hours

What is the total time that will be spent on the callback? This would include travel time and correction time. I’d suggest that you’ll spend a minimum of three hours on any callback, and more if you’re sending a crew. Multiply the total hours by your normal rate to arrive at the labor expense.

All materials used to make the corrections to the job

Specialty contractors

If the mistake is yours but a specialty contractor is needed, you’ll need to pay them for their time. If it was a mistake by the sub, it’s their responsibility to make the repair.

This is why you need a subcontractor agreement. A dependable specialty contractor will step up and do what’s right, but it’s always best to have a commitment in writing. If your specialty contractor doesn’t come through, you have to fix it, and that cost will come out of your pocket. You’ll also know to not use that sub on future jobs.

Rental equipment

Will you need any vehicles such as track hoes, bobcats or other equipment for the job, or will you need to rent equipment to affect the repairs needed? If you own the equipment, then you must factor in the cost per hour of that equipment as well including move in/move out costs.

Travel expenses

Include the cost of a vehicle traveling to and from the jobsite at the current mileage rate.

Total all these direct costs, then apply your normal markup. The loss of overhead and profit needs to be included because the time spent on a callback is time away from a paying job.

Now, we need to consider two more figures that are more difficult to calculate:

Reduced productivity

Taking your crew away from one job to make repairs on another can reduce their productivity. I’d add at least a few hours to the labor time.

The cost to your reputation

Some clients understand that things happen and they’re happy you came back to fix the problem. Other clients aren’t as forgiving. Regardless of how they view the situation, it’s likely to reduce their willingness to refer you to others. I’d assume the cost of a reduced reputation is 10% of the cost of the correction, but this can vary based on the extent of the repairs, and how responsive you and your subs were about getting the repairs made.

Add it all together, and you have the cost of that callback. It should be charged to the original job, and it will reduce what you thought was the net profit on that job.

Things happen and you can’t avoid all callbacks. But knowing what something costs can also help you or your crew to be more diligent to avoid that cost in the future. I’d also encourage you to get on callbacks as quickly as possible to protect your reputation, and to get them over and done with so you can get back to business.

For an example of handling a callback outside the warranty, read this story posted a few years ago.

Listen to the audio here, or select the dots on the right to download:

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