Revenue leakage in technical services

Revenue leakage in technical services arises mainly where contract and practice drift apart: surcharges for emergency, evening and weekend work that are not recharged, corrective work that falls outside the scope of a maintenance contract but is still booked as contract work, sites and installations that have changed while the contract price stayed the same, and contracts that renew automatically without indexation or review. The leak rarely sits in a single invoice. It sits in the distance between what was agreed at signing and what actually happens years later.

Technical services covers companies that manage and maintain installations, buildings, machinery or infrastructure for their customers: building services maintenance, maintenance of production equipment, lifts, fire protection, HVAC, energy systems, and the service arm of many installation companies and machine builders. What they have in common is revenue that is largely recurring and set down in long-running contracts. Revenue leakage at technical service providers therefore has a different character from leakage at project businesses: fewer one-off missed invoices, more structural deviations that come back every year.

How is revenue in technical services built up?

A typical service contract consists of several layers, and each layer has its own leakage risk.

In a contract with all these layers, the line between what is included and what is invoiced separately is where the money disappears. The technician on site knows what needs doing. Whether it falls within the contract, they often do not know.

Where does revenue leak in technical services?

1. Surcharges that are not recharged

Many contracts include surcharges for work outside office hours, emergency call-outs, weekends and public holidays. The technician works on a Saturday evening, the job sheet is created with normal hours, and the surcharge disappears. Sometimes because the job sheet system does not record the time of the work properly, sometimes because nobody adds the surcharge by hand.

Check: filter job sheets by time of work outside office hours and compare with the surcharges invoiced. If there is more evening and weekend work than surcharges, the difference is leakage, unless the contract excludes those surcharges.

2. Corrective work outside the cover

A contract might cover faults caused by normal wear, for example, but not damage caused by use, not parts above a certain amount, and not installations added after signing. In practice every fault at a contract customer is treated as contract work, because that is easiest and because nobody wants to trouble the customer with a discussion.

The effect is that the cover in practice is much broader than on paper. The customer pays for limited cover and gets full cover. It is one of the patterns that is also common at installers; see revenue leakage in installation companies.

3. Sites that change, contracts that stay the same

A customer extends a building, adds a production line, replaces an installation with a larger or more complex one. The maintenance work increases. The contract, priced on the number of assets, the floor area or the type of installation, is not adjusted.

This pattern is hard to spot because the change happens outside the service company. The service company only notices that a contract takes more hours than it used to. If you track hours per contract over the years, you see it. If you only look at revenue, you do not.

4. Contracts without indexation or review

Long-running contracts on automatic renewal are often not actively managed. The price stays where it is, sometimes for years. Because the cost of technicians and parts rises, the margin per contract falls a little every year. After a few years some contracts are loss-making without anyone having decided that.

Check: list all active contracts with the date of the last price adjustment. Anything not adjusted for more than a year, where the contract allows it, is a candidate.

5. Expired contracts with continuing service

A contract expires or is cancelled. The customer calls about a fault, and scheduling still sees them as a contract customer because the status in the planning system has not been updated. The work is carried out as contract work. The reverse happens too: a renewal is not prepared in time, the contract lapses unnoticed and the periodic invoices stop, while the maintenance simply carries on. More on this in revenue leakage from expired contracts.

6. Performance terms that only work against you

Some contracts link the fee to performance: response times, availability, number of faults. Often that works both ways, with a deduction for underperformance and sometimes a bonus for overperformance. In practice the deduction is applied consistently, because the customer asks for it, and the bonus is not, because nobody calculates it. Even where there is no bonus, check that the deductions the customer claims match the measured performance.

Why does it stay invisible for so long?

In technical services revenue is predictable. That is a strength, but it makes leakage invisible. The monthly contract revenue comes in as expected. There is no dip, no lost deal, no angry customer. The leak is not in what comes in but in what should have come in, and there is no report for that.

Only when you set revenue against cost at contract level do you see it. A contract whose hours rise every year while the price stays the same. A customer whose number of faults doubled without anything extra being invoiced. That requires a link between job sheets, hours, contracts and invoicing that does not exist in many companies. The general principle for recurring revenue is covered in how do you find errors in recurring revenue.

Worked example

Worked example: suppose a technical service provider with EUR 9 million in revenue, of which EUR 6.5 million comes from 300 service contracts and EUR 2.5 million from additional work and time and materials.

• Surcharges. Each year 1,800 job sheets are carried out outside office hours. On 20 percent of them the surcharge is not invoiced, although the contract allows it. At an average surcharge of EUR 90, that is EUR 32,400.
• Cover. Of the corrective job sheets at contract customers, an estimated 8 percent falls outside the cover but is treated as contract work. At 3,000 corrective job sheets a year and an average value of EUR 220, that is EUR 52,800.
• Indexation. A third of the contracts, worth EUR 2 million together, have not been indexed for two years. At a missed adjustment of 3 percent a year, that is around EUR 120,000 a year.
• Site changes. Twenty contracts cover an installation that has demonstrably been extended. An adjustment of EUR 2,000 per contract per year on average is EUR 40,000.

Together that is EUR 245,200, almost 2.7 percent of revenue and over 3.5 percent of contract revenue. The example is built on assumptions, not on a measurement. It shows that indexation is often the largest single amount in this kind of business, and it is also the amount that is easiest to fix.

A step-by-step review, contract by contract

A thorough check does not have to cover all contracts at once. Start with the largest twenty, which often represent a large share of contract revenue.

1. Read the contract again. Note: cover for corrective work, cover for parts, surcharges, indexation clause, basis for the price (assets, floor area, installations), performance terms, term and renewal conditions.
2. Pull the job sheets for the past year. Split them into planned, corrective and additional. Flag the job sheets outside office hours.
3. Compare with invoicing. Have all surcharges been invoiced? Has corrective work outside the cover been invoiced? Has indexation been applied?
4. Compare the price basis with reality. Do the number of assets, the floor area or the installation specification still match what is there now?
5. Calculate the hours per contract over three years. Are they rising while the price stays the same? Then something has changed that the contract does not reflect.
6. Record the findings per contract with an amount. Rank by amount and decide for each finding: invoice it, adjust the contract at the next renewal, or leave it deliberately.

Once you have done this for twenty contracts, you know which patterns occur most often in your business and can check the rest more selectively. The general method for any type of contract is in how do you check that contracts are billed correctly.

From a one-off check to continuous monitoring

A contract review once a year catches the large deviations. But surcharges, cover and expired contracts are daily patterns that you catch better as they happen. That requires job sheets, contracts and invoicing to be compared continuously, so that a job sheet outside the cover or a missed surcharge goes straight onto a list. How that works for installation and technical companies, and which data you need, is covered in Revenue Intelligence for installation companies.

Frequently asked questions

What is the difference between leakage at installers and at technical service providers?

At installers the emphasis is on job sheets, materials and the handover from project to maintenance. At technical service providers it is on long-running contracts: cover, surcharges, indexation and contracts that do not keep up with changes at the customer. In practice they overlap, because many companies do both.

How do I decide whether work falls inside or outside the cover?

The contract decides. Make the cover concrete enough to decide per job sheet: which installations, which kinds of fault, which parts up to which amount, which hours. If the contract is not clear on that, it is a point for the next renewal.

Should I invoice customers after the fact for work outside the cover?

That depends on how long ago it was and on the relationship. For recent work it is often still possible, with an explanation. For work from longer ago, it is better to use it as an argument at the next price adjustment or contract review.

How often should a service contract be reviewed?

The price at least once a year through the indexation clause. The content, meaning cover and price basis, at every material change to the installation and in any case at every renewal.

What data do I need for a first analysis?

The contracts with their key terms, the job sheets from the past year with date, time, type of work and customer, and the invoices. From those three you can derive most of the patterns in this article.