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Does The Same Old Hourly Rate Model Work For You? Probably Not.


July 22, 2021     4 minute read

The impetus for moving to a new facility management (FM) solution is most often cost—and with good reason. Business-owners are looking for ways to cut costs as competition in retail markets heats up.

But choosing an FM solution that includes the same type of pricing structure you’ve always used—hourly rate—may not actually help you with cost savings. You’ll still pay by the hour, endure hidden costs and lack the data and analysis to truly analyze trends and “get ahead” of your facilities management spend.

Most managers and business owners believe that the hourly rate model is the only model that really makes sense. You identify a problem and contact a service provider. When the service provider reaches the store location, they assess the problem and (hopefully) fix it. While your rate is fixed, the multiplier of time is not, making cost control for the final cost of a task very difficult to manage.

How well do you know your service providers?

Let’s start with service providers. When you encounter a problem at one of your stores, how well do you know the service provider that’s going to fix the problem? More importantly, do they understand your brand and business goals? Are they insured? Are they compliant and on time? As a facilities manager, there are so many providers to manage, it’s often hard to tell until you begin reviewing bills.

The provider might take their time getting to a location, spend extra time returning to a truck for tools and use up valuable time hunting down a manager for sign-off once the job is complete—they’re actually incentivized to take as much time as they need, and then some, to get the job done. And there are likely a few hundred providers to manage throughout the day.

Instead, working with a network of vetted providers supported by an advocate for your business ensures the providers deployed to your businesses are competent, compliant and have your best interest—and your business goals—in mind, so you can spend your time on more strategic, less tactical activities, bringing greater value to your business.

Where the hourly rate model falls down.

When service providers charge by the hour, it doesn’t work to your advantage. If a provider spends just 15 additional minutes at a site to complete a service, you may exceed the final cost for that service that you should have paid. Controlling the final cost of a task will drive cost containment and cost savings strategies.

And frequently, the hourly rate model doesn’t work for the providers, either. Some FM solutions charge the provider a work order fee. Service providers then increase their hourly rates and pass that cost along to you, forcing everyone to pay more without adding value.

With a total cost approach, an FM solution can look at your bottom line and begin to create maintenance strategies around your needs from year to year and negotiate fees with service providers that also support your service levels. This approach provides effective benchmarking to determine the most efficient and cost-effective approach to your spending.  And by negotiating flat fees for service, you won’t get surprised by emergency trips, overtime, and extra charges when a service trip takes longer than expected.

Getting started with a total cost approach might seem like a daunting task, but it’s really about analyzing the right data to determine where spending occurs over and over again—this means looking closely at work orders, eliminating the “other” category and getting to the root cause of the service call. It also means uncovering bigger maintenance trends—figuring out what’s causing that clog rather than just fixing it over and over again.

How one company saved big with a new FM solution.

For one company, choosing a total cost approach and a strategic approach to FM helped them achieve true cost savings while improving service levels. Though the company had previously negotiated a reduction in their total hourly rate, they lost those savings every time a provider was on-site for an extra 15 minutes. They also ran into compliance and billing issues with just under 100 providers, which cost them thousands of dollars and hundreds of hours correcting these issues. It affected nearly 7,000 work orders in total.

The company dug in and found the root of the problem—the service providers they were using weren’t trained on the FM platform and didn’t know how to properly close out work orders which affected their ability to invoice as well as their business analytics from the system.

A financial assessment was performed that focused on the final cost of each task or service category, pivoting away from the hourly rate, trip charge, emergency fee and overtime fee model. This approach helped them to develop a predictive cost model to identify areas where they could drive cost savings throughout most of their service categories and cost containment in others. There were no additional dollars spent through this process, but rather cost savings within existing spending.

The company now works with vetted service providers that are trained on the FM platform and fully compliant, saving the company over $1,000,000 in three years. In addition, the company takes part in quarterly reviews to review analytics and identify maintenance trends. The FM team spends less time on all of the day-to-day tactical activities of vendor compliance (final cost of services, work order notes, etc.) and more time on high-level, high-value projects for their business.

Over time, the company also realized that they could move over to their partner’s technology platform as their front-end platform, at no additional cost and be fully supported to ensure the most effective business analytics. This transition provided them with an additional $80,000 in savings year-over-year.

Moving away from the hourly rate model and working with vetted service providers helps businesses avoid excessive variable costs, gain greater control over service levels, and move from a tactical to a strategic approach to focus on global business goals.

Contact NEST today to learn more about how we can help leverage the power of data to better meet your FM program goals一both today’s and those in the future.


Originally published June, 2018. Updated July, 2021.

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