When optimizing the profitability of a service department, goodwill costs are rarely taken into account. This is precisely where high costs can often be saved.
Goodwill costs usually arise in companies as a result of generosity and a lack of consideration in the event of conflicts of interest. Goodwill usually refers to the voluntary provision of a service outside of contractual obligations or the waiver of a service to be provided by the contractual partner. However, many goodwill costs are not even consciously recognized or recorded by controlling.
Goodwill costs are not always immediately apparent
When optimizing profitability, most companies focus either on increasing sales or reducing cost items. Goodwill costs are often in a gray area that is difficult to cover with these two approaches. In accounting, it is generally not easy to allocate them to one or the other area. As a result, the issue of goodwill is too rarely taken into account in profitability programs.
We should therefore take a closer look at what types of goodwill costs are incurred in service and where they can be optimized. To do this, we divide them into conscious goodwill decisions and those that are somewhat more difficult to grasp at first glance. Most companies have the first 4 categories at least latently on their radar, although there is often a lack of transparency and clear guidelines. The last two points are more elusive to management.
Goodwill decisions must be integrated into an overarching strategy of the Complaints management be integrated.
Types of conscious goodwill decisions
1. unjustified customer claims
In many cases, customers approach a provider with unjustified claims. These demands are often complied with in day-to-day business anyway, whether out of conflict aversion or because the customer is an important business partner.
For example, as a result of machine breakdowns, customers sometimes claim compensation for the loss caused by the breakdown, which is neither based on a contractual basis nor required by the statutory warranty. Or a company agrees to claims in contractual agreements that go beyond what is customary in the industry. This is also a gesture of goodwill, because the company deliberately commits itself more than the industry standard requires.
It is definitely worth taking a closer look at your own business practices at this point and evaluating them in the context of the competition. This is because companies are often overly accommodating in this context, which unnecessarily tears a big hole in your cash register.
2. non-invoicing of services and/or materials
Customers are often accommodated when it comes to invoicing and individual or all invoice items are invoiced in part or not at all. In most cases, this can be easily tracked by coding your service activities. But what if your service technicians do not create any tickets in the system as a gesture of goodwill because the case should not be billed at the end of the day? In this case, the goodwill decisions are initially made consciously, but are not traceable in any way afterwards.
It is advisable to sit down with your service team and discuss these practices. To do this, you need your employees to have some confidence in your department's open error culture. After all, such decisions are often made to compensate for their own mistakes or the misfortunes of colleagues. To a certain extent, this is perfectly fine. However, your goal as a service manager should be to make this area of goodwill costs as transparent as possible.
It should also be discussed which practices in this area are customary in the market and in competition. For example, if you are the only provider that does not charge for internal services, this is also a deliberate goodwill decision.
3. giveaways
Giveaways are a popular means of appeasing dissatisfied customers, especially in sales. Here, too, an appropriate level must be maintained. In practice, customers should not be given the next service or a consumable parts voucher at the slightest hint of dissatisfaction. In many cases, it can be an eye-opening experience if you try to break down this cost item together with Controlling. Only then do you realize the extent of the resources and funds that have to be invested in such gifts over the course of a year.
4. credit notes
In principle, credit notes are similar to giveaways or the issue of not charging for services. Although the customer does not receive a waiver for an item on the invoice, they do receive a credit note for the subsequent purchase of services or parts. Within a manageable framework, this is also a sensible strategy to keep your customers' satisfaction at a high level, but should of course also be done with a sense of proportion.
Goodwill costs, which are often not based on a conscious decision
5. unpunished abuse:
The improper use of machines and systems is often a significant cost factor that is not taken into account in many service departments. It is necessary to install suitable mechanisms to detect cases of misuse. Otherwise, these cases will go through your regular warranty processes and you will bear the costs, even if they are not justified by their nature.
For example, a warranty only applies to machine-related faults that occur during normal use. Costs for repairs or even further claims do not have to be reimbursed if the machine has not been used properly. This can also mean, for example, that a machine tool that is designed for use in our latitudes and that this fact was also recorded in the installation conditions may not be operated near the equator during the rainy season. The customer is of course liable for any problems that occur.
Of course, you are also not liable if the chainsaw purchased from you falls into the river. After all, even in private life, the warranty on your car does not apply in the event of accidental damage. You have to take out additional insurance for this, which is mandatory by law, at least in Germany.
In theory, of course, this fact is well known. In practice, however, a blind eye is often turned or there is a lack of suitable procedures to detect such abuse. There is potential for savings here too.
6. non-invoicing of services due to process weaknesses
The topic sounds abstract at first, but is actually easy to understand. Take a detailed look at your systemically controlled processes: Do all cases that could be billed actually trigger a commercial transaction? Poor IT systems often ensure that not all services are billed. There are many possibilities for non-billing due to process weaknesses. You need to take a closer look at your own organization. To illustrate this, however, we can give you a few real examples that we have already seen in this form at companies:
- - Additional activities during commissioning could not be systematically recorded due to a lack of breakdown and therefore could not be offset.
- - If misuse was discovered at a later date, it was no longer possible to subsequently recode the guarantee to charge for the service provided. This meant that the technicians' assignments could not be invoiced.
- - There was no defined process to initiate returns of one-way shipments and all parts sent in this form had to be written off (e.g. wrong delivery addresses or spare parts not required).
- - It was not possible to classify problems as being the fault of the supplier and charging these costs to suppliers was only possible with considerable manual effort - which was often not undertaken.
- - It was not clear to the frontline employees which customers had to pay in advance. This is why spare parts and service orders were placed as normal and only a later instance discovered this fact. So the parts had already gone out and the technicians were on their way. However, the customers stuck to their guns and refused to pay in full or in part.
This classification of the various types of goodwill costs can help you to identify weaknesses in your own business practices and possibly rectify them. Of course, goodwill is absolutely appropriate in some cases. In many organizations, however, it tends to be understated rather than overstated, resulting in a high potential for savings.
