The Cost of Service

Updated: Jun 4

By Gregory P. Cheng RPT, Philadelphia PA

It’s easy to think that we piano technicians earn $100 or more per hour. If your gross income is in fact over $200,000 then you don’t need this article, because you are making about $100/hour, but either way be careful when you calculate that number. My business did very well last year as a new business. I work well over 40 hours a week as a new business entity and partner, and I took no time off in my first year, but my hourly wage averaged around $30/hour. Here's why:


When we break down our businesses, there are many things you must consider. For instance, are you working a 40-hour workweek? Of those hours, how much time is spent in labor on pianos versus office hours? I define office hours as scheduling, customer tracking, ordering supplies and parts, and working on your financial stuff to pay taxes or contractors. What are your overhead costs?


Here is a list of expenses you have to consider (some or all may apply to you):


Advertising:

  1. Online ads

  2. Website hosting and domain services

  3. Magazine


Car:

  1. Maintenance

  2. Gas/Mileage

  3. Parking

  4. Insurance

  5. Payments

  6. Car payment interest


Bank Charges: 

  1. Account Charges

  2. Credit card processing fees


Bad Debts:

Anyone who hasn’t paid you for services or products


Charitable Contributions 


Continuing Education


Depreciation Expense


Professional Dues and Subscriptions


Insurance

  1. General liability

  2. Tools insurance

  3. Health insurance

  4. Workers compensation (if you have employees)


Interest Expenses

  1. Business Loans

  2. Credit Cards

Materials and Supplies


Meals and Entertainment


Office Expenses

  1. Computer and software

  2. Supplies

  3. Postage

  4. Printing and copying

  5. Janitorial and cleaning

Professional Fees


Rent/Lease


Repairs and Maintenance


Salaries and Wages (if you have employees)

  1. Office and Sales Labor

  2. Company Payroll Taxes


Seminars and Training


Communications

  1. Cell Phone Services

  2. Fax Services

  3. Telephone Services

Travel Expenses


Utilities (if you have a shop or home office)

  1. Gas

  2. Water

  3. Sewer

  4. Electricity


This is a basic template for a Quickbooks Expense sheet and may look daunting, but keeping track of all of these items will help give you a very clear picture of your end-of-the-year profit/loss and balance statement sheets. This is my personal list and may not be a comprehensive list for everyone.   


Almost everything on the list is pretty self-explanatory, however, there are few things that must be defined or clarified. 


Car Expenses

...are only expensed at the percentage you use for the business. If you have one vehicle for business, and one for personal, then the business vehicle is 100% a business expense. If you have a vehicle that you use for both, then you need to accurately represent the percentage you use the vehicle for business. Mileage is tracked by travel to your second business stop to your last business stop. So if you have one appointment, your travel from your home to your appointment and home again would be considered a commute and is therefore not counted as business miles. From and to home is always only commuter miles. 


Bank Charges

Most big banks have a business checking account fee. The same applies to when you collect credit card payments from customers. There is usually an average of about a 3% charge on all transactions. These fees are expenses. 


Bad Debts

...aren’t your bad debts. They are the uncollected debts from your clients if a client refuses to pay.


Charitable Contributions

...are when you donate an item or product, but not a service. For instance, if you donate a piano to a church, this qualifies as an expense. I think it’s silly that you cannot donate your services, however to do that you are required to “donate” a check in the amount of your tuning, and have them write you a check for your tuning. The money went in a circle. One as a donation, the other as income. It amounts to a zero balance, but that is the only way to do it.


Continuing Education

...are the PTG conventions, manufacturer seminars, or anything you are doing to continually educate yourself for your business.


Depreciation Expense

This one is a bit tricky, but things like cars, computers, and equipment have a life span. The depreciation expense basically states that the items you are deprecating will have no value after a certain amount of time. You don’t have to use a Depreciation Expense, but long-term businesses may benefit from depreciating things over time rather than expensing it all at once. You can’t do both. There is a governmental chart that defines the values you can use. You can find out more info on this here.


Professional Dues and Subscriptions

Your PTG dues, ProPTN membership dues, and any other business-related professional organizations you belong to. 


Insurance

You need to have at least General Liability and Tool insurance or Business Owners Insurance (BOI). BOI covers a lot of ground. General BOI is usually General Liability, Business Property, and Business Income. Business income protection helps replace lost earnings when you can’t do business because of a covered loss, like theft or fire. Tool Insurance will help you replace your tools in case of fire or theft. ( Don’t be one of the piano technicians losing $10k or more of tools for various reasons and have  no way to replace them.) With an open market on health insurance, it is no longer necessary to have, but I highly encourage it. You never know when you may need it. 


Interest Expenses

The interest you accrue on business loans and business credit cards are an expense.  


Office Expenses

Hardware and software are expansible, the hardware may be a depreciation expense, but items like scheduling software are a monthly (if not yearly) expense. The same goes for Microsoft Office 365, Quickbooks, and any other software subscription you have to pay to run the business. Other office expenses include items in your office such as pens, papers, folders, printer ink, stamps (or even Stamps.com) etc.



Professional Fees

This often gets mistaken for Dues and Subscriptions. The way to remember the differentiation is that Professional fees are fees that you paid for professional services, like Turbotax, or your accountant. 


Wages and Salaries

If you have an employee that helps you schedule whether they are 1099, part-time, or full time, their pay is an expense. 


Seminars and Training

Not to be confused with Continuing Education, this is the cost of goods used or to provide the training. For instance, when I do polyester training, I have to buy my own products and then use it in the training. The use of these products in the class is then written off as an expense. 


Communication

If you have a landline, VOIP, or cell phone for business - these are expenses that you need to track. If you have one cell phone that is used for both personal and business use, then you need to break out the percentage. Personally, I have a ratio of 60/30 business/personal use. Since 60% of my cell phone calls are for business,  60% of my monthly bill is part of my expenses.  


Travel Expense

This is a separate item because it is used for travel to seminars and training, as well as special jobs that you are contracted for. For example, I have to travel out of my regular service area to perform a manufacturer's warranty repair. Those additional miles, tolls and hotels fees are an expense.


Utilities

If you have a shop or office, those utilities are an obvious expense. If you have a home office, a percentage of your home bills can be expensed. Oftentimes it is not worth expensing home office bills. Saying that 10% of your electricity bill to run a laptop and a few lights would be a stretch. If you have a small, in-home office, a realistic estimate is probably closer to 1% or 2%.



Now that we have defined expenses, I would like to run through a one-week scenario using round numbers. In this scenario, we are assuming the below are the most common expenses any self-employed tech would have. For instance, $100/month on google ads, scheduling software, cell phone, insurance, Turbotax, office suite subscription etc.  Let's say you did 20 appointments at $100, Monday through Friday, and one full day at an institution, at $675, totaling a pretax revenue of $2,675 for the week. Ten clients paid by credit card. Assuming a 3% fee at $100 per appointment is $30. There was an average of 10 miles between each appointment (not considering commuter miles), totaling 120 commuter miles, at $0.58/mile that is $69.60, and $12 in parking.  


Your monthly or yearly expenses are broken out into 52 weeks:


Your total expense this week alone is $474.68. 


Not including your sales tax, liability is $120 (say 6% tax on $2,000, which should have been charged to the customer).


Your self employment tax liability is $349.85 for this week's worth of work.


So, out of $2,675 you pocketed $1,850.47, and we haven’t hit all the expense points yet. If you did this type of work every week for a conservative 49 weeks, you’d have an income tax payment due, at the end of the year, of $21,761.53, which gives you an additional liability of $418.49 a week over 52 weeks, reducing your net income to $1,431.98. Not to mention state and local tax liabilities.


You just dropped from $2,675 to $1,431.98 instantly through liabilities and expenses. So, based on $100/hour on a 40-hour workweek, you should be making $4,000 per week. But between running your office, scheduling your appointments, and paying expenses and taxes, you took home $1,431.98. That equates to about $36/hour after taxes and expenses. A good argument would be that your hourly rate should be about $67/hour before taxes and expenses. The difference is that you are not an employee making this money, you are both the owner and the employee, and that is why the $36/hour makes sense.


As a rule, what I do is only collect half of what I earn as a “paycheck” with the appropriate tax liabilities removed. The rest goes into your overhead expenses. In this scenario, I would have gone home with $1,337.50 that week, with the rest going to tax, expenses, and into the business. If you take home approximately 50% or less as a payment to yourself and the leftovers are considered untouchable money (earmarked for everything we discussed above), you will have a healthy day-to-day business. Of course, things come up or there is a slow time and that is not always possible, but if you endeavor to only pay yourself 50% or less you will be fine. 


Those of you who work for a piano dealer or service entity may have wondered why about 40%-50% of your billed work goes to you. Or have thought it unfair you do all the work and the company makes 60%. Believe it or not, the company isn’t making 60%, they are paying for your expenses, payroll taxes and any benefits on top of your 40%. 

I have been in the piano service business for 20 years in different capacities from piano technicians to being a service manager and financial analyst for a 25-person service department. Today I am a business partner and service technician, supply house distributor, and retail accessory sales. This is how I set up things before I send them to my accountant for review. I prepare the documents they need to review. Make sure always have your figures looked at by a professional CPA.


















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