The next post in our series on gross margin compression comes down to a simple question: how does your company decide who works on a ticket?
Similar to scope creep, this is a question of how efficiently you manage your company. As a reminder, we are talking about service gross margin. Service gross margin compares the revenue from your service delivery to the cost of delivering it, not hardware or client software. The cost of delivering your service is overwhelmingly made up of the wages you pay your team. Service delivery is by nature a highly labor-intensive part of the business, which is why getting your labor allocation right matters so much.
Same Revenue, Very Different Cost
Two clients with the exact same revenue can cost wildly different amounts to serve, depending on who touches the ticket. Your senior techs are often the ones who have been with you the longest and carry the highest cost. Too often, Tier 1 work lands on them. There is no delegation between who handles Tier 1 and who gets escalated to the higher-touch work.
A high-cost tech spending their time on low-complexity work is a very expensive way to serve your clients. In addition, it is hard to catch, because it looks like good service. A longtime employee solves the problem, the client leaves a thumbs-up review, and everybody is happy. Your company has no reason to think anything is wrong. It is largely invisible, except in your gross margin, which is exactly why we use gross margin to understand what is going on.
The Slow Decline toward Expensive Tier 1 Work
There are several possible causes for your most expensive people solving the easiest problems. The first is that there is no triage or dispatch function. Tickets come in and whoever is next in line grabs one, regardless of the skill fit. In some companies an owner is still closing out tickets, which is a very expensive way to allocate resources.
The second is relationships. Clients develop a bond with their techs, and that is a good thing. You want your team to have strong relationships with your clients. Sometimes, though, those techs move up in the organization and still manage their favorite clients. The client has learned how to bypass the ticketing process and can go directly to their tech. While this makes the relationship sticky, it often locks your techs into lower-skill work.
The third is team size. On many small teams, everyone wears every hat. These teams blur the line between Tier 1, Tier 2, and Tier 3, no matter how talented the people are.
And finally, there is often no clear definition of what Tier 1, Tier 2, and Tier 3 work even is. You can have a dispatcher and people sorted by skill, but without a definition of the work, everything becomes a priority. When everything is a priority, nothing is.
This Is an Invisible Cost Impacting Your Margins
Every senior hour spent on a simple ticket is an hour not spent on higher-value problems. Senior time belongs on senior problems. When it goes to junior problems, that is an expensive waste.
There is a cost to your people too. Senior techs have outgrown junior work and want to move forward with new challenges. Some may even enjoy the work, but that comfort comes at the expense of their growth and your margin. Highly skilled techs stuck on low-skilled labor put your company at risk of burnout and turnover. The revenue on your P&L stays exactly the same while the cost to serve those clients creeps up.
The Fix Is Subtle Enough That Most Won’t See It
The goal is a dedicated triage or dispatch role. Tickets come in and go to the appropriate person, and someone’s job is to make that assignment. That person understands what Tier 1, Tier 2, and Tier 3 work looks like, knows when to escalate, and knows who on the team sits in each tier.
Training and documentation matter here as well. Have your senior people write it down so your junior techs can resolve more on their own. Using AI with internal documentation can get you closer to that, but your junior team needs something to work from.
How to Start Fixing It
If you suspect your most expensive people are working on your easiest problems and squeezing your margin, pull a sample of tickets and look at who is resolving what. If you have never solidified the tiers, you will likely find an expensive senior tech resolving routine tickets for a well-liked client they have worked with for years. From there, work out what percentage of senior time is going to Tier 1 work.
Next, give someone ownership of triage, and make it official. Put it in the role description, write it down, and talk it through as a company. Don’t leave it to word of mouth. Define your tiers in writing and make it clear to everyone who is expected to do what.
This will involve handing off some relationships. Your senior techs will need to bring junior team members onto the service delivery side and have them start meeting with some of those favorite clients. No client relationship should depend on just one senior tech. Even if a senior tech has been on an account for a very long time, they need to bring newer people in so you can serve your clients more comprehensively.
When you explain this to your team, remind them why you are doing it. This is how a well-run organization works. Your senior techs want to be challenged with senior-level problems, and you want to reward the people who have moved up. They should not be doing work anybody can do. It is not rewarding for them and can threaten employee retention.
Right People, Right Work
Serving your clients with the right roles for the right work ties back to scope creep. Scope creep is a client asking for out-of-scope work. This problem is your own team putting the wrong people on the work. The theme here is consistent: getting the right talent into the right place and keeping them there.