PLUMBING PLUMBING BUSINESS How to expand with higher prices BY RICHARD DI TOMA CONTRIBUTING WRITER
out trying to be the low price but quickly learned to price myself where I feel I should be and have been very successful as a one-man plumbing shop. I work 1,600 hours in the field a year and gross sales are $430,000. I take home $200,000 a year for my family. “My goal is to run a six-man (mid-sized) shop, but I
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cannot get any larger customers because they are only interested in the lowest price; I sell quality and service at a mid level price. 60% of my business is remodelers and new home builders, 40% are homeowner calls. Every time I bid with a mid-sized or larger builder (five+ houses a year for new/three — four projects a month for remodel) I find myself going nowhere, because of price. Two years ago, I completely gave up trying to get larger contractors, because I find that, regardless of their status as a high or low end builder/remodeler, they all want the lowest price and don’t care about quality. I have instead focused on the smaller contractors (one — two houses a year/one remodel a month or less). To expand to six employees, I’d need 120 small builders/remodelers (I have 20 now). “Using your higher price theory (which I somewhat
agree with) how does one expand without getting the larger customers? “Right now, my rate on new homes is $88 per hour
(competition is in the $70s) and $104 on remodel (once again, low end is $70 – $80). Typically, on new homes the low bid is what I consider ‘at cost,’ which is typically $1,500 less than mine. Once in a while, I get outbid on new homes by $3,000+. I’ve had some large remodelers complain to me about the high price their plumber charges, then, later, I’ve found out that their plumber is one of the top five lowest-priced guys in town. The pattern of large builders has been repeated 20 times+ over the past 4½ years. I’ve never talked with one large builder who looked for a mid-priced plumber. “The only reason I lose a customer is typically over
price; 50% come back within a year. I completely blame our industry for undercutting to the point of doing jobs under cost, but reality is what it is. How can I expand?” D.T.
Dear DT, Business fundamental 101 My theory is not “higher prices for the sake of higher
prices.” Putting aside “non-profit” and “not for profit” businesses, the only reason a business exists is to earn a profit. To reach that goal, contractors must utilize a business plan that contains the following steps. Step 1: Identify, calculate and control tangible and
intangible operational costs. Step 2: Choose a proper profit margin that provides
the opportunity to attain the desired profit. Step 3: Properly blend steps 1 and 2 to arrive at
plumbing contractor whose initials are DT emailed the following to me: “Hello Richard, I have been in business for 4½ years now. I started
proper profitable selling prices. Step 4: Develop a client base that wants value for the
dollars they spend with contractors and is willing to allow contractors to recover their cost and have an opportunity to earn the reward they deserve for the delivery of excellence. There is no shortage of ignoramuses who turn our
noble industry into one of stupidity, stress, frustration and misery for the following reasons: They guess at their costs. They use profit margins that can never result in a profit, because the margins they choose cannot withstand the unforeseen conditions that arise in any fiscal period. They base their decisions on wrong numbers and blend those faulty numbers to arrive at unprofitable selling prices that do not allow them to afford to deliver excellence to consumers on a constant basis. You envision my theory as a “higher price theory,”
because when contractors embrace proper business protocols and mathematical fundamentals their selling prices are higher than those of contractors who utilize flawed techniques, which can only lead to the stress and frustration about which you have written to me.
About your need for more customers As to your dilemma about the
contractors for whom you provide your service, think about the fact that high priced luxury car manufacturers don’t sell many cars to consumers who just want low priced, no frills vehicles that only get them from point A to point B. All consumers and contractors for
whom you can provide service are not suited to be your clientele. Some are price buyers. The value buyers (which includes the 50% who left and came back) are aware that your prices are higher because the value you deliver is better.
Regarding shop size Although large shops employing
more than six full time plumbing technicians exist, volume does not guarantee that you will make a profit. I believe most plumbing shops in the U.S have fewer than six full time technicians. Expanding to a larger size shop will definitely add to your cost of operation. In turn, your search for more builders to address the higher costs of your larger shop makes your managerial job more
e Turn to DI TOMA on p 24
phc july 2011
www.phcnews.com
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