PLUMBING | PLUMBING BUSINESS | CONTINUED FROM PAGE 22
difficult. This will lead you to being tempted to lower your prices just to make payroll. When you think about it, the size of your shop is not as important as the profitability of your enterprise. If each technician is not profitable, there is no need for that technician.
Concern over your numbers I don’t know all your true numbers and have some
concern regarding the $430,000 gross sales and $200,000 take home numbers you provided. Some amount must be applied to material and overhead expenses. A one person PHC business in the U.S. such as yours has a minimum labor and overhead cost range of $100 to $250 per hour. It has a minimum overhead burden of $75 per hour for expenses, not including the salary and salary expenses of one person as the business’s administrator. That $75/hr is related to administrative salary (the
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amount the one person should be earning for his/her duties as the business’s administrator, which add to your 1,600 hours in the field) and to related salary expenses, vehicular expenses, insurances, office supplies and equipment, utilities related to the business operation, communications, advertising, professional services (accountant, legal, etc.) and additional miscellaneous expenses necessary to run your business. Figure 1 gives you an idea of hourly costs to that one
person contractor example for labor only and for labor and overhead costs combined (using $75 per hour for the overhead burden) based on 1,600 hours in the field. These numbers are conservative and will vary from area to area, but I believe they are close. As you can see, the lowest minimum cost to the contractor, inclusive of the items listed is $106.43 per hour for a $30,000 annual salary. It goes up from there. When you charge $88 per hour, you are probably
losing at least $12 per hour. If you had a six-man shop and charged $88/hr, you would probably minimally lose at least $72 per hour. Your $104 per hour rate is just over my estimated minimum cost of $100 per hour.
Therefore, that too may be a losing rate, which, according to Figure 1, it is. The revenue you can bring in at your remodel rate of
$104/hr for 960 hours (60% of 1,600 hours) can only bring in $99,840. The $88/hr. rate would obviously bring in less. Neither gets you to the $200,000 you say you bring home. Therefore, you must be charging more for your homeowner calls, making a great profit margin, have arrived at wrong numbers in your email to me or some combination thereof. With the limited information you sent, it’s impossible for me to pinpoint the reason.
Solution If your “homeowner calls” are bringing in profitable
numbers, while your contractor rates are bringing in losing numbers, the answer to your question is right before your eyes. Concentrate on establishing your homeowner business, where you can earn the reward you deserve for the excellence you deliver. Then, if those builders, contractors and remodelers still want to avail themselves of your superior quality, they will have to pay you a profitable amount for your services. And if they don’t, you will have your homeowner business to expand profitably. With correct numbers, the right mindset and strong
financial ability, PHC businesses can afford to expand the size of a shop in a proper manner, which delivers excellence to consumers rather than resorting to the erroneous thought that volume can make up for flawed numbers. Contractors only have three choices with regards to
their selling prices: They can choose to sell their services below their cost, at their cost or above their cost. It’s each individual’s choice. Don’t blame the industry for your price structure and your business plan. You can help to fix the problem by doing the right things and being a good example. If you don’t start now, you will have the same problems decades from now. Thanks for your input, DT. If you want my help for
phc july 2011
www.phcnews.com
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