PLUMBING
PLUMBING BUSINESS Don’t fool around!
BY RICHARD DI TOMA CONTRIBUTING WRITER W 90
hen you do foolish things, you fool yourself. One problem with fooling yourself is that, once you start, it’s hard to stop, because you don’t realize
you are doing it. Sometimes, in the interest of being competitive, you might fool yourself into thinking you can perform a service faster and cheaper than your competition, while still delivering excellence, recovering your costs and earning a profit. If you think this way, you will eventually start competing with your own ability to perform any service. It is imperative that you be aware of your point of diminishing return. You must be able to discern that which is possible from
that which is not. You can’t fit a square peg in a round hole without cutting corners. Excellence is the first casualty of corner cutting. Once excellence is gone, your clientele can’t receive top quality and best value for the dollars they pay you. You lower your worth in the mind of your client. This will definitely lower your ability to reach your goals. That, in and of itself, is very foolish.
The temptation to be foolish When it comes to your selling prices, you have only three
choices. You can 1) sell below true cost; 2) sell at true cost or 3) sell above true cost. Obviously, choice one and two are for fools, since the only reason business exists is to make a profit. Because there are only three choices and two are foolish, you have twice as many opportunities to fool yourself than you have to earn a profit. If all contractors charged above their true cost, you might
be able to do the job faster and less expensively, while still recovering your cost and reaping the reward you deserve. But, by not identifying their true cost, many contractors sell their services at or below their cost. Their bad choices make them fools. They don’t do it consciously; they do it because they don’t know how to identify their true cost. Their existence in the industry makes the chances of your being less expensive than all your competition while still earning a profit about the same as the odds of your seeing pigs fly. Add to that the fact that, when economic conditions are
bad, you might be tempted to lower your prices. If your prices are truly profitable, you can lower your profit. But your cost is your cost and, when things are slow, your hourly cost actually increases, due to unapplied labor. If your prices are not truly profitable in the first place, you will only exacerbate your problems.
FIGURE 1
A foolish example Even intelligent people can fool themselves. A very
intelligent PHC contractor I know recently told me about a new service he started to offer because of the bad economy. He told me that he started cleaning clothes dryer vents for $150. My initial response was that this price seemed foolish because of his cost of operation in his service area. His average travel time is 30 minutes. That takes into
consideration the times when his tech is next door to the next job and the times he is at the furthest reaches of his service area. Once at the jobsite, his tech must do the following: speak with the consumer regarding his/her request; set up and, at completion, clean up the work area; clean the vent; test the work; do the paperwork and get paid. Figure 1 shows a breakdown of the minimum, average and maximum time it should take to perform the service. Please note that certain circumstances could make the maximum time allotment higher. The minimum time allotment can be no less if the job is done properly by a qualified technician. In the USA, the minimum cost to operate a service
vehicle with a qualified service technician is $100 per hour, give or take a couple of dollars. (If you don’t believe that, I can prove it to you. Just call me at 845/639-5050). On that basis, and using the times in Figure 1, the minimum cost to perform that service in the USA is $117, the average cost is $183.33 and the maximum cost (noting that circumstances may increase the maximum cost) is $250. The aforementioned contractor, however, services an area
where the minimum cost of a qualified technician with a service vehicle is around $150 per hour. Therefore, his minimum cost for the job is $175.50, his average cost is $274.50 and his maximum cost is $375. That means that his $150 selling price is extremely foolish!
Compounding the foolishness To further exacerbate his problems, he told
me that, at the same service visit, he offers a package deal that includes the vent cleaning and the installation of a new washing machine valve, after the removal of two existing boiler drains, as a gimmick, for $300. Since he’s already there cleaning the dryer vent, his gimmick deal doesn’t have an
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phc december 2011
www.phcnews.com
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