Don’t act foolishly, think intelligently

BY RICHARD DiTOMA, L.M.P.

Many contractors experience business problems because they act foolishly rather think intelligently before making managerial decisions. The way they run their businesses proves that they don’t know how to operate a business correctly. Their misperception of fairness mixed with their ignorance of proper business procedures and their own low self-esteem compounds their troubles each day. The snowball effect increases the magnitude of their dilemma as time goes on.

Recently, a contractor told me that after reading one of my articles he began charging a service call fee to go to his existing and potential clients’ homes and businesses to see and discuss their requests. He loved it because he was recouping the travel costs he incurred serving the public. Wow! That’s a novel idea -- consumers paying for their own consumption. And, it was working well for him. I have always enjoyed someone getting ahead due to my advice.

He rightfully criticized contractors in his area that went on “free estimates” and did not charge a service call fee. I explained that there is no such thing as a free estimate. Someone must pay for the costs [vehicle, gasoline, vehicular insurance, maintenance, technician etc.] incurred going on the “not so free estimate.” The only candidates in the running are the consumer or the contractor. Logic dictates that the consumer should pay for their consumption. If the contractor pays, he/she is acting foolishly, and instead of attaining their goals, they will face much stress, frustration and unnecessary cost.

He went on to complain about the low-ballers ruining the industry with their ridiculous pricing methods. Actually, they weren’t using a method. They were just acting foolishly by quoting prices based on the direction of the wind, or the “going rate” as described by their equally ignorant contractor brethren, rather than using a proper mathematical process to arrive at the correct answer. If people didn’t act foolishly, we would have no fools. But, we do! These contracting fools were buying jobs at any price, often quoting prices that are at or below their own cost, rather than selling their services profitably. Sound familiar?

I asked him a few questions about costs in his area and how he arrived at his selling prices. His responses made it crystal clear that he was as guilty as those low-ballers. I asked why he was selling his services for less than it cost him. He defended his actions by admitting he was wrong, but he had to compete with the fools. He said that if he charged more he would lose work. I told him that acting like the fools would only make him a fool. If he was concerned about work rather than profit, he should go work for a contractor whose goal was to create a strong viable successful business through the implementation of a sound business game plan inclusive of proper business acumen.

I used his own success with his service call fee as a weapon to beat some sense into him, and his fear out of him. I asked him if he was equally frightened about charging a service call fee before he started charging it. He said yes. He added that after seeing its success he would not even consider not charging a service call fee. Well, DUH!  If he could have success charging a service call fee when competing against the same foolish competition that gave “free estimates,” then he could charge more than them and expect to also be successful. After admonishing him, I told him it’s his choice. He could act foolishly or think intelligently.

Revenue for a business comes from one source only -- the consumer. Not recovering legitimate business costs will lead to an anemic business because it will not have the dollars it needs to pay all bills and give the business the proper profit dollars for the services rendered to reach its goal.

When numbers are not correctly calculated results will be incorrect. Foolish contractors, who buy jobs at any cost, hire employees based on their need to get those jobs done rather than the qualifications of the people to perform. It creates another problem. It results in having mediocre, or worse, employees representing their business. As these self-inflicted problems pop up like fires started by spontaneous combustion, these foolish contractors must spend their time stomping out those fires instead of preventing them by the implementation of a sound business game plan. Their foolish actions destroy the industry by creating an artificially low “going rate.” They muddle along in blissful ignorance as they scratch their heads in awe of that which they created for themselves.

These problems are pervasive in the contracting industry and strike contracting businesses both small and large. And, they are caused by contractors not knowing and obeying the first commandment of business, which is:  “Thou shall calculate your true cost of operation and maximize your profits to attain your goals.”

Definitions & choices

Foolish -- defined as “silly, ridiculous, a foolish person/lacking in good sense, prudence or judgment or showing a lack.” [Webster’s Dictionary]

Stupid -- defined as “(of persons) lacking intelligence/(of actions) resulting from lack of intelligence/(of persons or animals) foolish in speech or behavior/in a state of stupor.” [Webster’s Dictionary]

Intelligence -- defined as “the ability to perceive logical relationships and use one’s knowledge to solve problems and respond appropriately to novel situations.” [Webster’s Dictionary]

Choice -- defined as “the act of choosing or selecting, to make a choice/something chosen.” [Webster’s Dictionary]

All human beings, and that includes you and me, have the ability to act foolishly, stupidly or think intelligently. It’s our choice. I have always thought that it makes more sense to think intelligently and make sound logical choices rather than be subjected to the results of foolish behavior.

Many tradespeople who decide to go into business foolishly neglect to see that their main job has changed from technician to administrator. Let’s use a nautical analogy. Contracting businesses are ocean liners. The contracting business’ technicians are the crew that keeps the ship afloat and in good operating condition. The contracting business owner is the captain of the ship. Without the captain on the bridge doing his/her job correctly, the crew doesn’t know where it’s going and which route it should take for a safe journey. It either stays at the pier, or if the journey has already begun, it drifts on the perilous high seas.

When contracting business captains are not plotting their business plans and implementing a course that will allow them to reach the port of success, their business will be adrift on the perilous seas of commerce. In other words, both the captain of the ocean liner and captain of the contracting business who do not do their jobs properly are acting foolishly rather than thinking intelligently.

The fool’s irony

I have been consulting with contractors across our great nation for many years in person and/or by telephone. The overwhelming majority of them all have the same problematic cause, which results in all their difficulties -- wrong prices. Contractors who do not intelligently identify and calculate their costs while blending those costs with a proper profit margin are doing their jobs in a foolish manner. Most of them sell their services for the wrong amount. That means anyone who follows their lead is headed for trouble.           

                                                

Many charge prices that are minimally $30.00 an hour per technician less than it costs them. This is caused by the use of the “going rate” of other ignorant contractors who guess at their prices -- or who are influenced by the direction of the wind. I usually tell them that if they are not going to change their ways, the next time a call comes in, send the caller $30.00 x the number of hours they estimate they would have spent on the job. That will give them the same result without them having to perform a service.       

Figure 1. Chart shows the amount of money a company that charges $30 per technician hour less than its true costs does not collect.

Many of them ask, “If I’m a fool, how can I be in business for [whatever number] years?” My response is to first tell them that if they didn’t think they had a problem, they wouldn’t have called me for help. I give them credit for realizing they had a problem and the courage it took to make the call. That certainly makes them a bit smarter than the fearful egotistical brain surgeons that continue to act foolishly. Then, I answer their question. I tell them that they survive by cheating. Some work many hours for little or no compensation. Those with employees usually pay low compensation and have mediocre employees who are not content, moonlight [taking business revenue from the company directly or indirectly] or are part of a revolving door employment system. Those are yet other foolish acts.

As an example of the results of foolish behavior, I have created a chart (see below) that shows the amount of money a company that charges $30.00 per technician hour less than its true costs does not collect by choosing to act foolishly rather than think intelligently. The chart shows the result from one year up to and inclusive of 20 years in one-year increments. It is based on an annual maximum of 1,708 available hours per technician. It shows the amount up to nine technicians. And, it doesn’t include lost profit dollars.

A one-person operation in business for one year would have missed the opportunity to bring in $51,240.00 [$30.00 x 1,708 annual potentially productive hours]. In 20 years he/she would have neglected to bring in $1,024,800.00. A multi-truck business with nine technicians acting in the same absurd fashion would neglect to bring in $461,160.00 per year. In 20 years that company missed out on collecting $9,223,200.00. In all cases big bucks are lost!! And, that’s not extra revenue. It’s the money they deserve for the value they deliver to the consumer.                                 

Like the proverbial trees that block the sight of the forest, these masterminds are so busy trying to buy jobs, they miss the forest of opportunity that is in front of their eyes. If they used their intelligence to think in a logical manner and charged proper profitable selling prices all would have more money in their pockets and big smiles on their faces. But when they act stupidly, there are probably frowns all around. Are you on that chart?

Think intelligently before making your decisions. You’re not the only one that loses when fear of losing a job makes you act foolishly. Your loved ones pay for your inability to do the right thing by not receiving their share of the reward you deserve. So before quoting prices or hiring the wrong people, think of your child, spouse, parent who you are depriving by your foolish actions. This exercise might just put you on the road to intelligent thinking. If you start charging correct prices, you will see stress and frustration levels greatly diminish because the majority of your business problems will disappear. If your choices are bad, your results will be bad. If you make the right choices, you’ll get the right results. Your first choice is to decide to act foolishly or think intelligently. Good luck!

If you need my help, give me a call. If you would like to order my book SOLUTIONS MANAGEMENT THEORIES & METHODS FOR THE CONTRACTING BUSINESS©, call, e-mail or write to me. In your correspondence, please include your address and phone number.