A tale of two contractors

BY RICHARD P. DiTOMA,
contributing writer

Charles Dickens wrote of the best of times and the worst of times in his classic novel “A Tale of Two Cities.” I think you would agree that the economic climate you are currently experiencing is most definitely the worst of times.

Business exists for one reason only. That is to make a profit. Profit is best described as that money which remains after all your bills, including your salary, have been paid. In these times profit may seem like a distant pipe dream. Using incorrect numbers and procedures will always hinder your ability to make a profit in good times or bad.

Realizing that wrong numbers cause problems during good times may not be as easily recognizable as it is during bad times. This is due to the fact that when money is constantly coming into your business during those “good times” (in your perception), your potential for a profit or loss is camouflaged by the hyper activity of addressing all those consumer requests and performing their related services.

When the bad times cast the shadow of financial doom on your business operation, you will definitely feel the pinch as your stress and frustration levels climb to heights above that which any human should have to tolerate. But, contractors also should consider the use of proper numbers even during the good times because moving money during good times is not the same thing as making money.

The problems you face in your geographic area are not unique to your area. They are pervasive throughout the industry. And, those problems are caused by your use of wrong numbers which keep you from earning the reward you deserve for your labors and financial investment in your business.
Ron and Ed are fictitious names of real contractors. Ron is a plumbing and heating contractor from the northeast quadrant of the USA. Ed is a plumbing contractor from the southeast section of our great nation. Both of their businesses were suffering from “wrong number disease.” Due to their intelligence, they were able to realize they had problems within their respective businesses. Their courage gave them the ability to set aside their egos and seek my coaching assistance.

I showed them how to identify and calculate their true cost of operation; choose a proper profit margin; blend those two pieces of information into properly profitable selling prices; and set up sound business protocols. One of those protocols was to charge a minimum service call fee to cover the costs they incur traveling to and addressing the consumer’s situation in case the customer did not wish to proceed with their service. I also suggested that the service call fee be higher than their average cost.

Then, I supplied them with customized copies of my Readily Available Pricing Information Digest© (based on their respective labor and overhead costs, profit margin, average travel cost). Armed with knowledge and this great business tool, they began their journey on the road to achievable success. I also told them to contact me along the way for direction should either of them wander off the path or come to a fork in the road.

Ron’s Tale

Ron was using the old-fashioned and flawed time & material pricing method. He was selling his hourly services below his true cost because he was trying to compete with the going broke hourly rates of his competition. Therefore, he was using wrong numbers and getting wrong results.

Since the onset of his journey on the road to achievable success Ron’s techs have accomplished the following as of this writing:

• Appointments: 125;
• Number of tasks sold: 211;
• Percentage of total appointments resulting in sold tasks: 168.8%;
• Number of tech hours spent for appointments inclusive of travel time: 198 .17 hrs.;
• Total amount of revenue with my coaching, Contract Pricing and RAPID© guides: $85,512.73;
• Total amount of revenue if he used his old T & M pricing method: $47,404.82; and
• Extra revenue realized with change to Contract Pricing and use of my RAPID© guides: $38,107.91.

It should be noted that Ron’s techs have faced no significant objections to their new pricing procedures. His techs are happier and his clientele is appreciative that Ron’s techs now quote prices before any service begins.

Only eight of the 125 appointments resulted in no tasks being sold. That means 93.6% of the time his techs sold at least one task. His techs are selling an average of 1.69 tasks per appointment. That’s fantastic.

The eight service calls that resulted in no task being sold cost him $143.74 each (on average). But, Ron charges a minimum service call charge of $149.00 to cover the cost he incurs for travel and speaking to the consumer regarding their requests.

Ron is ecstatic because his business is selling its services above cost and earning the reward it deserves. To date, he has realized an 80.39% increase in revenue with my coaching, Contract Pricing, and my price guides. That’s $38,107.91 more than he would have for the same tasks being performed with T & M pricing.

If each of his techs takes a two week vacation and six holidays a year, each tech could get those results 8.6 times annually. At 100% of available time sold, each of Ron’s techs can bring in an extra $327,728.00 more per year than his old and flawed time & material pricing method would allow. At 75% the extra revenue would amount to $245,796.00 per tech. At 50% each tech could bring in an extra $163,864.00. And, at 25% it would bring in an extra $81,932.00.

Ed’s Tale

Ed, on the other hand, had already been using a contract pricing method (flat rate pricing to those who wish to use ambiguous terminology). His problem was the same as Ron’s problem —wrong numbers. You might wonder why it wasn’t working for him since he was already charging flat rate prices. The answer is simple. Intent, ability and quality of service and/or product differ among consultants just like it does between contractors. When a consumer uses a mediocre contractor they usually get second-rate results. When a contractor uses mediocre business consultants and flawed business tools they get substandard results.

Ed is a very good contractor. But, the numbers in his price guides (which he purchased from others) did not allow him to recover his cost let alone make a profit. After he and I calculated his correct numbers and customized the Readily Available Pricing Information Digest© I supplied to him his business results began to improve. As of this writing, his techs have accomplished the following results:

• Appointments: 113;
• Number of tasks sold: 89;
• Percentage of total appointments resulting in sold tasks: 78.76%
• Number of tech hours spent for appointments inclusive of travel time: 207.4 hrs.;
• Total amount of revenue with my coaching and the price guides I supplied: $53,568.86;
• Total amount of revenue if he used his other pricing guide: $34,909.76; and
• Extra revenue realized with change to my Readily Available Pricing Information Digest©: $18, 659.10.

In order for any business to succeed, protocols must be implemented properly. At the beginning of Ed’s journey he hit a bump in the road. Of 10 appointments his techs only sold three tasks. This was not good. I immediately called to find out what had occurred.

I am of the strong opinion that no contractor signs up 100% of work for the appointments made. This is due to several facts. Although the contractor incurs expenses for 100% of the appointments (that’s why you should charge a minimum service call fee) there are those calls with extenuating circumstances which prohibit the selling and commencement of a task such as: the tech finds no call of action to be taken; the call only required the tightening of a packing nut to stop the leak; the consumer didn’t have the money; the consumer was only window shopping; or the consumer just did not want to pay the price.
Whatever the reason you won’t sell all the jobs all the time. The measuring stick I use is that you should sell at least seven to eight tasks for every 10 appointments. Hopefully, you will do better. As an aside, with contract pricing you also have the potential for selling more tasks than appointments. Just look at Ron’s ratio of tasks sold to appointments. That’s because you can give the consumer the price before a task starts rather than a surprise bill after a task is performed. The consumer has the luxury of deciding how much money to spend.

When Ed hit that bump in the road, we quickly addressed it and no further bumps have been encountered to date. As we get more data, Ed’s task selling percentages will come closer to matching Ron’s.

The amount of extra revenue compared to Ron’s is less, but, that is to be expected. Ed’s operational costs are less then Ron’s and Ed was already using contract pricing. Therefore, his previous numbers needed less adjustment than Ron’s numbers since he was already selling closer to his cost than Ron.
Ed is doing something with which I do not agree. He is charging a service call fee of only $49.00. His average cost incurred for travel and introduction time for 36 appointments, which did not result in a task being sold is $101.86. Fear is a very powerful trait. He’s afraid that if he raises his service call fee the number of appointments he makes will drop. To alleviate this fear we are monitoring his appointment ratio. My thought is that the consumer who wouldn’t pay for the costs he incurs traveling to them wouldn’t pay him for the costs he incurs to serve them.

Since he has made the decision to charge a service call fee, which is $52.86 less than his average service call visit costs him, he has lost $1,903.11 on those 36 visits. That means his extra revenue should be at least $20,562.21 instead of $18,659.10. That’s another example of wrong numbers and protocols rendering wrong results. Hopefully, he will soon see the error of his ways and revise his service call charge.

But, even with that mistake on his part that $18,659.10 could be attained 8.24 times per tech per year at 100% of available hours sold. That’s an annual potential extra cash amount of $153,750.98 per tech. At 75% of available hours sold, it’s $115,313.23. At 50%, it’s $76,875.49. And, at only 25% sold, he could have $38,437.75 extra per tech annually.

I hope this tale of two contractors inspires you. The contractors I have coached who have understood and properly implemented what I have shown them have improved their businesses. They can afford to deliver excellence to their clientele while attaining their goals. Obviously, both Ron and Ed are very happy with the results they are now getting. And, I am continuing to assist them so they can do even better.
I enjoy helping them and I’m sure they are enjoying the results they are getting. Even in the worst of times things can be better. If you would like to avail yourself of my coaching skills and have an opportunity to improve your business results, please call me at 845-639-5050. I wish you good health and much prosperity.