Solving business problems, Part 2

BY RICHARD P. DiTOMA,
contributing writer

Ask yourself, “What do I consider to be the biggest problem the PHC industry has faced in the last ten years? and “What is the solution to the problem, in my opinion?” In the February 2011 issue of phc news, based on the answers to those questions by Tom Duff, a plumbing and heating contractor from Long Island, N.Y., I addressed the problem Tom thought was the greatest, the “not so free” free estimate.
Please answer these questions and e-mail your answers to me at richardditoma@verizon.net with your name, business name and address, the number of years in business and the type of services you provide. I’ll incorporate your opinions into future articles. Sharing your opinions can give you the opportunity to help improve our noble industry and your business.

Problem

In this issue I address the problem as C.C. Cole of Cole Plumbing Inc., who has provided plumbing repairs to the Montgomery, Alabama, area for 33 years, sees it. C.C. states that the problem is: Slugs that do not know what it cost them to run their businesses yet are quick to condemn those that do. The going rate is not the answer. Some of it can be attributed to customers that are willing to accept something less than professional service work.

C.C.’s solution

C.C.’s solution is “to provide an open forum for all local PHC companies to regularly discuss common business practices so that we can educate ourselves about good and bad pricing methods. If all companies in the area are charging the correct price, we will all enjoy better profits.”

My thoughts

C.C. has hit on the biggest problem in the industry, incorrect pricing. It leads to all the other problems. Prices that do not allow you to recover your true operational costs and earn the reward you deserve for the value you deliver to consumers put you on the proverbial slippery slope, which leads to bad business practices, much stress and frustration, poor performance and, eventually, failure.

I disagree with C.C.’s thought that some of the problem can be attributed to consumers. This problem falls solely at the feet of contractors who do not employ proper business practices and pricing protocols. If a consumer buys services based on low prices rather than top quality workmanship, that consumer deserves exactly what he/she gets. Nevertheless, it is the responsibility of the contractor to deliver excellence to consumers in all instances and to price their services intelligently and profitably. Contractors make their prices, not consumers.

Regarding C.C.’s reference to “the correct price,” I must clarify the issue. I have spoken with C.C. many times. He means “the correct price” based on the true costs and goals of each business. He is not suggesting that prices should be fixed.

Whenever contractors call me for assistance, I ask certain questions that give me a perception of their business operation. This allows me to understand their circumstances. Whether they charge by the hour or by the job, contractors utilize time in their pricing calculations. One of the questions I ask is “How much do you charge for one technician hour?” Most have the answer on the tip of their tongue. But more than 90% do not know the correct answer to the question, “How much does that hour cost you for labor and overhead?” And that’s the problem!

Aside from pure luck, no one can arrive at a correct and profitable selling price without knowing their true cost. It is also necessary to be aware of all the possible “what ifs” that can pop up in a fiscal year to affect operational costs. It is imperative to be aware that true cost is not calculated just on that which is spent in dollars. Intangible items such as callbacks and unapplied labor contribute to true cost.

The “slugs” of which C.C. speaks are a blemish on, and disgrace to, our noble industry. Their ignorance leads them to charge at least $30 per tech hour less than it costs them. That means that there is a minimum annual shortfall of over $50,000 per technician. In turn, their ability to deliver excellence to the consumer for the dollars paid to them is lowered. They don’t get to recover all their costs. There is no reward (profit) for the service provided. The consumer gets mediocre value for the dollars spent. An artificial “going rate” is created, which lowers the industry as a whole. Everybody loses.

C.C.’s solution is education. I totally agree to that, but I wouldn’t be me if I didn’t add caveats. First, the “open forums” of which C.C. speaks must not fix prices. That’s against the law.

“Open forums” can show contractors proper business fundamentals. An open forum, however, must have a facilitator who is well versed in the subject matter to control the flow of information. Academic instructors who know theory but not practicality are problematic since they have never encountered the trials and tribulations that contractors face every day.

Just as mediocrity in contracting services performed diminishes the ability to deliver excellence to consumers, mediocrity in education diminishes the transference of logical sound business wisdom. In other words, you must pick instructors/facilitators who really possess the ability to put contractors on the correct mathematical and moral path.

Since most contractors have little or no sound business know-how, using an “open forum” without a well versed facilitator could be counterproductive. The loud voice of a contractor with poor business protocols could commandeer the forum and lead contractors further into the abyss of misery which awaits those using poor business practices. Bad example is the cause of the industry problem of which C.C. writes in the first place. Everybody charges a dollar less than the other guy. That’s not smart. It’s downright stupid!

Picking the right leader is vital. History is full of bad leaders who have led their people down the path of destruction. Napoleon was a leader on an ego trip which led to his “Waterloo.” General George Armstrong Custer, in his wrong-headed hubris, led his troops to their massacre at the battle of the Little Big Horn.

On the other hand, there are good leaders. George Washington led a ragtag army to a military victory over the highly organized army of England’s George III after our Founding Fathers declared independence from the British Empire. Then they intelligently crafted a constitution that took into consideration matters that could arise in the futures as well those that faced them at the time. Those men were brave and intelligent leaders who put their lives on the line for an idea that was righteous.
If you choose a poor instructor/facilitator as a contracting business coach, you will get bad results. Before choosing a coach, interview that person to make sure that he/she has the following requisite abilities:

1) The capacity to understand the problems you encounter as a contractor. This would require a contractor with years of experience encountering and solving those problems
2) A creative mind to offer solutions to improve your business
3) The integrity and intelligence to answer your questions truthfully, correctly and logically
4) The skill to show you how to develop good sound business protocols
5) The patience to put up with the bad habits you have developed until he/she can steer you away from those bad habits and enlighten you to the proper way to run a business.

Open forums which lack a coach with those abilities are blind to the truths about this industry. They can do more harm than good. Open forums with good coaches can lead you onto the road to success.

Thanks, C.C. for bringing up this issue. I hope it has helped my readers understand the importance of improving ourselves through discussion. If any of you need my coaching assistance, I can be reached at 845/639-5050. To all I wish “good health and good luck.”

Richard P. DiToma is a contracting business consultant and active PHC contractor with over
40 years of experience in the PHC industry.