Fixing business problems requires sound business solutions

By Richard P. DiToma, L.M.P.

As a contractor you have probably at some time second guessed yourself, and/or had problems, regarding your selling prices; the responses you give to consumer questions; the methods you use in the operation of your business; and/or the finding, hiring and retaining of good help. Most, and probably all, of those situations stem from not having proper profitable selling prices that will allow you to recover all your costs and earn the proper reward you deserve for the delivery of excellence to your clientele.

Selling your services at or below the real cost you incur not only serves to keep you from attaining your goals, but also potentially lessens the quality of service you can afford to provide to the public. Selling prices, which are at or below real costs, are the root cause of the problems. Using the “going rate” established by contractors who have no clue as to their costs only exacerbates the problem. Selling prices can only be at your cost, below your cost, or above your cost. The only purpose of business is to make a profit. Before you can establish any correct rate or selling price, you must know your cost and charge above your cost in a manner that will allow you to maximize your profits so you can attain your goals.

I recently received a call from a contractor who tried to get out of working for friends and neighbors who wanted to avail themselves of his services. He assumed that they only wanted him because they thought he would give them a break on the price. He assumed he wouldn’t make money working for them. He never took into consideration the possibility that they wanted him because he provided excellent service. I asked if he used a time and material method of payment or a contract pricing method. When he told me that he used a T&M method, I asked what he charged per hour. He quickly responded $125.00. I then asked him the amount of money it cost him to produce that hour of performance. Although the amount he charged was on the tip of his tongue, he didn’t know the cost he incurred for that hour.

If he didn’t know his cost, he could not have possibly known whether he was selling at, below or above his cost. His selling price was based on the “going rate” in his area, which he said ranged from $65.00 to $150.00 an hour.

I asked him to rate the service his business rendered to the public on a scale of one to 10 with one being the worst and 10 being the best. He told me his service ranks between nine and 10. I asked where he thought his competition ranked. He told me between three and four. I then alerted him that he was charging prices in line with those who rendered poorer service than what he provided. His prices should not only be based on his costs, but also on the value he delivers.

I understand the impulse to want to be competitive. In 1978, when I founded my contracting business, I discovered that the “going rate” in my area was $18.00 an hour. Feeling my abilities ranked minimally at 10, and knowing that I would never be satisfied with performing in a less than excellent manner, with no calculation I decided to charge $20.00 an hour. I soon realized the error of not identifying and calculating my costs. After performing a proper calculation of costs, I adjusted my price well above the established $20.00 plateau and constantly monitored those costs before setting future selling prices.

In the 38 years I have been involved in the contracting industry I have observed the problems contractors face and have come up with the following solutions, which can be found in my book, Solutions Management Theories & Methods for the Contracting Business, and in my seminars, which are based on the theories and methods in my book.

Profit-Ability

Problem: Not earning the proper profit to attain your goals. After, and often during a job, you probably have wondered if the price you quoted for the task was the right price. There is no reason to wonder. Before quoting a price you should take into consideration your cost and your goal [profit]. After the job is done, you must check the results. That’s how you can put guessing aside and bring good business habits to the forefront. Depending upon the results, you will know whether your calculation was right or wrong. If you attained your goal, you will reinforce your modus operandi regarding that job in a positive manner. If the results show you did not attain your goal, you must change the way you did things so you do not repeat them and get the same results on that task when it comes up in the future.

Solution: If you do not know, or are not sure of, the proper way to arrive at proper profitable selling prices consider my book [chapter 2 addresses this issue] and/or attending my “profit-ability” workshop. Through my easily understood seminar I can show you how to identify and calculate your true cost; choose a proper profit margin to attain your goals; and develop proper profitable selling prices. In addition to the tangible costs you incur, this seminar will alert you to the calculation of intangible costs such as callbacks and customer relations, etc., which definitely affect your bottom line. The seminar can be conducted in person or by telephone and takes approximately four hours of your time. If you are doing the right thing, you can reinforce your methodology. If you are not doing the right thing and understand and correctly implement the procedures I expound upon at this workshop, your return on investment should be very enjoyable and long lasting. This seminar is for owners and administrators responsible for setting your business’ pricing policies.

Addressing consumer questions

Problem: Not knowing how to respond to consumer questions correctly. Consumers may ask questions regarding your business before choosing your firm to fulfill their requests. When you respond in a rapid, logical, intelligent and congenial manner, you will have a better chance of them choosing your firm.

If a consumer asks: “How much do you charge per hour?” or “What is your hourly rate?” and you use a time and material pricing method, you can just say, “Our hourly rate is $x.” But, a problem arises if the last contractor a price buying consumer called gave, or the next contractor they call give, them an hourly rate that is $1.00 less than yours. Since price buying consumers think all contractors are the same, you lose the opportunity to serve them, and they lose the opportunity to be served by a contractor of your excellent caliber.

Solution: By charging a contract price that defines the task you will perform and the price the consumer will pay before commencing the task, you and the consumer will be more at ease regarding the price issue. The following response to the aforementioned price questions is from my book Solutions Management Theories & Methods for the Contracting Business. It addresses the difference between the time and material pricing method and a contract pricing method when

Response: “We do not charge by the hour, we charge by the job.

“Think about it, (caller’s name), you don’t want to pay by the hour. You want to know the cost of the job before you authorize the work to be done.

“When you pay by the hour you don’t know the cost until after the job is finished. If the person performing the work is slow or unfamiliar with the task you need performed, you, (caller’s name), will be paying for that slowness, inefficiency, or lack of ability.

“If you pay someone by the hour, (caller’s name), it would be in that person’s interest to stretch the job as long as he/she could. This would cost you more money.

“Using a contractor who charges by the hour is like ordering a meal from a menu with no prices. When it comes time to pay, they both may be hard to swallow.”

When answering in this manner you logically and intelligently show the consumer the pitfalls associated with time and material pricing while congenially explaining the benefits of the contract pricing method that they receive by using your firm.

In the minds and eyes of the consumer, knowing how to answer a question honestly, quickly and correctly will separate you from those who don’t. Chapter 3 of my book addresses questions and responses. My seminar, “Addressing consumer questions,” shows you how to separate yourself from everyone else. It addresses your own questions as well as the questions consumers might have over the phone and at the job site. It takes approximately four hours of time and is meant for owners, administrators, phone receptionists, dispatchers, service managers, technicians and customer relations personnel. And, it can be done in person or by telephone.

Logical procedures for service contractors

Problem: Not utilizing procedures that will make everyday tasks easier. After becoming sure of the numbers to implement and the words to use, it is wise to establish a business plan involving everyday procedures to follow that will allow you to deliver excellence in an efficient and smooth manner. When you deal with the public you are in essence creating a contract to perform a certain task(s) for a specific amount of money. That’s why you are called a contractor.

Solutions: Contracts are a “meeting of the minds” of the parties involved in the agreement. It is imperative to use language that is easy to understand and not ambiguous in your contract. All obligations of each party such as prices, and terms and conditions, should be included. In the service business, the use of invoices that show the “meeting of the minds” would be wise. You must also document service calls from inception to completion to assure fluidity in the execution.

Consumer Notifications: The use of documentation of consumer notifications that alert consumers to potential dangers would be wise. A few years back a woman who spilled hot coffee on herself sued the establishment that sold her the coffee for not notifying her that the coffee was hot. In the litigious society in which we live, I wonder if she would have sued them for fraudulent advertising if the coffee was cold and she ordered hot coffee.

Price Guides: Just as you need tools to perform technical services, you need business tools to perform in a businesslike manner. Price guides are one of those necessary business tools. You can make your own. However, you should realize that making your own is extremely arduous and time consuming. You also can purchase price guides. In that instance, it is imperative that you choose a guide that is customized to your costs and profit margins, and fits your business operation. (You might want to check out my Readily Available Pricing Information Digest 2008 for the Plumbing Heating Cooling Contractor.)

Choosing the Right Client to Serve: Smart contractors look for certain qualities before hiring personnel. They should also look for certain qualities before taking on a client. In order for a congenial meeting of the minds to take place, you need to know how to identify the right client, evaluate consumers’ value to your company and avoid the dreaded cfh (Consumers From Hell).

Service agreements: Another item to consider is whether you would like to offer service agreements. When offering service agreements you must be specific in the matters covered by the agreement. Service agreements can place you in first place in the consumer’s mind when they need service.

Addressing Consumer Grievances: Since it is said, “You can please all of the people some of the time, and some of the people all of the time, but you can’t please all of the people all of the time,” it would also be sagacious to develop an equitable method for handling consumer grievances.

Tracking Statistics: A most important procedure (almost as important as calculating your costs) to implement is tracking statistics so you can make wise decisions rather than emotionally charging forward like a bull in a china shop. By tracking statistics you will probably find out such things as the amount you charge consumers is not as important to them as the quality of service you perform for them.

Chapter 4 of my book on solutions deals with logical procedures. My “Logical procedures for service contractors” is another workshop that I have created to help in these areas. It addresses the documentation of service calls from inception to completion; invoices; consumer notifications; price guides; the qualification of consumers; service agreements; addressing consumer grievances; and tracking statistics. This workshop is for owners and administrative and managerial personnel. It takes approximately four hours and can be done in person or by telephone. Understanding and properly implementing what I show you can make everyone’s job much easier.

Star tech from the management perspective

The two most important assets your company have are its clientele and its employees. Without clientele there is no need for employees and no need for your services. Without employees you cannot tend to consumers in a professional manner. That also goes for the one person entity since that person is an employee of the business.

Qualifying consumers is addressed in the previous section. In this section I am addressing the need for a top quality work force. The responsibility for employing a top quality work force lies first with the owner where all employment stems. The owner must look for certain qualities in the people he/she is considering to hire. And after the hiring, the owner must be able to evaluate employee performance.

Problem: Hiring and retaining good employees

Solutions: Hire only capable candidates for employment. Objectively evaluate employee performance. Reward productivity, not lackadaisical complacent behavior. Chapter five of my book on solutions addresses these issues. My seminar, “Star tech for owners and administrators Re: Technician assets and performance,” explains the seven “must-have” assets potential employees need before you can consider hiring them. It also deals with other necessary assets that can be taught and polished. Additionally, it speaks to the evaluation of technician performance. This type of information is very valuable. This seminar takes about four hours. It should help you make decisions such as: which potential candidates for employment to consider hiring; which existing employees help you reach your goals; and which employees cost you more than they bring in. This workshop is for owners, administrative and managerial personnel responsible for hiring, evaluating and releasing employees. It takes about four hours. It can be done in person or by telephone.

Star tech from the technician perspective

Problem: Technicians who think they are better than they really are. There are always at least two sides to a story. One of the problems contractors and technicians face is a lack of communication. Your employees don’t always know what you want from them. Whether it is caused by you not explaining so they can understand, or they not hearing what you explained, the problem still exists. My “Star tech the workshop” for technicians seminar addresses the concept of being the best technician one can be. I explain in an intelligent, logical and congenial manner that technicians really have only one job to do: please the boss so the boss can please the clientele of the business. It complements my seminar, “Star tech for owners and administrators Re: Technician assets and performance.”

“Star tech the workshop” is for technicians and takes approximately four hours. It is best conducted in person. It can be done by telephone. It shows technicians the importance of:

• Having a great attitude
• Being loyal
• Maintaining integrity
• Being responsible
• Being professional
• Being dependable
• Controlling call backs
• Applying themselves
• Delivering excellence
• Being organized
• Being thorough
• Following orders
• Being neat in appearance
• Doing the right job
• Doing paperwork properly
• Up selling & increasing sales
• Answering customer questions intelligently.

Help and support is a phone call away

I created my seminars that are based on the information in my book Solutions Management Theories & Methods for the Contracting Business to disseminate the information needed to cure the problems from which our great noble contracting industry suffers. I personally facilitate the workshops. They are available individually or collectively in any combination. They can be brought to you. You can come to me. They even can be done by telephone.

Contractors who feel that they suffer from any of the business maladies can attend my seminars and discover sound business methods that can relieve their ailments. It’s a great way to increase profits while lowering stress and frustration.

Contracting trade associations can offer their existing and potential members the opportunity to attend my seminars and receive the information that will strengthen the industry so excellence can be delivered to consumers while contractors can earn the reward they deserve for the value they deliver. It’s a great way to maintain members and entice new contractors to join.

Suppliers of materials and services to the contracting industry can offer the opportunity to attend my seminars so their clientele will be able to pay for the products and services they receive in a timelier manner. It’s a great way for creditors to give themselves the opportunity to get their money from contractors in a rapid fashion.

My assistance doesn’t end at those five seminars. My “Solutions Support System” offers continuing customized confidential business strategies to help contractors reach their goals of success through smart business plans; calculation of real costs; development of profitable selling prices; intelligent answers to consumer questions; problem solving; price guides; invoices; and forms.

My book Solutions Management Theories & Methods for the Contracting Business, which deals with the subjects mentioned, is a reference that can help you in the future. My Readily Available Pricing Information Digest 2008 for the Plumbing Heating Cooling Contractor places selling prices customized to your costs and profit margin at your fingertips so you can answer the price question rapidly and profitably.

If you are interested in, or want more information on, my business building tools, give me a call. If you think your trade association or your supplier should consider putting on any -- or all -- of my seminars, give them my number. I can be reached at 845/639-5050. As always, I wish you good health and much prosperity.

       

Richard P. DiToma is a business consultant and contractor with 36 years of experience in the P-H-C industry. He conducts seminars, evaluates business operations, publishes customized price guides for contractors and offers continuing support.

His book -- “Solutions Management Theories & Methods for the Contracting Business” -- deals with solving pr-oblems contractors face; identifying & calculating costs; developing proper profitable prices; addressing consumer questions; hiring and evaluating technicians; and logical management procedures

It’s also available as a “Workshop On Demand” for individual businesses (from one person to multi-person businesses); contractor groups  (organized or informal); trade associations; and wholesalers to the trade.

Date: Arranged according to your schedule

Location: Wherever you wish. Richard P. DiToma will come to you -- or you can come to him. Contact Richard to find out if there is a workshop coming to your area.

His other book -- “Readily Available Pricing Information Digest 2006” -- for the plumbing-heating-cooling contractor service price reference book is available with plumbing &/or heating &/or cooling section(s). To receive more info about his services, to order his books or to contact Richard at 845-639-5050, by fax at 845-639-6791 or via email at richardditoma@verizon.net