Five common contractor misperceptions
The PHC industry was founded on logic and mathematical fundamentals. Technically, drainage flow, water supply flow, and the sizing of heating and cooling systems must be correctly calculated mathematically in order to function properly.
Logic and mathematical fundamentals must also govern proper administrative business protocols. But, the overwhelming majority of PHC contractors run the administrative portion of their businesses in an illogical manner that will never get them where they really want to go.
Irrational thinking leads contractors to make bad decisions, which ultimately causes many, if not all, of the business problems that make earning the reward deserved for the delivery of excellence to consumers extremely strenuous and improbable.
Contractors often complain about the state of our noble industry. But, in truth, the state of the industry is a direct result of the manner in which contractors run their businesses. Negativity does not bring about positive results. Therefore, instead of complaining, contractors should rethink their modus operandi.
Following are some of the negative contractor statements I’ve heard in my 44 years in the PHC industry. After each negative statement, I offer my positive thoughts that you and all contractors should consider. By changing your outlook on the management of your contracting business, you can offer yourself an opportunity to attain your goals by recovering your true cost and earning the reward you deserve for the delivery of excellence to consumers.
‘I must keep my prices low to compete!’
Poppycock! The difference between good contractors and bad contractors is the quality delivered to consumers who all want excellence from their contractors. Excellent craftsmanship costs more to deliver and is less expensive for consumers in the long run than mediocre workmanship.
If you are an excellent contractor and a consumer asks you why your price is higher than the quote they received from another contractor, you can respond, “We may not be the cheapest, but, we’re always the least expensive.”
‘Consumers only want cheap prices.’
False! If this were true, consumers would all be driving the same low priced car. But, look around. They are not. That’s because some consumers are price buyers while others are value buyers.
In the contracting industry, value buyers seek the value that comes from top quality contractors who stand behind their workmanship. Low price buyers usually purchase poor quality and a warranty that ends as soon as the contractor leaves the consumer’s location.
Excellent contractors, who price their services correctly, can afford to deliver exceptional workmanship. And, for some services they can offer an extended warranty that gives the client peace of mind.
The reason I say “some services” is because not all services should be warranted. You can stand behind a new faucet you supply and replace. I don’t suggest warranting faucet repairs or owner supplied faucets. You can change heating and air conditioning filters, but, you shouldn’t warranty that service either. Think logically before offering a warranty.
If a consumer questions your price, quickly inform them of the list of items that must be included in the price so you can recover the cost you incur to serve their needs. In some cases, you might even turn a price buyer into a believer.
You can respond, “As a consumer, I also get sticker shock. But, when you consider the cost of technical and administrative salaries, rent, utilities, vehicular expenses (especially with volatile fuel costs), insurances, and a myriad of other operational costs, and then add expenses which are mandated by governmental tariffs, rules and regulations, your job will cost us minimally between $________ and $________ to do for you. Keep in mind, I said minimally. It could cost us more.”
In order to accurately make that statement, you must know your true cost. My “Readily Available Pricing Information Digest” (which is available to you and is customized to your labor/overhead costs) includes this range so that it is at the tech’s fingertips. By making this statement rapidly, honest and intelligent consumers will realize all the money they are paying your business does not go into your pocket. Consumers who only care about the price and not the cost you incur serving them are inconsiderate misanthropes. Smart contractors really don’t want them as clients.
‘If I raise my prices, I won’t have any work!’
The absurdity of this statement stems from the inane mindset of contractors willing to work at any cost to get the job without considering their true cost to do the job.
Instead, you should consider the fact that excellent service and properly profitable prices allow the recovery of your true cost for services provided while delivering peace of mind to the consumer. And, it gives you the opportunity to earn an above cost profit.
Many, if not the overwhelming majority, of contractors sell their services at, or, in most cases, below their true cost to perform services. Since they don’t know their true cost, they are not aware they are selling at the wrong price. This brings to mind the old adage “ignorance is bliss.”
If contractor “A” sells a job that costs him $500 for $500, he makes no profit. That action defeats the purpose of being in business. If contractor “B” sells the same job, at the same cost, for $475, he loses $25. That’s downright ridiculous. But, if contractor “C” sells that job for $714.29 ($500.00 ÷ 70 percent) to have the opportunity to earn a 30 percent profit, he will have $214.29 as a reward for the delivery of excellence to the consumer.
If that job were done once a day for a year (5-day work week), contractor “A” would have a lot of practice, but no reward. Contractor “B” would be $6,500 in the hole. And, contractor “C” would have $55,715.40 more than it cost him.
In other words, if you don’t sell services above cost, you would have worked for nothing or paid for part of the services performed for the consumer. In that case, you probably might be eligible for tax exempt non-profit status since you would be operating a charity rather than a profitable business.
‘People won’t pay that much.’
People can buy new cars for as low as $15,000. Yet, a Wall Street Journal report states consumers are buying more luxury models and driving the average new car price to $32,077 as of in 2013, up 1.4 percent from 2012 and 10 percent from 2005. Auto sales in 2013 are the best since 2007; 2013 sales are 7.6 percent higher than 2012; and premium vehicles are expected to be 12 percent of the U.S. market.
Consumers want what they want when they want it. Look at the lines at stores whenever a new electronic device is introduced for sale at the highest price it will ever sell at.
Contractors who claim “People won’t pay that much!” are defeatists and doing something wrong. As a contractor, it is your duty to deliver excellence at truly profitable prices and possess the ability to intelligently show consumers the benefits of using your business.
‘You can’t get good help!’
You can’t get good help if you don’t know what to look for in candidates for employment. For technicians to be considered good, they must possess integrity, loyalty, mechanical aptitude, the desire to deliver excellence, the willingness to follow legal and ethical orders, the ability to be a self-starter, and dependability. These and other necessary technician traits are listed in my book, “Solutions Management Theories and Method for the Contracting Business.”
Technicians who possess those traits are worth more than mediocre stumblebums whose only abilities include handling tools and fogging up a mirror held under their noses. Therefore, good help can command compensation, which will not only allow them to survive, but, also flourish with contentment.
However, if you sell your services below your true cost, you won’t be able to afford to properly compensate good technicians. When creating your operational budgets, you should consider the following question: How much would you want to be paid in order to be content if you were the technician working for the contractor?
If you are content with the results you are getting from your business investment, then so be it. But, if you are not, you must change. Keep in mind that when you say I can’t you are really saying, “I won’t.” You hold the future of your business in your hands. If you need my help, I’m as close as your phone.
The aforementioned issues are a few of the subjects I address when coaching contractors. My books, coaching, consulting, and problem solving techniques are only available through me. If you’re interested in any of those books and/or services, give me a call.
Richard P. DiToma is a contracting business consultant and active PHC contractor with over 41 years of experience in the PHC industry. To receive more info about his contracting business coaching, consultations, business books, seminars with solutions, customized price guides, business forms, etc., contact Richard by phone at 845/639-5050, email firstname.lastname@example.org, fax 845/639-6791or write R & G Profit-Ability Inc., P.O. Box 282, West Nyack, NY 10