An offer you can't refuse

Recently while perusing the mail, I noticed a postcard from a plumbing contracting business franchise notifying plumbing contractors they were hiring qualified plumbers. Its content went on to pose the question of whether you or I, as plumbing contractors, were tired of the stress of owning our own businesses.

Then, it listed the benefits of joining their team. It enticed plumbers with the choice of hourly wages plus SPIF’s or full commission as compensation for their labor. It suggested plumbers could be dispatched from their homes and could enjoy flexible hours and more family time. 
Furthermore, it implied there would be weekly bonuses, paid health benefits, long term disability and a 401K. And of course, no offer would be complete without paid time off and vacation. Then it emphasized the fact that they, not you, would handle the stress associated with bad checks, unemployment, broken equipment and more. 

Who should consider this offer?

It is important to realize there are two types of people in business - those who are business people and run their businesses in a businesslike manner and those who are just people in business.

Regarding the bad checks of which they referred, you can alleviate this stress problem by accepting several other methods of payment. Cash, credit cards and debit cards don’t bounce. A consumer might try to dispute credit and debit card transactions, but, if your paperwork is in order and you performed the agreed service their efforts will more than likely be futile. 

Additionally, consumers often want to use credit cards because they might not have the money and/or want the rewards which are attached to the usage of their credit cards. Business people would choose to employ these payment methods while those who are just people in business accept checks good and bad. The good ones don’t give them stress, but the bad ones certainly do.  

As for “broken equipment and more,” these items are nothing business people get stressed over. Business people see these items as business expenses that must be included in their budget, which eventually governs their pricing policies. Those who are just people in business don’t properly budget for these instances. They set their prices to compete with those of their ilk. Then, they panic when these expenses pop up. And, that is what leads to undue business stress. 

Regarding unemployment stress, it looks like the business looking to have you work for them obviously takes care of their unemployment problems by sending out the aforementioned postcards. But, if you properly scrutinize candidates for employment before hiring them; fairly evaluate their performance after you hire them; and properly compensate them commensurate with their performance, you can weed out the bad while continually employing the good.   

The postcard didn’t mention anything about the level of quality they expected from you. Nor did it say anything regarding the amount of dollars they required you to bring into their business. But, you can rest assured if your workmanship was poor, in their opinion, or, if you didn’t bring in your cost plus a profit your continued employment would probably not be guaranteed.

As a contractor, you must decide which type of person in business you are. If you are a qualified plumber who does one of the following you are doing something wrong and you are just a person in business:

• delivers excellence to consumers, works hard, and never gets ahead
• misses paychecks from your business
• shortchanges your deserved financial compensation
• neglects time for your family

You would be wise to consider one of two options. Seek employment with a contracting firm that delivers excellence to their clientele while rewarding their employees for assisting in the delivery. Or, change your ways.

An offer you can't refuse

If you do not want to work for someone else’s business and you are an entrepreneur who truly wants to succeed, you must give yourself an offer you can’t refuse. That’s right! I said you make yourself the offer to manage your business like a business person rather than just a person in business.

Instead of choosing your pricing and pricing policies based on that what others are doing, you must base your prices on your true cost; sell your services above your true cost; embrace a contract pricing policy (upfront pricing); deliver excellence to your clientele; and stand behind your workmanship. It’s that simple.

Unfortunately, many PHC contractors annually shortchange their businesses by minimally $50,000 per tech. If you do that, imagine having an amount of money above what you now have. Then, you would be able to afford to offer to yourself and your employees everything that postcard offered to you.   

I believe the cost range for one qualified technician’s hourly labor and overhead cost to you, the PHC service contractor, to be between $100 and $250 at present. This conclusion is backed up by the fundamentals of mathematics. Yet, there are PHC contractors across the country selling services for less than $100 per tech hour. You must come to the realization that rate is less than it costs you. That is what causes undue business stress.

As an example, if you wanted to earn $50,000 annually for your technical talents before taxes, your minimal direct labor expense to your business would be between $60,000 and $75,000 dependent on variable salary expenses (e.g. FICA matching funds, workers’ compensation insurance, unemployment and disability insurance, health insurance, etc.). If your salary is higher, your cost range will likewise be more. 

You have only 1,708 maximum revenue producing hours available in a 40-hour, 52-week year after you subtract six holidays, two weeks for vacation and one hour per workday for duties which do not produce revenue. 

Divide the direct labor cost range by 1,708 hours and you will have a direct labor cost range between $35.13 and $43.91 per tech hour. And, that’s if you sell all your tech hours all the time. The only contractors who sell all their tech hours all the time are commonly referred to as liars. 
If you only sell 75 percent of your available time, your direct labor expense range would be $46.84 to $58.55 per tech hour. Either of those direct labor expense ranges does not include your overhead burden. You need at least one vehicle which comes with additional expenses such as insurance, fuel, repairs, maintenance etc. You may have multiple vehicles. Then, there are tools, telephones and a myriad of other business expenses to consider. And, since your $50,000 salary only covers your technical labor, you must add the expenses related to your administrative duties. 

After you properly calculate your total overhead expenses, you will find your overhead burden costs you an additional $75 to $150 per tech hour. And, that includes all those contractors who work from their kitchen tables and don’t think they have overhead.

When you add the overhead burden to your direct labor expense the cost range to you for one tech hour is $110.13 to $193.93 if you sell all your tech hours all the time. If you only sell 75 percent of your available time the cost to you ranges between $121.84 and $208.55 per tech hour.
If you want to remain in your business and succeed, you must understand and properly implement sound business protocols. So, make yourself the offer you can’t refuse. Today is the first day of the rest of your life. There’s no sense in waiting. Running your business in a proper businesslike manner will help lower the stress referred to by the company that sent the postcard while increasing your revenue. And, you will still be your own boss.

If you want to be an excellent business person but need help figuring out how to go about it, just give me a call. Contractors who have allowed me to coach them and understood and properly implemented that which I showed them have minimally increased their revenue by 30 to 70 percent for the same workload they were performing before I coached them. 

Richard P. DiToma has been involved in the PHC contracting industry since 1970. He is a contracting business coach/consultant and an active PHC contractor. For information about the "Contractor Profit Advantage" or to contact Richard: call 845-639-5050; e-mail; mail to R & G Profit-Ability, Inc. P.O. Box 282, West Nyack, N.Y., 10994; or fax 845-634-7236.

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