Busy times, slow times

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

Regardless of the size of your business, it’s important to know that all phc service contractors, large to small, experience fluctuations in their workload. Knowing this forewarns you to take the fluctuations into consideration when you set up your pricing policies. When you’re busy, your competition is usually busy. Likewise, when your phones stop ringing, your competition is usually suffering through the same economic malaise. Try driving around in your work area during both times. You’ll probably find their trucks on the road when yours are on the road and their trucks parked at their shops when your vehicles are parked at your shop.

During busy times, you might have more work than you can handle with your existing workforce, and you might consider hiring more people. But keep in mind, getting “good help” is often a daunting task. Hiring mediocre (or bad) help can destroy your business reputation.

Then, there are slow times when you might think you are going to rub the paint off your truck(s) if your workforce washes your vehicle(s) one more time. In the same mode, you can only clean and straighten your shop/office so many times.

Hire more people?

Hiring more people for the busy times only is not the answer. When the slow times come you will be forced to either lay them off or lower your prices to keep them busy. Both of those actions will hurt your business in the long run. Since your employees still have to feed, clothe, and shelter themselves and their families, laying them off will only serve to start them on the industry-decimating disease of doing “side jobs.” This malady destroys the industry and your business because it will take a portion of the work out of the pool from which you get your workload to keep your business busy.

If you lower your prices to keep them busy, you must realize there will still be slow times in the future. It’s the nature of business. That’s why business graphs go up and down. And, you can only lower your prices so far before you are selling your services at, or below, your cost. What are you to do?

It’s simple! Think intelligently. Utilize common sense. The proper way to run your business is through a blend of logic, balance and financial prudence. Don’t be an ignoramus who thinks a larger volume of work at prices that are at or below your true cost can make up for running your business incorrectly. Larger volumes of work create larger liabilities. And when times are slow, there are no larger volumes of service to sell. Encouraging people to enter our industry without considering the domino effect they will have on the industry and your business is not only naïve, it’s self destructive.

Factors to consider

Logical, balanced and financially prudent business protocols require taking certain factors into consideration.

1. You must constantly calculate the true costs you encounter in the proper operation of your business.
2. You must realize that the only reason business exists is to earn a profit above those costs.
3. Your responsibility is to maximize your profits.
4. Maximized profit is your preferred goal.
5. Minimized profit is the consolation prize.
6. No profit is the booby prize.
7. Losses are for losers.
8. The consumer is the only source from which revenue needed to recover your cost and earn your profit comes.
9. When consumers do not pay for the costs you incur in business and the profit you deserve, you pay for the costs; you earn no profit; and you lose.
10. Traveling to consumers gives you a cost.
11. Free estimates do not allow you to recover those traveling costs.
12. Placing the travel costs of the window shoppers’ free estimates in the prices you charge consumers who pay for your services is unfair. It raises the prices you charge your faithful clientele for the wrong reason.
13. Placing the travel costs of the window shoppers’ free estimates in the prices you charge consumers who pay for your services is also not intelligent because you will not be able to maximize your profit.
14. If you implement #9 and/or #10, you are fooling yourself.
15. Never fool yourself.
16. Charge a service-call fee to travel to the consumer.
17. If you sell a task to the consumer at the initial visit, you can forego the service-call fee as long as you have included your travel costs for that task to that consumer in your price calculation.
18. Always correctly calculate the cost you will incur to perform a task before quoting a price for the task.
19. Consider your goals and always apply the proper profit margin to your cost to develop a proper profitable selling price that allows you to reach your goals.
20. Before quoting selling prices, envision the loved ones you will hurt by not charging proper profitable selling prices.
21. Once your mindset is ready to sell the task at a proper profitable selling price, look the consumer in the eye; smile; be truthful; assure them you will do the right job to their satisfaction; then, quote them the selling price.
22. Always deliver excellence to your client.

Figures to contemplate

Figures 1, 2, and 3 (see page 91, April 2008, PHC News) illustrate the effects on your cash flow at three different profit margins when your labor and overhead cost (that’s the cost to you) is based on 1,708 maximum available hours in a year per technician. The 1,708 annual hours is arrived at by subtracting two weeks vacation, six holidays, and one non-productive hour per eight-hour workday. The $100.00 per tech hour is arbitrary and for demonstrative purposes only. Your actual tech cost per hour may be more. At $100.00 per tech hour, your annual cost per tech would be $170,800.00 whether or not you sell all hours.

Figures 1, 2 and 3 are respectively based on profit margins of 10%, 25% and 50%. Each chart has five columns to indicate the number of hours sold annually. The last three lines of each chart show the annual results in dollars, words and percentages when different amounts of annual hours are sold.

I’m not trying to suggest any profit margin. Space precludes me from making charts that cover all scenarios. I am trying to tell you that you must calculate your true costs and choose profit margins that will help you succeed rather than fail. I am also saying that slow times add risk to your business and are a factor to consider in choosing the profit margin. If you need help calculating your costs and choosing your profit margins, give me a call at 845/639-5050.

Remember that old adages usually speak truth. The one that comes to mind in this regard is “make hay while the sun shines.”                   

        

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