The enemy within

BY RICHARD P. DiTOMA,
contributing writer

When contractors and consumers are about to talk price, apprehension always puts in an appearance. Contractors and their technicians who are not confident that their prices are properly profitable exude low self-esteem while diminishing consumer confidence. Sensing this, consumers also become apprehensive.

Contractors are often their own worst enemies. Ignorance of proper business procedures leads them to flawed performance. Fear keeps them from doing the right thing. Ego doesn’t allow them to see the error of their ways. In combination with their low self-esteem, these traits prevent them from being enlightened.
A contractor from Chicago wrote the following thoughts on the controversy between T & M pricing and contract pricing. “There are profitable ‘time and material’ service contractors in the Chicagoland area that have earned the trust of their customers. They don’t boast about how much profit they made on the backs of the customers by going ‘flat rate.’ I once took my older, well-maintained vehicle to the dealership for service. Because of the age of the vehicle and the possibility of neglect, I was to be charged for three hours of labor. The job was completed in fifteen minutes; there were no problems, no rusted bolts, etc. The dealer was going to let me sit in the waiting room for more than 2½ additional hours. Fortunately, I knew a mechanic there, and I was able to get my vehicle right away. What a scam! I was being charged extra because my vehicle was properly maintained. That dealer lost my business. Here’s an idea: Be fair to your customers, and you won’t lose them.”

This contractor sees properly run businesses as a cabal of sinners. He claims their business practices are a “scam.” Yet, this saintly (in his mind) contractor has no problem getting his friend the mechanic to put him ahead of those consumers who were in line before him. I guess that, when it comes to ethics, he has an exemption. If he operates with this mindset, he hampers his own business’s ability to attain the opportunity to maximize his profits. But it’s his business to run and his choice as to how well he runs it.
It probably took the dealer more than fifteen minutes to service the vehicle, especially when you consider all aspects of the process, from inception to completion. The dealer has to pay overhead costs and has the right to earn a profit. If the dealer quoted a price before servicing the vehicle, the responsibility of making the decision whether to have the service performed was solely the contractor’s choice. He does not have the right to tell the dealer how to run his/her business.

Contract pricing is based on average costs. Some tasks of the same type seem to go easy while others are the tasks from hell. Average time is somewhere within those parameters.

The only reason a business exists is to earn a profit. In the United States of Capitalism, maximizing profit is the goal of all properly run businesses. If you believe that there are profitable time and material service contractors, so be it. Most T & M contractors have an extremely difficult time making a profit, because they must compete with the absurdly below-cost hourly rates of other inane T & M contractors.

I have just started helping another contractor whose original opinion of contract pricing was similar to that of the contractor from the Chicagoland area. He wrote, “I’m so tired of the constant complaints about travel time or about how long a job should take. Most of my competitors are flat raters. They are what I don’t want to be, high priced, unprofessional techs who don’t care what’s best for the client. I’ve been following your articles for a long time, but this one really pushed me over the edge. My wife just informed me last night that we will need to borrow more money to make payroll for Friday. I love what I do, but I’m really sick of its not making enough profit. We charge $195 for the first hour and $105 after that. It’s not like we are cheap.” In the same e-mail he adds, “I’m now interested in becoming a flat rate company in order to survive. What can you tell me that can help me make the jump?”

The fact that a contractor charges whatever amount he/she charges doesn’t mean that they are covering their costs. Using contract pricing does not in and of itself mean that a business is high priced or unprofessional. It probably means that the contractor is able to deliver excellence by conveying value to consumers because he or she is financially prudent.

At least the second contractor had the wisdom to realize that T & M pricing wasn’t working. He decided to seek my coaching assistance and is just beginning his transition.

The battle of the holier than thou T & M contractors versus the sinful contract pricing contractors continues to rage. Here’s a better suggestion than the Chicago contractor’s idea: Be fair to everyone, including your business, your clients, your employees, your creditors, your family and yourself. Then everyone wins.

Contract pricing contractors give consumers their choice before performing any service. This method gives them a better opportunity to recover their costs and to earn the reward they deserve. T & M contractors give the consumer a surprise bill after the fact. More often than not, T & M contractors place undue financial burdens upon themselves and everyone concerned. Which one has more potential to be the real sinner?

T & M adds fuel to the fires of apprehension

T & M pricing increases everyone’s trepidation. Your client watches the clock and every move your technician makes. Sensing this, your tech is more prone to error, which can result in a callback and a dissatisfied and lost client. Faced with the surprise bill, the moaning and groaning about the price, unpleasant negotiating, and/or total refusal to pay, everyone is distressed because the price was not known before the service commenced.

Consumers will ask your tech “How did you come up with that price?” Since the consumer is paying on a T&M basis, your tech is obligated to itemize the time spent and the material used to perform the task with the related costs of each. If the consumer goes shopping after the fact and finds a competitor who would have charged for less time at a lower rate and/or finds material for less than the amount you charged them, the excrement will contact the rotary oscillator.

Contract pricing puts out the fires of apprehension

With contract pricing, all you have to do is describe the task with your price and all other terms and get the consumer’s signed approval and authorization of the proposal and price before starting the job. The consumer is solely responsible for the decision to accept or reject your proposal. Upon satisfactory completion, your obligations are fulfilled. How you arrived at the price is none of their concern, unless they are going to buy your business and take on the responsibilities and obligations for which you are accountable.

If the consumer asks “How did you come up with that price?” regarding your contract price your tech can respond in a positive, intelligent manner that will show the consumer that your business is run professionally with financial prudence.

Example: “We use a cost integrated factoring system that enables us to give you an accurate price for any given diagnosis, service, repair, replacement, installation, alteration or consultation. It takes into consideration the many costs we incur in order to service your needs properly, to assure that we are here to stand behind our work and to service your future needs. That’s why we can give you the exact price prior to commencement of work for your approval and authorization.”

The items which go into a cost integrated factoring system are (you may have more or less): salaries; F.I.C.A. matching funds; unemployment, disability, workers’ compensation, liability, completed operations, catastrophe and health insurances; vacation and holiday pay; rent; utilities; maintenance; office supplies and equipment; postage; telephones (land line); mobile phones; answering services; vehicles with related vehicular expenses; tools and tool maintenance; advertising; travel; licenses; dues; uniforms; bank charges; accountant and legal services; education and material. The discretionary decision to provide costs of items is the sole responsibility of the owner or authorized manager of your company, not that of the tech.

Contract pricing is similar to the sales price procedures for most items and services used by the public. Logical, intelligent consumers never ask for a price breakdown of the ingredients of the food they purchase in a supermarket or restaurant, the material used to manufacture their clothes, the items associated with the building in which they reside or each part of the new car they buy. Once they have chosen a product or service, the total price is the only factor they need in order to make their decision.
You can defeat the enemy within by implementing proper intelligent protocols. Your business team will have the data needed to increase the self-esteem of each individual and of the team in totality. This will remove contractor/technician trepidation while instilling confidence in your business in the mind of the consumer as their trepidation subsides.

If you need help to set up proper procedures, give me a call at 845/639-5050. I wish you well!