Bad habits make for bad results

 

BY RICHARD P. DiTOMA, L.M.P

contributing writer

 

Good habits make your tasks easier to do. They can also help you to be more profitable. I’m sure that earning the reward you deserve for your talents was the main reason you went into business. Unfortunately, bad habits will lead you down the road to high stress and frustration levels while keeping you away from your just reward.

 

Analyzing the cost you incur after you perform any service for your clientele is a great habit. By doing so, you can compare that which you thought it would cost you to do any job before commencing service with the actual cost you incurred to do that job. Once you start comparing your true cost and quoted selling price of every job, you will have the data needed to know if the quoted selling price for each job was right or wrong.

 

If your price was right, you can pat yourself on the back. But, if your price was wrong you should amend or change the methodology you used to arrive at the selling price of that job. Every time you use wrong numbers you will get wrong results. If you don’t analyze each job’s cost to you, you have a bad habit which will destine you to repeat your mistakes. And, you will miss the opportunity to recognize those jobs for which you properly calculated your selling price.

 

Obviously, the first step needed to quote proper profitable selling prices requires the correct identification and calculation of all your true costs, and, the use of a profit margin that will give you the opportunity to attain your goals.

 

Next, you must realize that as a human you have the propensity to fool yourself into thinking you can do any job quicker than the task really takes. That’s a bad habit. You probably also tend to use methods which will increase your use of your time. That’s a good habit. But, when the inclination to fool yourself meets with the tendency to speed up your work habits, the probability of error rears its ugly head.

 

Rules of thumb can present problems

 

Quoting prices based on the “by the fixture” method is an example of this occurring in the plumbing industry. Rule of thumb methods can result in inaccuracy as well as teach the next generation to not only perpetuate the erroneous rule of thumb method, but also, extend its potential to do harm with more flawed concepts.

 

I understand the “by the fixture” method can be helpful when correctly utilized as part of the total estimating process. But, being lazy and not realizing that the “by the fixture” method is only a part of the total estimating process is not only a bad habit, it is the wrong thing to do. It will cause you to omit labor, overhead and material costs which must be considered to correctly arrive at a proper profitable selling price.

 

The plumbing industry is not the only industry that adopts flawed methodology. A very close friend of mine is a second generation roofing contractor. The roofing industry utilizes a “by the square” method for estimating its costs and selling prices. In a conversation with him regarding his use of the “by the square” method, I asked him to allow me to prove why this method was as wrong as plumbers using the “by the fixture” method.  He assured me that if I proved it, he would admit that the “by the square” method was wrong.

 

I asked him to quote to me a price to redo a 10,000 square foot hot tar roof. He took a calculator and immediately multiplied his selling price per square foot by 10,000 square feet. He then gave me his selling price for the job.

I told him he had the job and asked him if he would like the address of the building. He said yes and I gave him the address of a skyscraper in New York City. The look on his face alone told me that I had made my point. And, to that he agreed.

 

There is a great deal of difference between doing that roofing job on a one story strip mall in the suburbs of New York City or doing it on the roof of a skyscraper high above the streets of a busy metropolis like New York.

 

For plumbers, there is a great deal of difference between doing the plumbing for a three-bath home when the bathrooms are closely clustered or in a sprawled out ranch with the bathrooms at different ends of the building.

 

Every job must be inspected for the circumstances surrounding that particular job before a price can be quoted correctly. The differences between jobs which are calculated “by the square” or “by the fixture” can be vast. The cost to the contractor who omits labor, overhead and material costs needed to completely do the job can be devastating.

 

Denial makes matters worse

 

But, that’s not the only problem caused by contractors who utilize these rules of thumb. Those who implement these methods create a concept in which other contractors, who are equally or more unmindful of reality, come to believe that this is the proper way to estimate jobs. Thus, begins the slippery slope which leads contractors into the abyss of low and/or no profits, doing jobs for less than it costs to do them, and/or, working many more hours than estimated to finish the task.

 

Another bad habit is denial. It too causes contractors to repeat their errors over and over. A contractor seeking my counsel regarding his bathroom remodeling estimates was getting the jobs and moving money, but, his bottom line showed he was not making money on those jobs. I asked if he had done a cost analysis of each remodeling job after completion. He said no.

 

I analyzed the cost and found the same problem in each instance. The scope of the jobs in each case was identical. The problem did not revolve around the estimated material. The problem was the estimated time to complete the task. He kept estimating the labor time at 90 hours. Yet, each bathroom took 100 to 120 hours.

 

When I brought this to his attention, he said his technicians were working too slowly. Whose fault is that? He was supervising those technicians on those jobs. Although the jobs took longer than he estimated, he refused to change the time he spent to adjust to the reality.

 

An old adage says that the only way to eat an elephant is one bite at a time. So, I asked him to sit down at his desk with a pad and pencil and write down each individual step in a bathroom remodeling job from start to finish as a separate task. Then, I told him to put his estimated time to complete each task next to each step.

 

After completing this exercise, I told him to add up those individual times. He came up with 120 hours. I was sure my point was made. But, when I asked him if he would consider the 120 hours instead of his 90 hour estimate, he remarked, “No! It shouldn’t take that long.” Denial blinded him from seeing the facts as the reality. It also kept him from making money. As another adage states, “You can lead a horse to water, but, you can’t make him drink.”

 

Everyone is ignorant of something because no one knows everything. Therefore, ignorance is nothing of which to be ashamed. But, once this contractor saw his own individual estimated times he was no longer ignorant.

 

Fear of losing the jobs probably added to his flawed estimating technique. His inflexibility also caused him to buy jobs at any cost rather than sell jobs at a profit. Ego obviously kept him from having the courage to admit the error of his ways. In the end his bad habits will always give him the same bad results. He turned his ignorance into stupidity. And, that is something of which to be ashamed.

 

Logic & an open mind helps

 

Not looking at the total picture is also a bad habit. Another contractor, who is a client of my consulting business and who had already gone through the process of identifying and calculating his true costs called because he was losing some jobs to others because his bids were too high. After speaking with him and asking a few questions I found his problem.

Before becoming one of my clients and finding out his true hourly technician labor/overhead cost, he would arrive at his selling prices by using an hourly technician labor/overhead cost that was based on which way the wind was blowing rather than calculation. Then, he would multiply that hourly cost by twice as much time as he knew the job should take to do. I guess that was his way of making up for his guessed at hourly technician labor/overhead cost. The whole process was not only a bad habit, it was absurd.

 

But, after I showed him how to identify and calculate his real hourly labor/overhead cost of one technician he still kept part of his bad habit. He multiplied his real hourly technician labor/overhead cost by the same doubled time to do the job.

I explained to him that since he now knew his true cost he could use the true estimated time to calculate his prices. This contractor is much smarter than the other guy because he doesn’t blind himself to his reality. When he has a problem he gives me a call. His open minded demeanor allows him to easily solve his problems.

 

If you would like to set aside ignorance, fear, ego, and denial; develop some good habits; and, solve your business problems, give me a call at 845-639-5050. I would be glad to help get you on the right track. I have the solutions, theories and methods that can solve your contracting business problems. I wish you good health and good fortune.