Break  away from the ‘Circle of Frustration”

BY RICHARD P. DiTOMA, L.M.P.

contributing writer

It’s said that if you don’t learn from your past mistakes you will be destined to repeat them. Mistakes lead to frustration, which is the act of preventing success often by obstruction. Many contractors suffer from this self-destructive malady. Instead of using proper logical business techniques and learning from their mistakes, their irrational thought processes lead them to managing their businesses incorrectly. They constantly frustrate themselves by following the lead of other equally ignorant contractors walking in a circle of frustration, which can only lead them to the disappointment of continually doing things wrong and getting wrong results. Their frustrations are exacerbated as each of their problems leads to more problems.

They feel that consumers expect too much from them. They shoot themselves in the foot by charging the “going rate.” They have difficulty attracting and keeping good help. They must work many more than 40 hours a week to get their bills paid. They miss valuable family time because they’re spending too many hours working. Are you walking in the circle of frustration?

Consumers expect too much from contractors

Of course, consumers expect something from contractors. If they didn’t, they wouldn’t be calling. Many contractors suffer from ambivalence. On one hand, they perceive consumers as necessary to their existence and are frightened to lose them. But on the other hand, they look at those consumers as pains in the butt who demand the best service at the lowest prices.

Assuming that the majority of PHC shops in our great nation has between one to 20 full-time (that means employees who are paid for 2,080 hours per year) employees, I am of the firm belief that as of this writing, hourly overhead costs to contractors for one technician minimally range between $75.00 and $150.00. And that does not include the salary of the technician and expenses related to that salary, e.g., FICA matching funds, unemployment/disability insurance, worker’s compensation insurance, health insurance, etc.                                                 

To avoid walking in the circle of frustration, you must come to the realization that consumers get what they pay for. Serving the public at prices that are at or below your true cost because the other idiotic contractors in your area are doing it is the entrance ramp to the circle of frustration. You might ask yourself, “How do those other contractors survive charging less than their costs?” The answer is simple. Ignorance is bliss. They live in a world of long hours, much stress and foolishly self-inflicted frustration. They believe that this is the way it is. That’s what happens when you discard logic and follow the lead of ignoramuses who don’t know what the hell they’re doing.

The “going rate”

I am fortunate to speak with many contractors across the length and width of America. Using them as a poll sample, I have come to the conclusion that 95% to 99% don’t know the correct answer when asked how much it costs them to operate. The 95% sell below their cost. The other 4% sold at or slightly above their cost by sheer luck. That means that the “going rate” is wrong.

It’s illegal to fix prices. But fixing prices “low” is downright ridiculous and moronic. Correct selling prices must be calculated based on the true cost and proper profit margins of each individual business. When you charge a dollar less than 95% to 99% of your competition in order to buy a job [instead of selling a job] you are a dollar more ridiculous and moronic than that competitor you have emulated. And, you are an integral part of the circle of frustration.

Can’t get good help

If you don’t charge correct selling prices, which include an employee compensation package that will attract and keep good people with qualities like integrity, loyalty, aptitude, good mental attitude and self motivation, and who know how to follow orders and deliver excellence, you will never have good help. That’s the domino effect of silly pricing practices.

If you settle on a mixture of good employees, mediocre employees and bad employees, you are in for a rude awakening when the bad employees turn the mediocre into bad and the good employees become mediocre. As the old adage states, “One rotten apple can turn the whole barrel bad.” But that’s just another result of choosing to be part of the circle of frustration.

Working too many hours

Business revolves around bean counting. First you must find out the amount it will cost you to operate your business, including all tangible, intangible, fixed and variable costs that will allow you to deliver excellence to the consumer. You must include in your budget, not only that cost that you will incur today, but also that which you will incur in the future of the same budget period for items such as salary increases, new and/or replacement equipment, unforeseen situations, etc.

Forty hour work weeks are considered the benchmark between regular pay and overtime pay. There are 2,080 hours in a year (40 hours X 52 weeks). But after subtracting a minimum of two weeks vacation, six holidays and the loss of one hour a day per technician for time that does not bring revenue into the business, you’ll be left with 1,708 potentially productive hours per technician. When you divide your cost by the total number of potentially productive technician hours, you will arrive at your cost per technician hour. Then you must choose a proper profit margin that will allow you to attain your goals.

Calculate correctly and you will you have a chance to succeed. Put together a budget with inaccurate numbers, or use more than 1,708 potentially productive hours per technician, may give you the misperception that since you calculated your cost, the numbers are correct. But they won’t be!!! And you will now be working too many hours as you continue to walk in the circle of frustration.

Working more than 40 hours per week to pay bills

If you have to work more than 40 hours a week per technician to pay your bills, you did not correctly calculate your costs and/or choose the proper profit margin to attain your goals. The name of the path you are on is the circle of frustration.

You only have so much time in life. In retrospect, it seems that children, grandchildren, nieces and nephews grow up in the blink of an eye. And parents, grandparents, aunts, uncles, siblings and friends always pass on before their time. Missing out on valuable family time is the most devastating and saddest effect of traveling in the circle of frustration. Wasting all that time working long hours to pay bills because you followed the ignoramuses of this industry when choosing your selling price methods; or, because you computed the wrong numbers in an attempt to calculate your own prices is your own doing. And you, and you alone, have the power to step out of the circle of frustration.

Stepping onto the path of success

First, stop following the fools!! Next, stop acting in a foolish, ignorant, moronic, mindless and/or frustrating manner!! Then, start your journey on the path to success by thinking intelligently. The most important step to take is crunching your numbers correctly so that you can attain your goals. If you implement this step correctly you will be in for a very pleasant surprise. Keep in mind, money is to a business like blood is to a human body. Either will be anemic without the proper respective amount of that which gives it strength. If you need my assistance to get on the right path, or for a copy of my book Solutions Management Theories & Methods for the Contracting Business© give me a call.

 

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