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Whether you are already a plumbing, heating or cooling service contractor or thinking about becoming one, the following hurdles of business pertain. To those who are already PHC contractors, I’m sure these hurdles will sound familiar. You may have followed in the footsteps of a parent or guardian who was already a PHC contractor and joined the existing business.
Others, like myself, chose to enter the PHC industry starting from scratch. For me, becoming a PHC contractor was predestined because of my entrepreneurial spirit.
To those technicians who are very good at performing technical duties and are thinking of opening a PHC service contracting business, I suggest you heed what you are about to read before entering the business arena.
Whether you are just starting in business or already endured some business battle scars, beware. These seven issues must be addressed when you are in the business arena.
1. The license
Many states, counties, villages, etc., require a license for PHC businesses. As much as governmental agencies claim the license is intended to protect the welfare of the public, licensure requirements often fall short of actually proving the licensee is thoroughly suited to hold a license and truly protect the welfare of the public.
In my more than five decades involved in the PHC industry, I’ve met many PHC contractors who make me wonder how they ever got a license. What can I say? Where politics is involved, anything is possible.
Running a business requires managerial skills; keeping your business going necessitates cash flow. Money is the blood of business. Balancing what comes into your business with what goes out requires business acumen, a good game plan, mathematical skill, a logical mind and a thorough and organized modus operandi.
Good old-fashioned managerial horse sense would tell you that you need to find your own true operational costs. Calculate your selling prices based on any task’s proportion of your total operational labor and overhead costs as well as material costs. Then apply a profit margin to those task costs that can get you where you want to go.
Finally, you’ll need to sell your services in a manner that allows you to earn the reward you deserve for the excellence you deliver to consumers and reward your techs for their contribution to keep them content and in your employ.
This brings up another issue. You’ve been trained in what it takes to be a great tech, but you were probably never taught how to run a business.
A successful business with properly profitable selling prices requires knowing how to get the most bang for your buck. That’s Business 101.
3. Tangible, intangible expenses
You have a myriad of operating expenses to consider.
Service vehicles are a must. And for each tech, yet another service vehicle is needed. They come with a boatload of insurance costs, lettering or wrapping, shelving and racks, fuel, registration and inspection, and maintenance, repair and replacement of the vehicle when it finally dies.
Service vehicles also need a properly maintained inventory of tools and materials, allowing your technicians to perform tasks in an expeditious fashion.
You also are responsible for tech salaries and salary-related expenses such as matching FICA funds, workers’ compensation insurance, unemployment and disability insurance, liability insurance related to payroll, vacation-holiday-personal time, health insurance, and some type of retirement pay.
Those expenses hold for administrative personnel as well.
Also, consider the many miscellaneous expenses, such as completed operations and catastrophic insurances, shop/office rent, utilities, office supplies and equipment, communication devices and associated expenses, advertising, professional services (accountants, lawyers, consultants), call-backs and customer relations, breakage and loss, tool maintenance/repair/replacement, education to keep up with changes in the industry, uniforms, dues, bank charges — and, of course, Murphy’s Law.
So, when you think your employer is pocketing all the money you bring in — think again about all those expenses.
4. What to charge
Knowing how much to charge is extremely important. But if you are not quite sure, you may not bring in enough revenue to pay for your business expenses.
If you are tempted with the no-so-brilliant idea of charging a dollar less than the prices your former employer charged, forget about it. His prices could be wrong for his business — and they are certainly inappropriate for your business.
The temptation grows when you tell yourself he’s been in business for years. To quell that thought, you should ask yourself whether he is successful. He certainly wasn’t successful when he let a great tech such as yourself leave his business.
As a young tech, I was No. 1 in my apprenticeship class. I was loyal to my employer and always kept my integrity intact. If my employer knew how to treat an employee of my caliber, I would have stayed in his employ.
Your employer probably lost you because he didn’t compensate you in a fashion that would have kept you content and in his employ.
You might think he wanted to keep all the reward for himself. However, the truth is (remember all those expenses), his prices probably did not take into consideration the fact that excellent techs cost more than mediocre stumblebums. And, due to the potential of his prices being flawed, he couldn’t compensate you to a level commensurate with your contribution to his business.
Not only did he lose you, but he also created another competitor in his work area, one who knew his customers. Not too bright.
The “I’ll charge a dollar less” idea is not only not brilliant — it is dimwitted.
But what are you to do regarding your pricing protocols?
You must find out your true cost for your tangible and intangible expenses, choose a proper profit margin, then properly apply the margin to your costs to arrive at a profitable selling price.
5. How should you charge?
You must decide whether you will use a time-and-material (T&M) pricing method or a contract pricing protocol.
If you choose T&M pricing, you will put yourself in the category of all the appalling misanthropic low-ball contractors you complain about. You will need a rate close to or less than all the other appalling misanthropic low-ball contractors in the area to attract customers.
This makes it very difficult for you to recover your true cost and earn the reward you deserve.
On the other hand, since you are a contractor, you could choose to quote upfront contract prices for each task once you have seen the circumstances. This method gives you a leg up on the T&M contractors. With you, the consumer knows the price before you do the job. With them, the consumer is given the sticker shock price after the job is done — in which case, the propensity for arguments rears its ugly head.
You might wonder how to compile this information. Sit down and figure what the average cost of any task based on your cost analysis is. Apply the profit margin that can get you where you want to go. Then, make yourself a price book — but be sure to use numbers that can recover your costs and earn a profit.
Since creating a price book is extremely time-consuming, you might choose to subscribe to services that offer to do it for you. But be careful; it is imperative that prices be customized to your labor and overhead costs, average travel times and desired profit margin.
6. Techs and customers
Before you need to be concerned about keeping great techs compensated in a manner that will keep them in your employ, you have to know what to look for in potential technician candidates to distinguish the good from the bad and the ugly.
Assuming you get this far without surrendering, yet another conundrum comes up. How do you get customers? Without customers, you don’t need and can’t afford techs. Without techs, you can’t take care of customers in an expeditious manner.
Even if you thought you would be a one-person band, problems come up. Some tasks cannot be done by only one person in the PHC industry.
Attaining customers requires some advertising expertise. Advertising is expensive, especially if you spend money on it but don’t get good results.
You can become a proselytizer and steal some of your former employer’s customers, but you must realize that if you can steal them from him, someone else can steal them from you.
Before jumping into the business arena, you must also consider that any given service area could be saturated with PHC contractors. The pie is only so big; a multitude of contractors in any given area only makes smaller slices for each contractor.
Consumers come in two varieties — value buyers and price buyers. You will need to charge more than your former employer so you don’t make the same mistake he made — the one causing him to lose a great tech such as you and create another competitor in his service area. However, if you steal his price buyers, they will eventually go back to him because they were only looking for a low price.
That means your consumer target is the value buyer. To turn value buyers into your loyal clientele, you must consistently deliver timely, excellent service. It’s what makes the difference between the great contractors and the appalling misanthropic low-ball contractors who give the industry a bad reputation.
Value buyers are valuable to your business. They know excellence costs more to produce than mediocrity. Therefore, deliver excellence, price properly and profitably, stand behind your craft when tasks can be warranted, and go forth with confidence and a sound game plan.
As a business owner, you not only get to enjoy the fruits of your investment and your labors, you also absorb the stress and frustration that comes with dealing with your employees. It’s why it is so important to hire good people rather than those who moan and groan about everything.
You also get the stress and frustration that stems from dealing with the public and governmental rules, regulations, mandates and taxes.
When dealing with the public, questions will come up. You must know how to address those questions in an honest, intelligent and expeditious manner. Honesty leads to trust from the consumer. Intelligence leads to respect from the consumer. And a rapid answer lets the consumer know you are confident in yourself, your abilities and your business policies.
Organization and specificity will help in everyday responsibilities as well as those governmental requirements.
7. Thumb-Twiddling Times
No contractor sells all their available revenue-producing tech time all the time. Consumers only call when they need or want your services. There will be periods when you will be slow. Heating and cooling service businesses, dependent upon the portion of the country you serve, can be spotty. Plumbing service calls can arise at any time during a year, but even those businesses encounter thumb-twiddling times.
Slow periods can get on your nerves, especially when the trucks have been washed for the umpteenth time, the shop is perfectly clean and organized — and you still need to pay your employees for standing around. By choosing to offer the trio of plumbing, heating and cooling services, you have an opportunity to decrease thumb-twiddling times.
Entering the business arena means encountering hurdles. You must be prepared and able to jump them and endure the number of hurdles you will face.
You might want to seek the help of a business coach who can show you how to clear those hurdles. If you do, make sure to choose a consultant who knows what he or she is talking about. Interview consultants before deciding to avail yourself of their services.