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Paul, a contractor, recently wrote to me: “I read your article in the May 2021 PHC News edition and it struck a good chord with me. I have been in the commercial HVAC service business for more than 30 years. A couple of years ago, we decided to add plumbing to our service business, and it has been a great addition.
“The plumbers we recently hired have asked what our minimum service call charge is or what is the charge to the client for each of the tools we use, or what is their incentive for each service call they complete. I tried hard to understand their questions because these are not discussions in the commercial business.
“I believe what you have written about and what my service plumbers are asking is a residential behavior. The timing of your article was perfect. Before I put this discussion to bed as a residential behavior and not a commercial behavior, I wanted to engage with you and learn a little bit more with your help.”
To this first part of his email, my response is simple, logical and mathematically correct.
The first issue to consider is Paul’s claim, “I tried hard to understand their questions because these are not discussions in the commercial business.”
Of course, there are discussions about these matters. The proof is that Paul opened a discussion with me by email regarding those issues.
Paul uses the word behavior in his email. Let’s look at the word. Behavior is defined as how one acts or conducts oneself, especially toward others.
That means behavior can be good or bad — right or wrong.
All businesses incur operational costs. All businesses must recover their operational expenses to remain in business. Those businesses that are for-profit businesses and deliver excellence to consumers are entitled to earn a profit above their operational costs so they have a logical reason to remain in business.
Therefore, as simply and logically as I can put it, to attain its goals, a business must charge consumers for the resources consumed by the consumer and add a profit to the cost of those resources spent on behalf of the consumer.
I know Paul agrees with this premise because he says so further in his email when explaining to consumers why he charges them for the time spent traveling to the consumer’s location.
Mathematically, business management must set up pricing protocols that allow the business to achieve its goals.
Regardless of whether a business is residential or commercial, operational costs are incurred. After all, the service vehicle doesn’t know whether it was bought for residential or commercial service. But what both residential and commercial business management know is that vehicles aren’t free.
Also, he has a myriad of other business expenses to contend with. The fact that Paul is questioning his own outlook, and his plumbers are informing him they believe there should be a minimum service call and that they should enjoy an incentive program that rewards techs commensurately for their monetary contribution to his business, should give cause for him to contemplate changing his mindset and managerial protocols.
As to techs wanting to know what to charge for each tool, I am a bit confused. If they are referring to large equipment, I would prefer more specificity regarding the types of equipment.
However, charging for screwdrivers, wrenches, hammers, etc., is absurd. The cost of tools necessary for plumbers to do their jobs properly should be included in the budget that determines the cost of one tech and one service vehicle so the business can develop properly profitable selling prices for the services it performs.
Minimum service call charges and incentive programs for techs are not solely residential behavior. If those issues are not discussed in commercial service businesses, then the management of those businesses is deficient in their duties. In no way should Paul even consider putting the issue to bed.
Charge — and pay — for expertise
Paul’s email went on to state, “I liked your analogy of the doctor serving his patient. I first learned my trade in the Marine Corps and later entered into an apprenticeship. After completing my apprenticeship, I taught other apprentices our trade for another five years. During this time, I continued to resolve my client's issues in their business. I always considered myself a doctor of buildings. Thank you for the analogy.”
First off, allow me to thank you for your service as a Marine. My response is that expertise costs both time and money. If Paul prefers being compared to doctors, he should contemplate emulating them.
Doctors charge a fee for you to travel to them. Since both residential and commercial consumers can’t bring their buildings to the contractor, contractors incur additional costs. And as I have already stated — all businesses must recover their operational expenses to remain in business.
Therefore, minimum service call charges are not optional but necessary and a good practice for both residential and commercial service businesses.
Properly organized incentive compensation programs reward techs according to their contribution to business and make perfect sense. Good techs have a reason to become great techs, while mediocre techs have cause to become good techs. The end result is high morale among good employees and excellence for the business’ clientele.
When dealing with consumers, successful contractors think like consumers and act like businesspeople. When dealing with techs, Paul should think like a tech and act like a businessperson.
When Paul was a tech, I’m sure he would have been more content if he had an incentive program that rewarded him for delivering excellence to his employer and his employer’s clientele.
Contract pricing vs. T&M
Paul goes on to state, “Here in the Northwest, we can have some lengthy windshield time (1-2 hours) before we arrive to troubleshoot the call. I have been challenged by clients about charging them four hours of labor when I was onsite for only two hours. My response to the client, which is typically accepted, is that you called me to resolve a problem on your behalf. I left another customer and drove to your facility to resolve an issue you were concerned about.
“The majority of our clients understand this. Some will want to argue that they will not pay for travel; to those I say, good luck with another contractor. This goes for troubleshooting the problem to resolve as well. I was basically in school for 10 years and they don’t want to pay for troubleshooting; I don’t think so. The client should pay for the time we need to travel, troubleshoot and repair the issue.”
As I previously stated, Paul and I are in accord with the fact that consumers must pay for the resources they consume.
Our difference of opinion is in the method that should be used to accomplish getting paid. An old adage says, “The customer is always right.”
The truth is to err is human. And since customers are human, well, you know where I’m going. The real points to consider are as follows:
• Without customers, there is no reason for your business.
• Without profit above your costs, there is no reason for your business.
• Without customers who allow you to recover your cost and earn a profit, there is no reason for you to be in business.
• Is this consumer a customer who will allow you to succeed or cause you to fail?
However, contractors don’t want to lose customers. But contractors should try to make consumers feel as if they are right.
Paul can resolve his problems with consumers complaining about travel time and make them think they are right. He can change from a time-and-material pricing method to a contract pricing protocol (aka flat rate or upfront pricing) that includes his average travel time to consumers.
By using average travel time to arrive at minimum service call charges, the lengthier travel times will be shortened and the shorter travel times will be lengthened. The arguments about travel time vanish — and the contractor recovers travel time cost. If wanted, a profit could be added to travel time cost.
Paul could even tell his clientele that if a task is performed at the time of the visit, the minimum service call charge is waived. To afford to do this, he must incorporate his average travel time into each first task performed at the time of the initial visit.
Subsequent tasks performed at the same visit should not have travel time expenses included in his contract prices since his tech is already at the location.
Regarding troubleshooting costs, Paul should realize that troubleshooting is a task performed for consumers. Therefore, similar to any other task, he should contemplate charging a diagnosis fee when needed.
Are you willing to change?
But resolve requires an open mind that is logical and sees the whole picture rather than a pigeonhole view that misses the point. The last part of Paul’s email emphasizes his need to change his modus operandi.
Paul states, “I don’t believe a minimum service call charge is necessary for the commercial business. The more I reflect on my service plumbers' questions and your article, I firmly want to believe this article supports and is targeted at an issue within the residential service plumbing business. The residential service business is highly fractured, with firms charging hourly, some charging flat rates, or worse, the paid commission service plumber.
“I'm all ears and eager to learn and course-correct if I am all wet. If I’m not all wet, I need to work with my service plumbers to realign their way of thinking to the commercial business. Please help me to understand if a commercial contractor requires a minimum service call or not.”
An old saying states, “You can lead a horse to water, but you can’t make him drink.”
Hopefully, I have laid out what Paul must consider. As to whether his thinking is all wet, I would say he is not only all wet; he is soaking wet. The problem he is having is not with his service plumbers changing to his convoluted business philosophy. It is with the person he sees in the mirror who refuses to see he must change.
Let me put it simply — Paul, there is no difference between a service tech performing residential services or commercial services. It costs your business money, which must be recovered from your clientele. If arguments are popping up regarding your protocols, rethink and repackage your methods.
Properly calculated minimum service call charges and properly profitable contract prices can lessen the number of arguments related to travel time and pricing while even keeping disgruntled clients for your business rather than losing them to others because you would not see the light of change.If you want to make your job easier, you must embrace what is obvious to businesspeople — not what is obvious to those who are just people in business.