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Many contractors shy away from accepting credit cards because they believe the bank fees are excessive and will increase their operational costs. They are correct in this belief; however, deciding not to accept credit cards in payment for their services is a big mistake for service contractors.
Think about it: When Mrs. J Q Public discovers her water heater leaks and is flooding the floor, or her heating system is not working on a cold January day, or her air conditioner isn’t cooling when it’s more than 90 degrees, or whatever emergency crops up that must be addressed immediately — she needs service pronto.
However, since she didn’t wake up with the desire to replace her water heater that day, or freeze/sweat due to weather conditions, she may not have the cash on hand to pay for your services. Also, her bank account may not have the funds required to rectify her problem, regardless of the emergency.
If you, as a plumbing, heating or cooling service contractor, accept credit cards in payment for services, you have a better chance of getting the job and fulfilling the purpose for which your business exists. That purpose is to serve the public while charging them for your services at prices allowing you to recover your true operational business costs and earn a profit.
If you don’t accept credit cards, you lose those jobs when consumers want to pay for services with those cards for whatever reason. It could be a lack of funds, or accumulating reward points/travel miles, etc. You also lose the money you could have brought into your business to recover your true operational business costs and earn your reward above those costs.
The exception to that statement is that you may choose to offer the consumer credit, which in and of itself is probably another mistake since you are in the plumbing, heating or cooling business — not the money-lending business.
Offering to finance consumers’ requests is a practice fraught with risks and more expensive than paying the bank fees associated with credit card acceptance. In that instance, those bank fees are neither excessive nor another unnecessary operational business expense.
Those fees are necessary to close the deal.
Although new construction and renovation contractors may be dealing with projects paid for by a building or equity loan, some projects may be smaller jobs that consumers want to pay for by credit card.
In this case, new construction and renovation contractors also are making a mistake by not accepting credit cards in payment for their services.
The mistake is that those contractors also will be losing work that could be bringing in more money into their businesses.
As to those bank fees, you must understand that all legitimate business expenses incurred by properly managed businesses are proportionately passed on to the consumers who are consuming contractors’ resources as they service the requests of those consumers.
That’s Business 101.
Service prices and credit card fees
Contractors who do not accept credit cards in payment for their services are not managing their businesses in a proper business-like manner.
Also, contractors’ business expenses are paid with the money that consumers pay them for their services — as long as the business owners include in their estimated operating budget the fees banks charge for allowing businesses to accept credit cards.
That’s the reason it is imperative to price your services properly and profitably.
As an example, let’s say you, the contractor, have a cost of $1,000 to perform a service. The credit card fees you incur amount to 2 percent of the selling price you are charging the consumer, inclusive of all transactional fees.
Please keep in mind that 2 percent is for example purposes only and not the fee you will necessarily be charged. You should shop around for the bank with fees, terms and conditions that are most favorable to your business.
Since banking charges are legitimate business expenses, and legitimate business expenses are always passed on to the person or entity consuming said resources in a properly managed business, it would be wise to include an expense line item in your proposed operating budget for credit card fees.
With regards to the aforementioned $1,000 cost to you calculated on a budget that does not include a line item for bank charges, you would sell that service at $1,428.57 if your desired profit margin were 30 percent. The $428.57 above your cost reflects 30 percent of the $1,428.57 selling price you charged.
If the consumer used a credit card that costs you a 2-percent fee, you would need to pay $28.57 in bank fees.
Therefore, instead of the service costing you $1,000, it would cost you $1,028.57. In which case, you would still have made $400 above your true cost to bring into your business.
Reaching your business goals
Accepting credit cards and the added cost of credit card fees becomes a way to attain the goals of any properly managed, for-profit business. That is, to recover your costs and make a profit. Financially strong businesses maximize the business profit they earn; that’s the reason they are financially strong.
If you decide to act in a proper business-like manner and include a line item for credit card bank fees in your budget before determining your selling prices, that $1,000 cost to you, the contractor, would have been $1,028.57.
When you apply the same 30-percent profit margin, your selling price would then be $1,469.39 instead of $1,428.57.
In this instance, instead of making a $400 profit when your true cost is $1,028.57 or a $428.57 profit when your true cost is $1,000, as in the previous two examples, your profit would be $440.82.
Not only did you make more on profit dollars, but by deciding to accept credit cards in payment for your services and by properly developing your selling prices by including the line item in your budget, the consumer paid for the added operational business costs you incurred.
For those service contracting business readers who use time-and-material pricing rather than contract pricing, the same holds true.
I’ve often stated that at present, in the United States, the cost to the service contractor for one qualified service tech and one properly equipped service vehicle ranges somewhere between $100 and $250/tech/truck hour, dependent upon operational location and if all available revenue-producing tech hours are sold all the time.
Therefore, using the same type of example and the low/high ends of that range, if your true operational business cost per tech/truck hour is $100 and your chosen profit margin is 30 percent, your selling price would be $142.86/tech/truck hour.
At the $250 higher end of the cost range, your selling price would be $357.14/tech/truck hour at a 30-percent profit margin.
Monitor, monitor, monitor
I’m sure some of you are wondering how that is possible. Remember when I referred to proper business management?
Proper business management isn’t what you have to offer to sell to the public as much as it is how you properly crunch your numbers before you make the offer.
A savvy business person can sell anything profitably as long as the numbers are properly calculated. And that savvy business person knows that true operational business expenses must constantly be monitored.
Normal operational business costs fluctuate. The current inflationary direction in which our nation is going has caused a long-time savvy contractor client of mine, to whom I helped to become savvy, to upgrade the pricing guide I make for him.
After monitoring his true operational business costs, he discovered the budgeted hourly tech/truck costs he uses to arrive at his contract prices for service work had risen by about $20/tech/truck hour.
To show you the importance of monitoring your true operational business costs, I’ll use that $20 increase as an example.
If he sells all his tech hours all the time and he doesn’t monitor his true operational business costs, the $20 difference shortchanges his budget by $34,160/tech/truck per year. He has 10 trucks; that’s a shortchange of $341,600 per year.
And it does not even take into consideration the profit he’s losing. He uses a 40-percent profit margin, which means potentially bringing in $569,333.33 less than he should be bringing into his business.
However, since he does monitor his costs, he will be able to rectify the situation using the new price guide I’m making for him. That’s the reason he is a savvy business person.
So, a word to the wise should be sufficient. If you are wise, you will know what to do — properly calculate your numbers before developing your selling prices and use sound business protocols such as accepting credit cards in payment for services. And, if you are a savvy business person who is having difficulty with those tasks, contact someone who is capable of assisting you.
And always remember: The enlightenment of knowledge outshines the darkness of ignorance since knowledge is the light that shows you the path to success.