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It’s a sad commentary that the word “oxymoron” includes the word for a hard-working animal, and the word for, shall we say, foolish mentality. The very definition of oxymoron is a figure of speech, which includes contradictory terms. So, oxymoron is actually a good way to describe the typical service company mentality.
For example, in our industry, we often tell ourselves the following:
We should sell every customer a service agreement. No matter how long it takes, just sell them a service agreement.
Get the service agreement at any cost. Give them a 15 percent discount. No! A 20 percent discount. Whatever they want. Give them the whole enchilada, but get that signature. Give away money, prizes, heck, give away the farm, just get it. Why? Because tomorrow we will tell them their seven-year-old equipment is obsolete and they must replace it before the new stuff comes out. Get the replacement, just get it. Give them a five-year service agreement at no cost if you have to, but just get it!
A service agreement can help keep a customer for life by getting the most value from the relationship over time, while building our business.
My company is worth $1,000 per service agreement. So, get the service agreements at any cost, just get them. After all, it’s what’s best for the worth of the company. Then maybe someday we can sell the company to a consolidator and get out of this misery.
In order to make sense of what you just read, I had to do extensive research. After intense study, I happened across a brilliant mind by the name of Aesop. The ancient storyteller was credited with a number of wise fables, including a story that exemplifies the preceding tale.
I’m sure you know the fable called “The Goose That Laid The Golden Eggs.” In the story, a farmer has a goose that lays one golden egg each day. The farmer sells the egg and makes money.
After a while, however, the farmer gets greedy, and thinks that if he cuts open the goose, he can get all the golden eggs out of her at once, and be rich right away. So he kills the goose, and guess what, there are no eggs. And now he has a dead goose. The moral of the fable is that “killing the goose that lays the golden eggs” shows an unprofitable action motivated by greed.
Now, the contractor’s edition I just call, “Kill the Golden Goose.” If we never do business with this customer again, that’s OK; we all got our commission off this one today.
Industry experts may disagree. I know there are brilliant minds in the contracting world; many who will retire rich. But what are they leaving behind?
Most small service companies do not factor in executive payroll and simply live off the gross margin. This creates a false sense of security as many know. Back in the 1970s, Electrical Contractor magazine stated that the average electrical contractor ended the year with a net profit of just 2-7 percent. I’m sure many of you know that those numbers have stayed steady for more than 50 years.
It doesn’t mean a small contractor can’t live well; he/she can. And by live well, I mean the following:
Able to afford a decent home.
Able to spend time with the family, evenings, weekends, vacations, ball games, etc.
Able to afford hobbies, you know like badminton, which could cost up to $35 for a nice set of rackets, a couple of birdies and a net. But I’m also always very happy for the small contractor who I see on a Friday evening or Saturday morning pulling a camper or bass boat to the lake.
I am very serious about that. Most of us my age (over 60) came up at a time when we thought we had to get BIG to have freedom. We worked way more hours than would make sense today. But by hard work, sweat and misery, many of us finally made it to whatever we wanted to make.
Here’s a recommendation: If you are a contractor or own a small business, and you are working way too many hours, go right now and buy a boat and commit to taking your family fishing or water skiing two times every week that there is no ice on the water. It will save your sanity and your family.
If you prefer camping, then commit to one weekend a month all year, and two weekends in the summer. We often go camping at a lake only 29 miles away from our house. Yes, sometimes we go more than 1,000 miles, but mostly just 29.
In other words, for the sake of sanity, find a way to get away.
Back at the office
Meanwhile, back to the oxymoron, the service agreement. I had to laugh when I wrote the word “service.”
My friend Charlie Greer says I am incendiary. I guess I can tick off a few people. But I have seen first-hand what most service technicians (more than 80 percent) actually do on a “service agreement” tune-up or maintenance call.
They give away 15 percent of the ticket just to sell a service agreement. I have seen it, and so have most of you. So don’t kid yourself. Why do they do it? If the service agreement has great value, why give away anything? If Ford won’t give you 15 percent off on new cars and repairs, then why would you give customers 15 percent off on a HVAC, plumbing or electrical repair? The customers know the game and will gladly take advantage of you.
Wait, you say: I could raise my prices 15 percent across the board so it costs me nothing to give it back. Really? I’m chuckling because do you remember that 2-7 percent average net profit? How can that be possible if your prices are actually 15 percent higher? And by the way, wouldn’t that make them 15 percent over the market, over your competitors? So, would one car dealer at the auto mall raise their prices across the board over the 10 other car dealers at the auto mall? No!
Don’t get mad at me, I’m just pointing out that retail companies would never do what our industries think is good business.
And if your business and life is perfect, then you probably don’t have any reason to read what I write. I understand.
What it boils down to is legacy – the ultimate test of good business.
What you have now could be a $250,000 company or a $10 million dollar company. But does it run so smoothly that you can enjoy all of the rest of your life?
What happens when, and if, you walk away? What if you walk away today? What’s left? What if a family member needs you to be with them for three months for their health? What then?
A friend of mine asked me if he should sell his very fine business to his son for several million dollars. My response, “Why would you saddle your son with a multimillion-dollar debt just for you to walk away?” There are just too many better ways to do it.
So, what is the answer? Take a couple of days off every week to relax and spend time with family and friends. And once a month take a field trip to a successful retail business. For me, it was the big box DIY stores.
I’ve spent hundreds of hours watching people buy, and watching HD do business. I’ve also spent over 700 hours at car and truck dealerships, talking to sales people, sales managers, general managers, owners, service mechanics, service managers and body shop managers.
That’s two hours a week for 350 weeks. By the way, I also test drove over a hundred cars during that time. But it got me a habit. The habit is this: Whenever I have any kind of question about a business, especially a service company business, I always stop and ask myself, “What Would Ford Do?”
The answer is almost always very different than what is being taught and done in our industry. This leads me to believe that to be successful in the service business for the long term, we need to get out of the wholesale mentality and learn how retailers think.
Oh, by the way, from studying retail, I learned how to sell a service agreement in under 10 seconds with an 80 percent plus closing rate. Check out my video called Service Agreement Magic for that little tidbit.
Well, I guess I rambled and jumbled some thoughts together on this one. But hey, as my mentor, comedian Red Green says, “Keep your stick on the ice,” which in the hockey world means, “Be ready for anything!”
Rodney Koop, is the founder and CEO of The New Flat Rate, a pricing system for contractors.Visit www.TheNewFlatRate.com.