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I entered the contracting business arena after serving a five-year apprenticeship in the plumbing/steamfitting industry. I soon realized that trade associations existed — and none of us know all there is to know about everything.
Rocket scientists don’t know a thing about brain surgery. And brain surgeons haven’t a clue about the proper and safe way to construct a building or the building’s systems allowing it to functionally serve the reason it was built in the first place.
When you, as a trade-educated person, decided to enter the business arena, you were, in fact, more likely than not ignorant of all the facts you would need to know about the contracting business — and the intelligent way to manage a business like a true businessperson rather than only a person in business.
Those who are just persons in business are responsible for the poor image the public has regarding contractors and the poor results many contractors get from their businesses.
Upon entering the plumbing, heating and cooling business arena as a service contractor, I, like so many other new contractors, looked at the rates established contractors in my area were charging.
Back in those days, time and material pricing was the predominant pricing method for PHC contractors, although many quoted installed prices for some of their services.
Plumbers quoted upfront contract prices for water heater replacements, faucet and fixture replacements, etc. HVAC contractors quoted upfront contract prices for boilers, furnaces and air-conditioning condenser replacements, as well as the installations of total systems.
However, when it came to smaller tasks, for whatever reason was floating around in their minds, other services were performed on a time and material basis.
This column is not intended to express my feelings and beliefs on contract pricing (aka flat rate or upfront pricing). So, I will close on this issue with the thought that should make you realize that the overwhelming majority of consumers, if not all, want the price of any service before they allow contractors to perform the requested services.
Think about it, contractors. You are consumers as well as contractors. Don’t you want to know the cost of what you agree to purchase before giving someone a blank check that draws funds from your pocket to someone else’s?
This column is really meant to show you that just because other contractors are running a business before you entered the business arena doesn’t mean that they were operating in a proper and intelligent manner.
The Other Guy
When I entered the PHC service contracting business, it was with two simultaneous goals. My intent was to deliver excellence to consumers while charging prices that would allow me to recover my true cost of operation and give me an opportunity to earn the reward I deserved for the delivery of that excellence to consumers.
However, being a newbie business owner, I thought it wise to get a lay of the land by communicating with other contractors and finding out about a local association of master plumbers in my area.
Armed with the knowledge regarding how competition operated in the area and the pricing method and rates they charged could help me attain the goals I wanted for my family and me.
I soon became aware that even though contractors existed in my area before I entered the business arena, they weren’t necessarily using the correct way to manage a successful contracting business.
I found that area contractors were selling their services based on what the other guy was charging — then charging a dollar less. The problem with this flawed pricing methodology is that it can eventually lead to contractors paying consumers for the privilege of serving said consumers. Charging a dollar less leads to eventually arriving at a zero number that can only become a minus factor from that point.
The only way to arrive at properly profitable selling prices for your services is to identify and calculate a doable budget that allows you to recover your true operational business costs so that you can develop selling prices above your true cost as it pertains to any given service.
Charging prices based on the ignorant methodology of contractors who are just people in business, and probably not even recovering their own true cost let alone making a profit, is ridiculous.
Benefits For All
Business success requires that you use the fundamentals of mathematics blended with the logic of common sense. The destination of success can only be arrived at when you charge prices that recover your true operational business costs and earn a profit above those costs. However, the logic of common sense must be applied so that you package your services and prices in a way that entices consumers to avail themselves of your services.
As I continued to search for information on the proper way to manage a PHC contracting service business, I eventually graduated to state and national associations and served as a state zone director. As a business person, I was humbled by being named National Plumbing Contractor of the Year by the Plumbing, Heating, Cooling Contractors — National Association.
As time went on, I came to realize that politics is embedded not only in the political arena but also in the business world. Good people who go along to get along can defeat themselves and cause the goals they strived for to fade into oblivion.
Today, many young contractors entering the business arena, to their misfortune, don’t even look at the benefits of association membership.
Those benefits are there as long as the leaders of those associations run them with the intent of helping the whole industry — not only the elite.
Good associations keep up with and offer contractors all the latest codes, techniques, technology, business advancements, and technical and business education. They also monitor proposed legislation affecting the industry in both positive and negative ways, offer the means to combat bad legislation while promoting good legislation, and provide ways to make the industry beneficial to all contractors so they can deliver excellence to consumers.
All contractors, new and existing, must discern the difference between the intent of the associations and its leaders.
Don’t Keep the Industry at Low Tide
Contractors who strive to be businesspeople rather than only people in business must use the fundamentals of mathematics and common sense logic to get themselves on the right track.
As members of associations, they must get involved so the ideals of sound business management don’t fade into the obscurity that comes from forgetting the reasons and proper way to successfully achieve goals.
Some contractors join associations that put them in an elite group of contractors who come to be shown the proper way to run a business so that it can have a chance to be successful. Those associations are good.
However, if the members of those associations only show good management practices to their members at the expense of those who are not members, the problems afflicting and affecting the industry will remain.
In turn, nothing changes and the industry wallows in a depth of unfulfilled dreams rather than a utopia of joy for contractors, their families, their employees and their families, their creditors and the consumers who need or want the services contractors provide.
Like anything worth doing, it is always best to do it well. And since all contractors want their boats to float higher, wisdom dictates that the tide must rise for all contractors. When contractors who are only people in business exist in any industry/business, the tide remains low for everyone.
All contractors and associations must be knowledgeable in smart, sound business techniques. Their business goal, as a contractor or association, must be the delivery of excellence. Prices must allow contractors to recover the true cost they incur running their businesses while earning a profit above that true cost.
Association leaders must install mechanisms regarding what is offered to contractors that will allow them to assist all contractors in their segment of the PHC industry to attain the benefits of a higher tide. If they don’t, leaders of the association are (excuse the pun) missing the boat.
Associations are good when there is a reason for their existence, when they intend to better the industry for all involved, and when those associations accomplish the feat of making the industry better for all.
So, my advice to all contractors is to open your eyes and your minds to the benefits of associations doing the right thing. Older contractors must keep up with changes affecting the industry. In that instance, associations delivering the most up-to-date information are good for not only older contractors but for all contractors.
Younger contractors and those new to the business world must realize the importance good associations provide to them so they can get a lay of the land they have chosen to enter and deliver excellence to consumers. Then, and only then, can all contractors take part in the rising tide.