As I write this, only a few days have passed since a cargo ship collided with Baltimore’s Francis Scott Key Bridge. My heart goes out to the families of Alejandro Fuentes, Miguel Luna, Maynor Sandoval, Dorian Cabrera, Jose Lopez and a sixth unnamed man — those who were working on the structure when it fell into the Potomac River. They were the first casualties of the incident. The U.S. economy will be the next victim.

That bridge is, er … was … the second busiest strategic roadway in the nation for hazardous material transportation. It was purpose-built to move fuel, nitrogen, fertilizers, pesticides, etc., to and from Baltimore’s ports. It was also heavily used for shipping large cargo that didn’t fit through tunnels. Heavy equipment, premanufactured housing, cooling towers, industrial vessels and more must now be transported via other means.

“Other means” equates to “higher cost.” And higher cost on top of the high costs we’ve not-so slowly become not-so accustomed to of late. Let’s face it: every day, Americans are faced with larger bills. Property tax (if you’re fortunate enough to own an exorbitantly expensive though modest home), rent if you’re not so fortunate, fuel, airfare, vehicles, insurance and food are all on a precipitous rise. 

Maybe I’m looking at it backward. Maybe it’s the dollar losing value. Is that what happens when you print money? I can’t say because I’m not an economist. I fix boilers and employ other people who fix boilers. For a better answer, you’ll have to ask the Federal Reserve. 

What I am qualified to ascertain is that life is getting more expensive, and your employees have families to raise. So where does that leave you and me? It leaves us with the necessity to raise prices. If you don’t, you’ll be out of business and your people will be looking for jobs.

How you raise prices is important. It can’t be done offhandedly. It must be in a manner congruent with the cost of living and the cost of doing business and presented in a way that the customer understands and respects. If the customer can’t respect sensible cost increases, fire them. 

Then and Now

For many years before COVID-19, wages generally increased on a predetermined schedule. Three percent per year, give or take, was the going rate to keep households ahead of inflation. Today, 3 percent isn’t enough. 

Back then, checking material prices every few months was enough to ensure that your crew wouldn’t be working for free. There are new rules now.

What follows are some things I’ve implemented in my business to keep the wheels turning:

• True cost-of-living increases: If you operate a small business, labor is likely your biggest expense. It’s important to calculate what your people truly cost you instead of their hourly wage.

Your true labor cost includes payroll tax, benefits packages and fringe benefits. You need to break this all down to determine the actual hourly cost for each employee so your service managers can schedule efficiently. 

You also need to break down what it costs per hour to run that employee in a truck (windshield time). This is critical for us because the specialized nature of our company means we have a large service area. Indirect costs, such as tires, fuel, tolls, vehicle maintenance, etc., are big and growing expenses.

With those two numbers, we know what it costs for us to put that person on the jobsite. Add your profit margin to this number and you’ll know exactly what to charge hourly.

The cost of benefits is rising, especially short-term disability and health insurance, but that’s your concern and not your technicians’ problem. They want to know how much bigger their paychecks will be this year. 

When we did employee reviews this past year, we realized we needed to provide significant raises to keep pace with inflation. Our employees received 10 to 12 percent raises this past year. That’s significant, especially considering these increases compound year over year. 

To give reasonable wage increases, we’ve had to raise our prices. My finance manager provides me with a monthly profit and loss statement and a balance sheet. Every time we give a raise, she reworks the spreadsheet to update the cost for that employee. Our invoices reflect those changes. 

• Material: Material prices are soaring. Sure, we’ve always checked the cost of a boiler or commercial heat exchanger before giving a quote, but we didn’t always check the prices on commodity items, such as PVC, fittings, chemicals, etc. We had a rough idea or thought we had a rough idea of what those were and ran with that number.

We learned the folly of our ways, as you likely did, in 2020. There were instances when I honored my price and absorbed the expense because I hadn’t checked. Those days are gone. We check constantly now. 

There are also items I like to call “consumables.” Those are the items we don’t often think about and never used to charge for. Think Sawzall blades, hand cleaner, paper towel, plastic sheeting, rubber gloves, etc. Many of these items have skyrocketed in price, and my finance manager finally brought it to my attention. 

After looking at all our recent invoices, she determined that we needed a consumables line item on each invoice, which ranges from 2 percent to 5 percent, depending on the nature of the job. This was never a line item before, so when customers ask what it is, it generally doesn’t take long to explain. They’ve all been to Home Depot in the past year.

• Subject to change: Have you ever given a quote for a project that’s a few months out? One of two things happens: You stick to your original number, do the work and realize that your profits are lower than expected; or you give the customer a new quote before doing the work, and they get angry because the price went up.

Well, we got tired of that game. Now, when we provide a quote, there’s a new line next to the date of the quote. It reads, “Price subject to change after 15 days.”

Prices are rising so quickly and aggressively that we’ve been forced to call suppliers for a material and equipment quote before every quote. We also ask if they can honor the price for 15 days. Usually, they will. 

Maintaining Sanity

What I’ve proposed may mean that you’ll need to look at your books more often, but please don’t think I spend a great deal more time on our finances than I used to. My two pieces of advice would be to hire a good finance manager and live by what I call the 90 Percent Rule.

The 90 Percent Rule is something that probably appears in a human resources book, but it applies to finances, too. 

I make mistakes. My finance manager makes mistakes. My technicians, apprentices and helpers make mistakes. In work and finances, like in a marriage or a friendship, you must be able to look past the 10 percent of negative situations.

My business won’t go under if 90 percent of the jobs we complete are profitable and 10 percent break even. I’m not going to fire someone because they forgot to check the price of PVC on one job out of nine. We are human, and we need to focus on our positives and look at the bigger picture. 

The bigger picture is that I have a business to run, customers to serve and people to employ. The best way to do that in 2024 is to deliver the highest quality product or service you possibly can and raise your prices.