In your life, everything you do relies on numbers. Digits play a particularly important part in your personal and business life. Numbers that don’t add up correctly lead to incorrect answers, inaccurate decisions and unwelcome problems. If you have a size 12 foot, you can’t wear size nine shoes. If you put 10 pounds of groceries into a 5-pound paper bag, it will probably rip. Numbers are information allowing us to tell time, measure things and make decisions. 

As plumbing, heating and cooling (PHC) contractors, measuring things is important.

Plumbers need to know the sizes of piping diameters with regard to the needs of a plumbing system, lengths to cut piping so measurements actually measure up correctly, and inventory on hand and to be ordered so they can perform the tasks they take on in a manner that ensures those jobs are done properly.

HVAC contractors need to assess the needs of any area to properly size the equipment needed to provide a comfortable environment. 

Determining materials and technicians needed

PHC contractors need numbers to determine how much material is needed to perform a task and how much they need to order. This holds true for all businesspeople, but I’m emphasizing the PHC industry.

In addition to materials, PHC contractors need to know how many people they need to perform any task.

PHC contractors use numbers to address the methods of getting material to jobsites, whether they work on the new construction side of the industry or the service sector. Who’s delivering materials and at what time they will be delivered require numbers.

Once material is at a jobsite, numbers play a part in getting it from where it has been stored or placed to the area where it must be installed. And, in the instance of replacement-type tasks, numbers come into play regarding the disposal of said materials. 

How much time is estimated to be used in completing any task requires numbers: travel to the jobsite, time to estimate the costs, time to speak with the clients and arrive at an agreed-upon contract, get technicians and materials to the jobsite, set up the work area, perform the task, clean up, get paid and thank the customer. 

Since time is money and money is numbers, it’s easy to see that using the correct numbers matters.

Sometimes it is not easy to see the forest with all those trees in the way. Many contractors address the aforementioned numerical situations when performing any task but neglect to use the proper numerical factors to properly quote profitable prices.

Determining a profit margin

With the exception of nonprofit and not-for-profit businesses, the only reason a business exists is to make a profit above operational costs. It is imperative for contractors to itemize all their legitimate tangible and intangible business expenses to know the amount (that’s a number) they incur to operate their enterprise so they can perform any task.

Once contractors know the true business cost of completing a task, they must choose a profit margin (more numbers) to apply to the cost to earn a profit above their cost.

Each number used to calculate costs and arrive at profitable selling prices must be as close to accurate as possible.

You might think that the numbers should be absolutely accurate, but too many variables are involved to be absolute in your numbers regarding any task. That’s the only reason I used the phrase “as close to accurate as possible.” As an example of the word variable, the cost of fuel for vehicles at present is in a constant state of flux. And that’s only one of the expenses incurred by PHC businesses.

Allow me to emphasize that when I say as close to accurate as possible, I mean as close to accurate as possible. 

Looking at competitors’ prices and charging the same or a dollar less is detrimental to the business that is copying them because those numbers pertain to the competition, not the copycat. That fact alone makes those numbers incorrect for the copycat contractor. Incorrect competition numbers exacerbate the situation of both contractors.

When you, as a contractor, decide to deliver excellence to consumers and your competition delivers schlock, you realize that excellence costs more to produce than mediocrity.

The compensation you will need to pay your techs to deliver excellence to your clientele will be greater than the wages paid by your competition to their techs who deliver dreck to their customers.

The same holds true for many business expenses incurred by top-quality contractors compared to contractors whose quality is less than excellent.

Determining your business costs

Concentrate on your business numbers and not your competition’s numbers.

You must identify and calculate all your direct labor costs, inclusive of salary. Salary-related expenses include FICA matching funds, unemployment/disability insurance, workers’ compensation insurance, liability insurance related to payroll, vacation/holiday pay, health insurance, etc.

You must also address your vehicular expenses as they pertain to your business’s needs.

The administrative costs to run your business are numbers you must consider, calculate and include in your selling prices. 

And you can’t ignore the countless number of other expenses you incur to operate your business such as other insurances, shop and office costs, communication costs, sales expenses, professional services (such as accountants and lawyers), callbacks, customer relations, bad debt, breakage and loss, tools, licenses, continuing education, dues, uniforms, bank charges, etc.

All these issues and items revolve around numbers. Without the proper attention given to numbers, you could have nothing to count when it comes to recovering your business costs and making a profit. 

If the numbers don’t add up correctly, the answers you get are wrong.

If you incur legitimate business expenses, you had better identify and calculate them before offering your services to the public.

No matter what you do, 2 + 2 only equals 4. It equals no less, it equals no more. l

Richard P. DiToma has been involved in the PHC industry since 1970. His Contractor Profit Advantage podcasts, Solutionars and programs show contractors how to improve their business results. DiToma has authored books on contracting business management as well as customized contractor price guides. Contact him at 845-639-5050, [email protected] or www.contractorprofitadvantage.com. For podcasts, check iTunes or other major distributors.