If you search the Internet for the definition of the word “business,” you’ll find a version of this idea: “Business is an organization that provides goods and services to the community in exchange for money, with the goal of becoming profitable.”

Reaching that goal requires discipline, structure and a clear understanding of how the business actually works.

The process starts with organization. A business cannot be profitable if it is not set up to operate with purpose, accountability and a realistic path toward its goals.

More than a trade, it’s a mindset

In the PHVAC industry, your workmanship and the materials you use are the goods and services you provide to the public. 

The exchange of money with the goal of becoming profitable depends on your grasp of the fundamentals of mathematics and the implementation of logic. After all, if you set your prices based on wrong numbers or the numbers your competition charges that are not based on your true operational costs, you will get wrong numbers that always produce wrong results. 

In turn, you will have difficulty in reaching the profitability that is the goal of all for-profit businesses.

Doing the work or running the business

Any person who enters the business arena must decide whether to be a businessperson or merely a person in business. What’s the difference? 

The difference lies in the spirit of business. By that, I mean the dynamism that gives the business the ability and energy to attain and maintain financial strength so it can pursue the goal for which it exists: to make a profit above its true operational business costs. 

For people entering the business arena to be considered businesspeople, they must have the spirit of business within them. They must identify and calculate their total operational expenses, as well as those expenses that pertain to each item or service provided to consumers. They must deliver excellence and package their pricing in a manner that is understandable and palatable to consumers so they can close more sales and have a chance to achieve their goal of profitability.

Those who are merely people in business don’t know and don’t have the spirit of business. Instead, their organization is poorly structured. Their prices for any task can only be profitable through sheer luck and are never consistent enough to allow the business to achieve profitability. That’s because the profits earned from tasks through sheer luck are absorbed by the tasks that don’t make a profit and produce a loss.

Stress and frustration are parts of business since, on any given day, situations arise that weren’t expected but must be addressed. Businesspeople can abate their stress and frustration through their mathematical prowess, logical thinking and business spirit. The people-in-business group only increases stress and frustration because of wrong numbers and bad ideas.

When the numbers don’t work, neither does the business

I’ve heard it said that all businesses end eventually. The U.S Bureau of Labor Statistics states that about 20% of new businesses fail within their first year. This rate increases to about 50% within five years and about 65% within 10 years.

Even businesses that have existed for more than 10 years can fail for one or more reasons. It could be due to organizational ineptitude, erroneous pricing procedures, progress that makes what the business offers obsolete or unforeseen external forces (remember the pandemic). The one thing that is present in any of those failures is the lack of the spirit of business. 

In 1886, the origin of a business that came to be known as Sears would one day become America’s largest retailer. Today, although legally there may be some remnant of the business still existing somewhere, the resemblance to America’s largest retailer is no more.

Recently, we’ve seen Spirit Airlines collapse after 34 years. 

You must have the spirit of dynamic energy, blended with consistent delivery of excellence and properly applied numerical and logical factors, for your business to have a chance at profitability while you are in charge of running it.

You must be aware of the business spirit within the people you delegate to help run your business. If they don’t possess the spirit of business, they will run your business into the ground.

The tune-up trap

As of this writing, as consumers start using their air-conditioning systems, (this also applies to heating systems when the colder season begins), I’ve seen service contractors advertising to perform system tune-ups for insane prices ranging from $59, $69, $79 and $99.

What makes those prices ridiculous is that the cost to the business always exceeds the amount charged to the consumer. Allow me to explain, but keep in mind that the numbers I’m using about the cost to business are minimal. 

It is my mathematically correct calculation that, in the United States, the overhead factor incurred for one service-qualified tech and one properly equipped vehicle is at least $75/potential revenue-producing hour. However, for this example, I’ll use $50/hour. 

The average salary range for a U.S. journeyman plumbing, heating and cooling tech is $30 to $45 an hour. It could be higher. 

Using the lower amount of $30 and adding 25% for salary-related expenses — such as FICA matching funds, workers’ compensation, unemployment, health insurance, liability insurance related to tech salary, vacation and personal time — increases the hourly cost to $37.50.

Since that $37.50 is paid for every hour in an 8-hour workday and, at best, you will only get seven potential revenue-producing hours out of eight paid hours, that $37.50 actually costs $42.86 for each revenue-producing hour.

Add the very minimum hourly overhead cost of $50 to $42.86, and the cost per hour is at least $92.86. In truth, it’s probably more since I’m using extremely minimal numbers to emphasize the ridiculous aforementioned selling price range for the tune-ups. 

Assuming the travel to the consumer takes only 15 minutes and the task takes 45 minutes, including introductions and explanations to the consumer, the tune-up and getting paid, one hour has been spent at a cost to the business of $92.86. This means the $59, $69 and $79 offers lose money. So much for the goal of profitability.

This puts pressure on the contractor to sell something to the consumer (possibly fraudulently), even if the consumer doesn’t need another service. And, if the added service is sold, the profit from the additional sale may only serve to fill the hole created by the foolish tune-up price.

Let’s add the $42.86 minimum salary expense to the $75 amount, which I believe is the actual minimum overhead hourly cost for one qualified tech and one properly equipped service vehicle. The cost of the tune-up for the business is $117.86, meaning all four of the aforementioned advertised tune-up prices lose money.

Low prices, costly consequences

Part of the spirit of business is being honest and trustworthy when dealing with consumers. Selling consumers services they don’t need in a flim-flam manner to make up for the loss-leader price of the tune-up certainly lacks integrity. And there is no such thing as partial integrity.

Selling your services at prices that do not recover the cost your business incurs in terms of performance, or do not make a profit above your true operational cost to perform the service, certainly flies in the face of your profitability goal.

Without mathematical prudence, common-sense logic and the spirit of business, the service business will crash because it will miss its profitability target. Instead, stress and frustration levels will increase as the owner refuses to acknowledge policy errors as monetary losses accumulate.

People involved in businesses such as Spirit Airlines know what happens when the lack of properly applied mathematical fundamentals and common-sense logic is not blended with the spirit of business. 

The spirit of business is the impetus that allows you to manage your business correctly rather than in a foolish manner.