I was wondering what you offer in terms of flat rate books. I am primarily a new construction contractor, but on occasion I do some service work. I do give pricing upfront on most items, but generally most of the customers I do service work for don’t even ask for that. When I look at a job and estimate it at two hours, I figure $150 per hour. Then, when all goes well and I get done in 1.5 hours, I make my rate plus extra for time not spent on that job. My concern is that if the industry standard for the same job was about four hours, I just left $300 on the table. I need some help on how long certain jobs are estimated for in the industry. I think being a new worker where most all of my jobs are bid on, we tend to go at a faster pace than service guys. I don’t want to leave money out there just for being fast.
P.S. I enjoy your articles and tend to read them first when I get the new magazine each month. Thanks for the insights.
Norm’s email presents an opportunity to expound on a very important issue in the contracting industry. Thank you, Norm, for your kind words and your inquiry. Allow me to address your statement one bite at a time.
If consumers don’t ask for prices before you render service, something is up. Three scenarios come to mind. It could be you deliver excellence, and they know you are worth any price. On the other hand, your prices may be lower than your prices should be, and they know they are getting a deal at your expense. (This instance is the reason Norm thinks he is leaving money on the table.) Or, third, it’s a combination of both.
In my mind, not giving a price and getting the client’s authorization to proceed at the quoted price before commencing services is problematic for a plethora of reasons. The client may not have wanted to spend the amount you are billing them, or they may have wanted to go in a different direction (e.g., replacing a faucet rather than repairing it). But, the biggest reason is that you would not have a meeting of the minds (a contract) between you and the client, which obliges them to pay you the amount you want for the service you rendered.
Are there standard industry task times? Instead of using the word "standard," the word "average" better describes the concept. Properly calculated average times, based on the performance of average technicians for typical tasks, are one of the keys to properly pricing services.
Contractors who employ top-quality technicians who perform with peak efficiency and know-how will get jobs done quicker than those who are not as adept. For this reason, contractors should employ upfront contract pricing based on average times, rather than time and materials pricing. Upfront contract pricing is the fairest method to employ for the consumer as well as for the contractor.
Next, there is the definition of “typical task” to consider. Even when two initial typical tasks are perceived to be identical, there may be extenuating circumstances, which may make one take more or less time than the other. For example, replacing a tubular brass P-Trap under a kitchen sink. One existing trap might come apart easily, while the other takes more physical persuasion because the nuts may be frozen. Or, the tailpiece, basket strainer and/or drain waste arm may be in deteriorated condition, which would necessitate extra time spent explaining these facts to the customer, as well as performing the task inclusive of addressing those circumstances. In this instance, the task itself is actually different, since it requires replacing one or more of those items along with the trap. In such a case, it should be priced accordingly.
To price properly so you can deliver excellence to your clientele, and receive the reward you deserve for the delivery of excellence, all your numbers—not just the hours to perform the task—must be correct. This requires you to take the following steps.
Identify and calculate your true operational cost for labor and overhead.
Interpolate that cost to an hourly rate, so you can calculate the labor/overhead cost you will incur to perform any task.
Multiply the average tech time by your hourly technician labor/overhead cost.
Add the cost of material you will use for the task.
Apply a proper profit margin—one that takes into consideration the risks you take as well as the reward you deserve—to the sum of those factors.
Once you arrive at a properly profitable pricing protocol for your business, you must hone your selling skills. Offer options, if any, to your client with upfront prices. Before commencing service, get written authorization from the client to perform those services at the agreed price.
To make the process more professional and expedient, it is most advisable to have printed invoice/contract forms that include your business’ terms and conditions; space for you to write task descriptions and prices; and an area for the client’s authorizing signature. If you need assistance in this area, I design forms that will suit your needs.
As a business tool, my book, "Solutions Management Theories & Methods for the Contracting Business," shows you how to calculate your true cost, develop properly profitable selling prices and hone your verbal skills.
Once you have established your pricing protocols based on your true cost and desired profit margin, you should utilize a price guide. Creating your own guide takes a great deal of time. You might consider ordering my "Readily Available Pricing Information Digest,"which is customized to your hourly technician labor/overhead cost; your average travel time; and your chosen profit margin. In addition to regular business hour prices, you can have the option of after-hour prices; service agreement prices; and/or discounted prices.
This price guide is available with a plumbing section that includes over 320 tasks; a heating section with over 260 tasks; and a cooling section with over 155 tasks. It is available with one, two or all three of those sections, depending upon your needs.
As a contractor, I designed this price guide for contractors, to make the duties of contracting business personnel easier, uniform and efficient, so prices can be quoted profitably and intelligently, and tasks can be sold rapidly. The list of information included in this price guide is as follows:
Main item description such as faucet, water heater, zone valve, air conditioner condenser, etc., and a material cost allowance for the main item.
Description of potential material you may need to install or replace in addition to the main item, such as solder sealant, fittings, appurtenances, etc., and cost allowance for the additional material.
Travel time allowance customized to your average travel time.
Average technician time allowance to perform task. This item would address Norm’s concern about the time to perform a service. This time allotment includes:
a. Technician discussion with customer.
b. Time to look at the situation.
c. Quote the price.
d. Write up the invoice/contract and get paid.
e. Gather your tools and material.
f. Prepare the work area.
g. Perform the task.
h. Test functionality.
i. Clean up the area.
j. Thank the client for their patronage.
k. Put away your tools.
l. Get in the truck and start the trip to your next call.
Your break-even cost based on your customized hourly technician labor/overhead cost and the guide’s material allowance factor when you sell 100 percent of your available tech time, as well as two lesser levels of sold tech time as per your direction, e.g., 75 percent and 50 percent. This feature shows your technicians that all the money they bring in does not go into your pocket. After all, there are costs to run a business and offer them employment. In addition, your techs can inform customers who question your prices of the minimal cost range your business incurs in serving their requests. This tells customers you don’t get to keep all the money they pay for the services of your business.
Four regular business hour prices for each task. One for the first task of a service call visit, and one for the second task of the same visit (less than first task) when all materials are on your service vehicle. For those tasks that require materials that you do not stock on your service vehicle, there are two additional prices for the first and second task of that service call visit. That’s four prices for each task, depending upon circumstances.
As an option, you can have up to three other sets of prices described in No. 6 for after hour prices, service agreement prices, frequent client prices, senior discounts, etc.
To obtain the books I have mentioned, or for any business coaching or related issues, just pick up the phone and call me. It should be noted, my Contractor Profit Advantage programs offer those publications as well as telephonic seminars as part of the programs.
Richard P. DiToma has been involved in the PHC contracting industry since 1970. He is a contracting business coach/consultant and an active PHC contractor. For information about "The Contractor Profit Advantage" or to contact Richard, call 845-639-5050; e-mail firstname.lastname@example.org; mail to R & G Profit-Ability, Inc. P.O. Box 282, West Nyack, N.Y., 10994; or fax 845-634-7236.