a tale of 2 contractors

[bradleyelectric]

This is reprinted from Randall Hilton ebiz newletter

A few weeks ago I had a nice conversation with a wonderful client of mine. This husband/wife team has high moral standards, believing in honesty, diligence and great service. As you probably already assume, I've been coaching them to stick to their guns on pricing. They realize that growing a business is hard work and rife with expenses so the responsible thing to do is to calculate a selling price based upon the numbers. In other words, they calculated a profitable selling price based upon what it costs to deliver the service.

During our conversation, they mentioned another plumbing contractor in the area. This contractor is also a very nice person. He cares about people, he cares about fairness and he certainly cares about his customers. He based his pricing on the moral position of keeping the price as affordable as possible. His pricing method is to offer a price that he thinks is affordable, then figure out a way to squeeze all his costs out of that price.

Unfortunately, this excellent plumber had to give up his practice and get a real job. You see, it did not matter what sort of goodness was in his heart. It didn't matter that he wanted to be a blessing to his clientele. Nor did it matter that he was dependable and always did a good job. What this contractor learned was that there's no way to put "good feelings" into the deposit envelope at the bank. That means there's no way he can go to the ATM and get some cash to pay bills. This also means that all those customers he cared so much about, all those customers whom he served so diligently, ended up going to another contractor.

Fortunately for his customers, my client bought his list. Those customers will still get integrity, quality and dependability. It's just going to cost them more whenever they need service.

The moral of this tale of two plumbers: A desire to do the right thing does not grant us immunity to the laws of business.

Based on that article and your knowledge of your business do you think your customers would be served better by going by going rate or by a rate set by business principles?

 

[ceb58]

Based on that article and your knowledge of your business do you think your customers would be served better by going by going rate or by a rate set by business principles?

I think in the long run every one is better served by people who are in business to be in business. Chances are they will be there for the long haul. But with that said people will shop for the best deal at the time not thinking about the what ifs down the road. And it seems the electrical business is one that is at the top of the shop around list.
Reading the post and thinking about this. If you were not in the electrical trade when is the last time you had the need for an electrician at your home? For me it would have been 4 years ago. Would I have shoped, yes.
I charge what I charge. Material with mark up, overhead and profit. Am I cheaper than the big boys,yes. Am I higher than a trunk slammer or handy man,yes.Can I compete with the big boys,no. Do I worry about the trunk slammers or Handy men,no. They are good for business. But if you do good work at a reasonable price and you are there to correct any problems you will gain a good reputation that will carry you through.
In the situation with the plumber what went under. Yes, you can be so nice it will break you. I, just like a lot of us here, have done work for people who are not financially able to pay full price for needed work. But there is a big difference between some one having the wireing between the house and the well burn out and not having water and the person who cries poverty wanting there $10,000.00 hot tub wired.

 

[stevenj76]

I'll bet that same plumbing contractor, now working as a PM for another mechanical contractor, has no problem telling the customer straight-faced the change order will cost a small fortune.

Some folks are really really good with their boss's money, but not their own.

 

[cadpoint]

Why is everyone comparing prices to a plumber? Shop, no shop a price I get that price thing, it just bothers me.

People will feel comfortable about a price if there comfortable with the person/ or company. Weither they go with that peson of company, I get that too.

I'll even give the one aspect that we do the same type of work, in residential it's all covered up; bottme line and that makes a difference to what?

The sale is the sale and from what I've read here the salemanship isn't so much! OK, I understand!

 

[bradleyelectric]

.Can I compete with the big boys,no.

Why do you feel you can't compete with bigger contractors? It seems by other things you posted you don't think you can charge as high a price as them.

 

[ceb58]

Why do you feel you can't compete with bigger contractors? It seems by other things you posted you don't think you can charge as high a price as them.

Price has nothing to do with it. When I say the "Big Boys" I mean the ones that bid and get the large high dollar jobs. They have the resources I do not. They have the man power I do not. There license allow them to undertake jobs my license will not. There license are classified for NC as unlimited which mean just that, unlimited cost of job and voltage. Mine are limited which means no one project over $40,000.00 of electrical and 600v.
My work is really part time. I work for the State of NC doing electrical work for the Highway Patrol on all the VIPER communication sites. But when I started doing the part time contracting I set every thing up and run it as a business. I know what it cost me to operate as far as insurance, license, supplies and other overhead. I do not go out and just charge what I feel like that day or low ball just for the work. I started this so that if my youngest son who has been working with me since he was 10 wants to take it and run with it when he graduates this year. The mechanism and customer base is in place. If he wants to go and get higher classification license to grow then there is a base for him to start.

 

[George Stolz]

Based on that article and your knowledge of your business do you think your customers would be served better by going by going rate or by a rate set by business principles?

That is a paradoxial question. The customer is best served by finding a good value for a low price. The contractor is best served by charging the highest price possible for his services that people will pay.

This article sounds like the typical preamble offered by national residential service organizations trying to talk ECs into charging outrageous amounts to justify excessive overhead brought on by trying to turn an electrical contracting business into a get rich quick scheme.

I'm all for charging what it costs to do business, but padding your overhead in a six man shop so that the owner can take six months vacation a year is a little bit optimistic, IMO.

 

[electricmanscott]

That is a paradoxial question. The customer is best served by finding a good value for a low price. The contractor is best served by charging the highest price possible for his services that people will pay.

This article sounds like the typical preamble offered by national residential service organizations trying to talk ECs into charging outrageous amounts to justify excessive overhead brought on by trying to turn an electrical contracting business into a get rich quick scheme.

I'm all for charging what it costs to do business, but padding your overhead in a six man shop so that the owner can take six months vacation a year is a little bit optimistic, IMO.

Almost sounds like you got the same magazine as I received this week.

 

[George Stolz]

Nope, just sat through one of their pushy seminars and read a couple of related books.

 

[satcom]

That is a paradoxial question. The customer is best served by finding a good value for a low price. The contractor is best served by charging the highest price possible for his services that people will pay.

This article sounds like the typical preamble offered by national residential service organizations trying to talk ECs into charging outrageous amounts to justify excessive overhead brought on by trying to turn an electrical contracting business into a get rich quick scheme.

I'm all for charging what it costs to do business, but padding your overhead in a six man shop so that the owner can take six months vacation a year is a little bit optimistic, IMO.

The truth of the matter is, most of these contractors are not trying to get rich, but rather earn a decent living and build some equity in their business, and most guys working at a job just can't grasp what looks like excessive overhead is not , and most of these guys are not trying to get rich quick, nor is it a scheme, they don.t try to talk EC's into charging outrageous amounts, the wake up many of them to the real cost of operating a business, that wll grow over the years.
Many of the comments you hear on the forums, come from some that are employed with decent wages (with benefits that have to be paid for from the employers overhead costs and profits) most have little or no experience at operating a business, so they see any number larger then their hourly rate as excessive, they do not understand for a service contractor to pay an employee from 24 to 30 an hour and have an equipped and stocked service truck, plus the back office support, and an advertising budget to support the calls needed to supply the work, along with the additional cost of insurances, for a man making more stops every day, and of the non productive hours every service business has, puts the hourly rate up there.
I can say after what is now four generations of electrical contractors, I have some small idea of what it takes to just survive never mind any get rich scheme.

 

[George Stolz]

The truth of the matter is, most of these contractors are not trying to get rich, but rather earn a decent living...

That is not what what I was pitched. I was pitched riches. I was told that if your small electrical contracting company is not pulling in more than $500k then the owner is a "pretender", not my word, theirs. I was told that you should be able to walk away from your company for six months out of the year and it should continue to finance your lifestyle while you do nothing.

...so they see any number larger then their hourly rate as excessive, they do not understand for a service contractor to pay an employee from 24 to 30 an hour and have an equipped and stocked service truck, plus the back office support, and an advertising budget to support the calls needed to supply the work, along with the additional cost of insurances, for a man making more stops every day, and of the non productive hours every service business has, puts the hourly rate up there.

You know, all the excuses in the world mean very little to a customer when they call three electricians to see what it is going to cost to wire for their ceiling fan, and two of them say $200 and one of them says $800. The $800 electrician is going to be seen as a fool and a rip-off, regardless of what his expenses are. All the positive thinking and willpower in the world is not going to counter that negative word of mouth of the people feeling duped.

I can say after what is now four generations of electrical contractors, I have some small idea of what it takes to just survive never mind any get rich scheme.

Appreciated, and you know I don't have that kind of experience; I hope I'm also clear that I'm not accusing you of anything. I just believe that some of these national companies are preying on ECs. Paying $20k a year to an organization that is promising me wealth untold sets off big alarm bells for me.

The hallmark of these outfits is emboldening and encouraging a person to think they have so much more to offer, and that they ought to get paid more for what they do.

The next step is where do your dreams take you? What does success look like?

Well, any of us wouldn't mind making $100k a year. So, let's say that's the goal. I've only got 1000 hours to make that. So, right off the top, before I have any business expenses at all, I should be charging $100 per hour for the fine, quality work that I do.

Start from that overhead starting number, and darn right, you can't roll out of bed for less than $300 per hour. So, set your billing rate at $300 per hour, advertise heavily and wait for the calls to come in, no sweat.

There is one word that you have to delete from your vocabulary to buy into that line - competition. Competition makes athletes lean and ECs work harder, it's nature. Nature is something that these outfits abhor, IMO.

 

[satcom]

That is not what what I was pitched. I was pitched riches. I was told that if your small electrical contracting company is not pulling in more than $500k then the owner is a "pretender", not my word, theirs. I was told that you should be able to walk away from your company for six months out of the year and it should continue to finance your lifestyle while you do nothing.



You know, all the excuses in the world mean very little to a customer when they call three electricians to see what it is going to cost to wire for their ceiling fan, and two of them say $200 and one of them says $800. The $800 electrician is going to be seen as a fool and a rip-off, regardless of what his expenses are. All the positive thinking and willpower in the world is not going to counter that negative word of mouth of the people feeling duped.


Appreciated, and you know I don't have that kind of experience; I hope I'm also clear that I'm not accusing you of anything. I just believe that some of these national companies are preying on ECs. Paying $20k a year to an organization that is promising me wealth untold sets off big alarm bells for me.

The hallmark of these outfits is emboldening and encouraging a person to think they have so much more to offer, and that they ought to get paid more for what they do.

The next step is where do your dreams take you? What does success look like?

Well, any of us wouldn't mind making $100k a year. So, let's say that's the goal. I've only got 1000 hours to make that. So, right off the top, before I have any business expenses at all, I should be charging $100 per hour for the fine, quality work that I do.

Start from that overhead starting number, and darn right, you can't roll out of bed for less than $300 per hour. So, set your billing rate at $300 per hour, advertise heavily and wait for the calls to come in, no sweat.

There is one word that you have to delete from your vocabulary to buy into that line - competition. Competition makes athletes lean and ECs work harder, it's nature. Nature is something that these outfits abhor, IMO.

George the service business is an excellent area to work, and you do need to charge higher rates, to make it work, and I tend to agree with your slant on some of the pitch artists out there, however, in my area, 5 years ago the flat rate service guys moved in, and they do charge rates 2 to 3 times more, and when they first came on the scene, all the local EC's said they charge too much, and no one would use them, well here we are 5 years down the road, and most of the local guys that said they never have anyone use them are gone, and the new flat rate guys are busy and eating their lunch, heck the one up the road from me added 3 trucks and more men over the last 2 years when things in general are slow for most of us, but on any given day while I am on the road I see more and more of these trucks busy moving between jobs, I Learned over the years, that the majority of credit worthy customers, do not buy on price, they buy on service, and these are the customers you want to build and grow on, you can't build a business and grow dealing with price shoppers, and bottom fishing customers.
But I do agree with your opinion that some are fast talking pitch men, and if you want to get into the service area, build your own business with some good mentors and professional help.

 

[George Stolz]

What's the population in the area around that shop, just out of curiosity?

 

[satcom]

What's the population in the area around that shop, just out of curiosity?

6,000 within 2 miles and 32,000 within 7 miles and about 65,000 within 10 miles and there are now 6 of these flat rate shops in the area, these shops get the larger share of work.

 

[knoppdude]

All of these posts have got me thinking about a few things. I just started contracting, and one of the biggest issues for me is that all of the responsibility is now on me to get the work right. My overhead is high, but I am working, and if I survive the year, I might make it. I have seen some of these super service companies at work, and I wonder how closely they follow the rules of the work, in addition to their business principles. I am not saying they are bad, but each of us has to decide what our own concept of success is. My idea of success is to provide a safe working install for the customer, and pay my bills. As for pretending, I have seen some of the "Super service" work, and as far as that goes they are pretending. A 1/2 hr response does not give much time to get permits, and in my state if work fails, and someone gets injured or killed 500k/year won't buy enough lawyers. Keeping the customer safe and making their system work at fair prices does not make anyone a pretender, it makes them an honest electrician, no matter how pretty their van is. Just my opinion

 

[satcom]

George, Right now on ABC 7 they have Donald Trump talking about the Mr Sparkey and Clock work services, the hole show is about the way they advertise and hw to make it better, they say these companies will dominate the market, just what we were talking about

 

[satcom]

George, Right now on ABC 7 they have Donald Trump talking about the Mr Sparkey and Clock work services, the hole show is about the way they advertise and hw to make it better, they say these companies will dominate the market, just what we were talking about

Sorry NBC not ABC

 

[George Stolz]

George, Right now on ABC 7 they have Donald Trump talking about the Mr Sparkey and Clock work services, the hole show is about the way they advertise and hw to make it better, they say these companies will dominate the market, just what we were talking about

I didn't see the show, but it sure sounds like a paid celebrity endorsement to me, from what I see on the net - as I see it, it backs up my position entirely. My company can't afford to sponsor an episode of celebrity apprentice.

 

[IrishRugger]

The moral of this tale of two plumbers: A desire to do the right thing does not grant us immunity to the laws of business.


I just got done reading this and everyone elses responses about fifteen minutes ago I wasn't going to post but i just feel I need to.

Work has been slow enough recently that I have been able to review my previous year's books with some scrutiny. In reflecting on last year I realize it was very busy and also I gave alot of freebees away because of what I thought at the time was being a "nice guy"

I gave away around the tune of 10 to 11 thousand this comprised of the following:

Helping 2 different GC's whom I consider freinds,

1 family member whom I was afraid to charge full price because he e-mailed me asking if my invoice would include a family discount,

Not charging full price or not charging at all on change orders on a large project that one of those two GC's had asked me to be soft on the change orders so he doesn't look like the bad guy.

With that being said just so you know all of these people have at on time or another complained to me about my rates and all of these people have the means to pay at full rates.

Now just so we are clear decisions that I have made regarding my business are of my own accord and results positive or negative I take responsibility for. I'm not here to be lugubrious but only to add to the discussion and give my perspective from learned experience.

After much contemplation and discussion with my wonderful wife I came to a realization, none of these gentlemen whom I have extended myself to have ever reciprocated any noticable generocity niether in the past or present.

I have decided to make a new personal policy. It starts with I do not need to impress anyone. Especially to get future work. If I choose to be generous with my gifts and talents it will be for those who need assistance or a break.

The next and most important part of this new personal policy is this. My wife and daughter are a gift from God, My skills as an electrician are a gift from God, The fact that i am in business for myself is a gift from God! For me to squander these gifts to just impress people, and be a nice guy in the eyes of those who do not share the same values as I is an offense to God, and an abdication of my office as husband and father to my family.

I have been a putz for long enough. I want you all to know that this forum is a great source of information and support that I deeply appreciate.

 

[George Stolz]

Rugger, for me it comes to clocking out. I clock out when I am doing a favor for a friend or family member. I'd rather know coming into it that I am making no money, doing it entirely as a favor, than muddy the favor with money changing hands.

When money changes hands, then the person giving the money feels it is paid in full, and the person doing the half-favor feels like he's half-cheated himself.

Recently I answered a call for sidework by saying, "No, but I will give you a good price on the clock." That was a mistake. Someone looking for sidework is looking for a favor. I ended up donating my time back to the company and selling the parts at cost just to shut her up, and it was still not well received. Friends are friends, customers are customers, and never the twain shall meet in a perfect world.

All or nothing: it works for me.