That’s the title of a fine book by my dear friend, Ellen Rohr. She wrote it years ago, and it offers great advice to anyone in business who’s looking to stay in business.
You have to know what it costs you to be in business before you can know how much you should charge. That’s logical, but sometimes, this business is anything but logical. Here’s a great example of that.
John and David Cataneo run Gateway Plumbing & Heating, which serves New York City and parts of New Jersey. They’re very good at what they do and they charge appropriately. It’s not easy working in Manhattan, where parking is often impossible and parking tickets, if you can find a spot to leave the truck, are a fact of life. So all this gets figured into the prices they charge for doing what they do so well.
John Cataneo shared this email with me recently. Let’s call the sender Mr. Suspicious. It had me shaking my head. See if it makes you do the same:
To the owner of Gateway Plumbing:
As a new customer who plans to use your services for all my heating and plumbing needs, I was very pleased with the service provided. It seemed much more thorough, knowledgeable and informative than earlier heating service providers.
I understand that I was charged $702.24 because my Weil-McLain heating boiler provides an input of 400,000 Btu/h.
I also understand your principle of charging more for servicing a larger boiler, which usually implies a larger building, which provides an owner larger income.
But in this case, the 400,000 Btu/h boiler is installed in a typical, four-story, three-family, zoned brownstone in the West Village of New York City.
So I request that you reconsider the $702.24 charge and re-bill me for servicing a boiler of less than 400,000 Btu/h.
I can then inform my credit card company of the agreed upon adjustment, and ask how to change the amount paid.
Thank you for your consideration.
You shaking your head? Yeah, me, too.
So what would you say to this guy? Would your first reaction be to go off on him? He sure sounds like he’s calling John a thief, doesn’t he? And he’s definitely threatening to call his credit-card company and report John if he doesn’t give back some of that money.
I think a lot of people in the trades would react that way. It’s just human nature. What does this guy know about being in business in a city like New York? What does he know about servicing big boilers?
But that’s not what John did. He left it alone for a day and he went about his business. He shared it with my daughter, Erin Holohan Haskell, who took over our business last year, and me.
“How great is this email?” he wrote. “This guy thinks we base our boiler service pricing on perceived or anticipated rental income to the client. Keep in mind that an empty lot at this address would be worth $5-6 million.”
My daughter shook her head, too, and we both liked that John had left it alone for that day. It’s never good to immediately reply to an email like that one. Let it cool off. The guy can wait.
The next day, John wrote back to him and both Erin and I thought his response was perfect. Here, read it:
Dear Mr. Suspicious,
If only I had the luxury of billing my clients based on their income.
The price of your boiler maintenance service is based instead on the equipment, and the expenses we face by hiring the best service technicians and plumbers and running a business that, even in your words, performs at a higher level than the others in our area.
400,000 Btu/h (your unit) is a turning point for boilers. National and NYC Dept. of Buildings’ codes are elevated for boilers of this size. The way boilers are constructed and installed is different from those 399,000 Btu/h and under, which is different from the requirements for boilers 200,000 Btu/h and under. In addition, one- and two-family homes come with their own requirements, and then the space housing a boiler for a three-family home requires even more safety devices according to the Fire Department of New York Construction Codes.
I’m certain your boiler is far too large for your building, but that’s the one you’ve got for the time being, and the components that make it code-compliant all need to be disassembled, tested, cleaned, and calibrated. It’s a labor-intensive and time-consuming process, and we bill based on that time and our expertise in dealing with the Codes concerning commercial-grade equipment.
We thank you for your business and sincerely hope you understand our position on this.
Well done, right? John didn’t get angry; he explained how things work in New York City, putting the emphasis on the codes and the customer’s safety.
How much should I charge?
Enough to stay in business.
Mr. Suspicious wrote back to John, thanking him for his explanation. He didn’t ask again for a reduction in price. He was being reasonable because John had done a great job of explaining why his company charges what they do.
And while all this was going on, I was wondering how that oversized boiler wound up in that relatively small building in New York’s Greenwich Village. But then I remembered that a lot of installers base the size of the replacement boiler on what was there when they arrived. The customer loses when they do this, of course, because an oversized boiler is going to bang on and off and waste lots of fuel.
I know that in the days of coal, the burner ran for hours and hours. I also know that when fuel oil showed up, there was no absolute rule for converting the boiler from coal to oil. The Dead Men often based the size of the oil burner on the coal-boiler’s grate area. And then they would add more to that, just in case. Oil was a new thing then. Why take chances?
Years later, a gas burner replaced the oil burner, and the installer would base the size of the burner on the size of the oil burner. And then add a bit more to that.
And when the old boiler bit the dust the next installer would add something to that, and often a lot. Why take chances?
I once asked a contractor how he sizes his replacement boilers. This guy worked on Staten Island.
“I have a method that works well for our company,” he said.
“Tell me,” I said.
“We merge the boiler-manufacturer’s catalog with the Ethan Allen Furniture catalog,” he said.
“How does that work?” I asked.
“Well, when I enter the house, I look at the furniture. If they have expensive furniture they’re getting a six.”
“Six sections?” I said.
“We talking a huge house here?” I asked.
“Why six sections?” I asked.
“Because they can afford it,” he said.
I thought of Mr. Suspicious and nodded. Yep.