Matt Michel: 9 lies small contractors tell themselves
Invest in a business that works for you, rather than the reverse.
All contractors start small, though no contractor needs to remain small. Sadly, when plumbers remain small, it is usually because they tell themselves one of the following nine lies.
1. You can't charge more
At the first sign of price resistance, many plumbers believe they have reached the top of their market and cannot charge more. Yet, the market is not monolithic. Some consumers are willing to pay more than others. Price resistance is not a concern. The absence of price resistance is concerning. It means a company is likely not charging enough.
Remember, there is only one company in a market with the highest prices. Every other plumbing company charges less. And, who can say whether the high price company is truly at the top of the market?
2. High price plumbers rip off consumers
A price based on direct costs, company overhead and profit for any two companies will differ. If one is more than the other, this only indicates a difference in costs. It is not a sign of ripping off consumers.
Different people value different things. At the time this is being written, a round-trip plane ticket from Dallas to London, booked one month in advance, costs $1,051 in basic economy and $9,213 in first class. This is a huge premium for a nine-hour plane flight where almost all passengers sleep. Yet, first class on transatlantic flights almost always fills. You might think it a ripoff, but clearly, there are people with the means to pay who disagree. They value first class enough to pay the premium. The challenge for plumbing contractors is finding ways to offer a customer experience that is valued enough to pay more.
3. It's more profitable to be small
Single truck operators often enjoy higher margins than companies with multiple trucks. This is usually the result of extremely low overhead. However, a higher margin does not mean a bigger bottom line. A $200,000 single truck company with a 40% net profit margin earns $80,000. A five-truck company with $1.2 million in revenue and a 15% net profit earns $180,000.
4. You cannot find plumbers
It is true that the perfect plumber is unlikely to knock on your door. If he does, he is probably carrying a host of bad habits, which means he is far from perfect. In reality, the perfect plumber is the guy with a good attitude and mechanical aptitude who you put in a truck as an apprentice until he is ready to take calls on his own.
Do not “find” plumbers. Grow them. Of course, this means you must be proactive, years ahead of the desperate day you are confronted with an idle truck and absent employee.
5. Training is expensive
Training investments do cost money, but like your tools and trucks, training generates a financial return on that investment. Training is not expensive, it is the lack of training that’s expensive.
Today, the best contractors offer training in three areas. The first is technical skills, which is obvious. The second is soft skills, which is customer service, communication and so on. The third is life skills, which includes personal finance, character, and so on.
Think about it. Why would a well-paid plumber change companies for a dollar an hour bump? The reason is he is probably always broke because he has never learned personal financial management. Teach him.
Training is not a one-and-done activity. The performance bump from training wears off over time. This is why it is like bathing. Both are needed on a regular basis or things start to stink.
6. Conferences are a waste of time
Just as plumbers in the field need training, plumbing company owners need to attend conferences. Conferences give company owners the opportunity to meet other successful plumbers and learn from them. They will see new products and services that can boost sales or save money. Maybe most important, they recharge and returned energized and fired up about business.
7. Social media is a waste of time
Business is built on relationships. Networking builds relationships. Social media is a way of networking to build relationships without leaving the office. This is not a waste of time.
8. Consumers are cheapskates
If a consumer appears to be cheap, it is because the plumber has not communicated value or the consumer has no money and is worried about paying. Training addresses the first cause. Adding a third-party financing system for larger projects addresses the second so that payments can be sold instead of price.
9. Being small means being independent
No one is more enslaved by their companies than small contractors. To take a vacation, a competitor must be trusted to take calls while income flow ceases. So, most small contractors limit vacations to the occasional long weekend. Ironically, the small contractor can take off nearly any afternoon he wants, but not a couple of weeks.
The small contractor is always on call and must drop everything when the phone rings and there is a money call. He only makes money when he’s turning a wrench, so if he is generating future business, he is not making money. If he is making money, he is not generating future business. This is not independence.
Are you tired of the lies?
The answer is to price correctly, invest in growing people and growing your business. Ultimately, this will result in a business that works for you, rather than the reverse. If you do not know where to start, consider one of the business alliances, such as Service Roundtable. For more information, visit www.serviceroundtable.com.