Best Of Blau (Reprinted from July 1994)

In past columns I took the opportunity to vent my anger against the "slugs" who tell Mr. and Mrs. Homeowner that they've been ripped off because they would have done a job much cheaper than the firm that actually did the work. This month I want to address how a business owner ought to respond when a customer accuses him of overcharging.

My overriding business philosophy is that a business exists only to gain and keep customers. The customer is always right. The only valid excuse for losing customers is when they die or move away from your market area. Otherwise, you do everything humanly possible to keep them.

So, how do you handle the situation when a customer calls and says, "You ripped me off! You charged me $500, but I've since talked to another plumber who told me the job should have cost no more than $300!"

Don't Argue

he first rule is never to argue. Instead, seek more information. You want to find out whether the person is angered only about the price or if there are some other underlying causes of dissatisfaction.

A good question to ask in this phase is: "Mrs. Jones, putting aside the price for just a moment, are you satisfied with the workmanship and the way you were treated by our employee?" This kind of questioning achieves one of two desirable objectives:

1) It's important to flush out any hidden agenda. If there was something that happened on the service call that bothered them, this gives you the opportunity to find out what it was. Then you can get the service technician's version. If you conclude that the service tech was at fault, it gives you a chance to explain what went wrong, discipline the violator if necessary and correct the problem.

2) If you run a good shop dedicated to customer service, more often than not, the customer will say that he or she was satisfied with the service tech's performance. It's just the price that bugs them. This makes the complaint much easier to handle. Once you're sure it's about the cost of a job, then you can focus on that issue alone.

At this stage most people would be tempted to start offering a bunch of excuses for why they charged so much. A technique I've always found to be better when dealing with disgruntled customers is to get them talking by asking questions. For instance, in this case you might want to say: "Mrs. Jones, you say that another plumber said he could do the job much cheaper. May I ask why you didn't call that other plumber to do the work?"

Often the answer will be because the other guy wasn't available. That gives you an opening to politely explain how your firm prides itself on fast, convenient service 24 hours a day. Naturally, it costs money to be able to provide that kind of service.

However, these explanations won't satisfy everyone. All they know is that they've talked to someone who assured them they could get the work done much cheaper. Some are so angry they won't listen to reason. Here's what you do then.

Giving In

Give in to them. Plain and simple, give them what they want. Ask them what that would be.

"Mrs. Jones, how badly do you think you've been ripped off? ... What can we do for you? ... What would it take for us to keep your business and get you to call us again?"

Most people will react rather stunned to this kind of inquiry. They've worked themselves into a lather to make the complaint, but haven't really given much thought to what it would take to resolve it. What you'll find is that most often the complainer doesn't expect as much as you'd think.

For instance, if the difference is $100 between the price you charged and the one quoted by the slug after the fact, don't volunteer to refund $100. Ask the customer what he or she thinks is fair. Most people will settle for some middle ground, say $50.

What you want to do then is give them a few options for rebating that money. One possibility is a gift certificate worth $50 off on future company services. The advantage is that this costs you less than $50 to provide.

Another option is to present a gift certificate good for $50 at a local restaurant. What I like about this one is the psychology behind it. The customer ends up relaxing with a companion in a nice restaurant, perhaps feeling a warm glow from a drink or two. Then comes the check, which costs them very little because you provided a gift certificate that covers all or most of the cost. They started out mad at you, now all of a sudden they start thinking you're not such a bad guy after all.

However, a lot of people don't want any part of this. All they want is their money back - or at least that portion they think was an overcharge based upon the slug's estimated price. Then the best policy is to give it to them. Send them a check for whatever amount they think is excessive - remember, let them define how much that is.

What if it involves a big job and the customer demands a large amount, say $500 instead of $50? I say, give it back, if that's what it comes to.

Small Price To Pay

I know what a lot of you are thinking. "Geez, Frank, we'll go broke doing that. People will take advantage of us."

Actually, they won't. While complaints of this nature are annoying, people who moan about prices actually comprise a very small percentage of your overall business. Contractors I've talked to who adhere to this policy say that the give-backs generally amount to 1 percent of sales or less. If you do $1 million a year, that's $10,000 worth of give-backs. If you're a one-man operator doing only $100,000 a year, prepare to give back $1,000 to people who complain.

What are the alternatives? Would you rather deal with attorneys and collection agencies, who keep a third of the money for themselves? Do you want to spend hours of your time haggling in small claims court? Besides the direct expense, all of these adversarial tactics guarantee that you lose the disgruntled customer forever, along with all the referrals you might have gotten from that person. This is far more costly to your business than anything else. It could add up to tens of thousands of dollars of lost business for every customer you antagonize.

What's more, people fail to understand that if you crunch your business numbers the way you should, give-backs will cost you nothing!

What you do is budget for an amount to be given back, establish a line item for it on your chart of accounts ("People who think they've been screwed É"), convert it to dollars per billable hour and include it in your dollar-per-hour overhead figure. This way, you build it into your basic rate structure and all of your customers help pay for the occasional give-backs.

A lot of the slugs are scratching their heads right now trying to figure this one out. Some of them are probably thinking that this is another "rip-off" - charging people for things they don't get.

All it really is, is a routine business tactic. For instance, an Oldsmobile dealer in my hometown of Milwaukee has been running radio commercials advertising three-day test trials for all new cars. Customers who aren't satisfied with the auto return it and get a full refund or another car. That customer might put more than 1,000 miles on the car driving it around, reducing its sale value. Do you think the auto dealer is eating that loss? Believe me, it is built into the price of all cars sold by that dealer.

In reality, businessmen pay for nothing. All we do is serve as a focal point for gathering money. Once we gather it in, we dispense to the owner, to employees, to suppliers, insurance companies, etc. Customers end up paying for everything eventually.

People who have attended my "Business of Contracting" seminars understand the most beautiful part of this arrangement. We know that some profit dollars emanate from overhead. That is, if you earn 10 percent net profit and additional expense boosts your selling price from $100 to $150, you earn $5 more on those additional costs. So you don't lose money on give-backs. You actually make money!

The customer is always right. Don't be afraid to give in to him. It's the best investment you can make.