It's tricky to generalize about what makes a successful plumbing contractor, because there are so many facets to the business. Service is completely different than construction work, and residential specialists often don't have much in common with those of you who chase the commercial market. So I had to put on my thinking cap when asked to speak on the subject of making money in the contracting business.
I thought about the successful plumbing contractors I've met from all different market sectors, and tried to identify characteristics they had in common. I came up with five common denominators.
1. They think like businessmen, not plumbers. There's nothing wrong with being a plumber. It's an honorable profession, and the world certainly needs more of these skilled craft workers. But once you go into business for yourself, you're no longer a plumber. You're a business owner. Plumbers work for you.
Unless you're a one-man operation, you need to put away the tools as soon as possible. As soon as you hire your first plumber, it's time to start phasing out of the field work and start devoting yourself to the financial, people and marketing issues that determine success in any business.
Most people in our industry never make that transition. They continue to turn wrenches and run jobs rather than zero-in on the business end. They continue to think like plumbers, not like business owners. Consequently, they do not really own a business. They merely own a job, one that often ends up paying less than they could earn working for a business-oriented plumbing contractor.
I've never heard of a plumbing contractor that went broke because he lacked the technical skills to do the work. I've known plenty that went bankrupt because they failed to crunch the numbers, mismanaged people and didn't understand marketing.
Finances, employees and marketing. Those are the areas contractors need to focus on. Everything else can be delegated.
2. They know their costs of doing business. The most prevalent business shortcoming I've observed in the industry is failure to understand one's costs of doing business. Too many contractors simply don't completely measure their overhead.
For instance, I've heard numerous contractors brag over the years about having almost no overhead because they own their trucks or operate out of their homes. Most of them do not factor depreciation of those assets into their overhead. Every mile you drive a truck is one mile off of its useful life. Eventually you'll need to buy a new one, and where is that money going to come from? You need to build it into your cost of doing business.
Once you capture all the hidden costs of doing business, you need to convert them into overhead dollars per billable hour and factor this into your labor rates. PM's columnist Frank Blau has been preaching this message for years, and I think it's his most valuable contribution to the industry. Every contractor knows exactly how much material costs and how much they pay for labor, but the vast majority of contractors in this industry underestimate their overhead.
It requires detailed bookkeeping and a chart of accounts to keep track of every expense you incur in delivering your services to customers. Some of your expenses may seem very small, costing only dimes per day. But add them up over the course of the year, and they can make a big difference in the health of your business.
Once you know your costs, you can focus on controlling them, which is something else you need to do to succeed. But it makes no sense even to think about cutting costs before you have a firm grasp of what they are.
3. Successful contractors don’t work cheap. It's hard to make a good living strictly on competitive pricing.
The vast majority of successful contractors I've met charge more than the so-called "going rate" for their services, whether it be in service work, construction or remodeling. That's because of Key No. 2 — they know their costs of doing business. And once they know their costs, they understand they can't make a good living charging what everyone else does.
Instead, they find a niche in the market where price competition isn't so intense, or where customers are willing to pay more for top-quality workmanship and service. Flat-rate pricing in the service end helps to differentiate your firm and enables you to charge more than the going time- and- material rate. In construction work, you need to develop specialties or a reputation for excellence that will result in negotiated jobs for people who appreciate high quality and are willing to pay what's required to deliver it.
Successful contractors don't think "selling" is a dirty word. The best chance for extra profit in your business is to convince people to do themselves a favor by buying add-ons and upgraded products from you. It takes no more labor to install a $500 toilet or faucet than it does a $100 model, but you can make five times as much selling the $500 version.
Most plumbing contractors won't even try to sell customers the more expensive product. That's because they think like plumbers rather than businessmen. They'd rather install what they're most familiar with instead of what will make the most money. Many think that just because they can't afford a little luxury in their lives, their customers can't either.
I'm not talking about fast-talking people into buying things they don't need. It's simply a matter of offering suggestions and choices. Walk into any McDonald's and you'll find everyone trained to ask, "Would you like fries with that … would you like to super-size your order?" This is the kind of selling I'm talking about. There’s nothing unethical about it. It's just good business.
4. Successful contractors continue to progress. "Grow or die" is a famous quote from Peter Drucker, probably the greatest management consultant who ever lived. This doesn't mean every plumbing contractor has to strive to become a 50-truck operation. Many of you don't want the headaches that come with getting big, and it's more important to be profitable than generate large revenues.
Yet, some amount of growth is necessary just for survival. That's because studies show that every business loses around 9 percent of its customers each year to natural attrition. People die, or move away, or make new friends in the plumbing business, and you lose those customers through absolutely no fault of your own. You have to continue to grow your business just to make up for those losses. That's one aspect of what Peter Drucker meant by "grow or die."
I prefer the term "make progress." Growth means not only increasing revenues, but staying on top of developments in the world of business. It means keeping up with both field and office technology. It means belonging to trade organizations and networking with colleagues from different parts of the country. It means constantly learning and adapting new techniques into your business. It means steadily computerizing your operations so you can operate more efficiently and effectively.
The successful contractors I've observed aren't all big, but they all are progressive in keeping pace with the changing world of business.
5. Successful contractors love their work. I've never met a successful businessman, in any field, who didn't have a passion for the business. Running a business is hard work and filled with aggravation. If you don't love what you're doing, you'll get burned out quickly, and that's not a path to success.
And this brings us back to Key No. 1. I've met too many people in this industry who love plumbing, but not the business of plumbing. They seem miserable all the time. You've all seen them around. They're the kind of folks who are always griping about customers, griping about competitors, griping about their suppliers and the home centers, and the industry at-large. They find fault with everyone but themselves.
Many of these folks want nothing more than to be turning wrenches. They are plumbers and think like plumbers, and I repeat, there's absolutely nothing wrong with that. Except they don't belong running a plumbing business. They should be out there doing what they love to do.
The successful contractors face the same problems the complainers do. Yet, the successful contractors manage to overcome these day-to-day aggravations and find a bright side to their business. Usually that bright side has to do with making money.
They love coming to work every day because they find the business stimulating and it brings them prosperity. There are few things in life more rewarding than making a good living doing what you love. If you can honestly say that you love going to work each day, then I would say you've mastered the 5 Keys To Success.