Partnership Or Serfdom?
Many PHC service contractors are receiving mail solicitations from a home warranty company trying to put together a contractor referral network. Others are being offered "partnerships" with various utility companies for subcontracted work whose prices are controlled by the utilities.
Kind of gives you that warm and fuzzy feeling to know you are so wanted, doesn't it?
Yes, it sounds wonderful. A big corporation will provide your company with opportunities to do what you do best — plumbing, heating, air conditioning or electrical work — without your having to worry about marketing or selling. All you have to do is grab your tools, shine your shoes, hitch up your jeans so the butt crack doesn't show, start your truck and you're in business. This is what you were meant to do, your dream come true. After all, you're a plumber at heart, the world's best mechanic.
Birds Of A FeatherThis is whom the come-ons appeal to. Not to those tradespeople who think like businessmen. The corporations' "contractor relations" personnel mainly are a bunch of ex-contractors who couldn't make it and now want to turn you on to their better way of life. They found running a business too much a pain in the butt. They are looking to appeal to like-minded souls on behalf of their new employer.
Except they have a better deal than the people they are trying to recruit. They at least are employees of the big box, and thus eligible for decent pay and benefits. You, on the other hand, are responsible for providing all those things for yourself and your employees, but can you do that subcontracting for the "big boys?"
Many of you in the service and repair business started out doing new construction work. You made a conscious effort to get out of construction because there is no money in it. The home builders habitually chop your prices and hold your money while you go begging for it on bent knees — and all the while your wholesaler is on your butt telling you to pay up or the house you live in will soon be theirs.
My company was big into new construction from 1960–1971. We did millions of dollars worth of work; however, I never seemed able to make the kind of money I thought I deserved considering the risk and the hard work that comes along with our business. I wanted to operate a business where I wasn't merely a labor broker. I wanted to run a business where I had a direct relationship with the person who was writing the check for my services. I wanted to be in control of my own destiny.
You see, I felt that if I could add value to the services that I provided, and explained this value in a compelling way to the home or business owner, I could command the proper price for my "Sudden Service" — a marketing theme that I devised long ago and have since trademarked and licensed. This move allowed me to increase company profits and wages for my faithful associates. I just didn't see similar opportunities in new construction, so I left that world.
R.I.P. Service BusinessUnfortunately, I believe the service and repair business will go the same way as new construction if contractors agree to work for the big-box home centers, warranty companies and utilities.
The difference between being an employee and being in business for yourself has to do with who holds the money and who decides how much to charge. The home centers, warranty companies and utilities are looking to recruit ostensibly independent contractors, but it is an arrangement that resembles serfdom more than contracting.
It's a great deal for the buyers of your services. They end up with a staff of capable and hard-working mechanics willing to work for prices that won't get customers too upset, yet they do not have to worry about providing insurance, retirement and other benefits to the serfs.
Nor do they have to worry about abiding by EPA, OSHA and EEOC rules. It's up to the serfs to do that. If business gets slow, they don't have to be concerned about finding work for the serfs, or about laying them off. They simply don't call. It's your worry how to put bread on the table and pay the mortgage. After all, this is part of the glory of being in business for yourself. I view the big-box retailers-warranty companies-utilities basically as home builders who also sell hammers or life insurance or energy.
$280 For A Water Heater JobI've seen the fees some of the warranty companies and others are paying PHC service contractors. In one case the standard rate was $280 to furnish and install a 40–gallon water heater.
After 37 years in this business and 12 years on the lecture circuit teaching my "Business of Contracting" seminar, I know that no one in this industry can furnish and install a 40–gallon water heater for $280 and make any money. And I mean no one! I don't care how small you are, or how little overhead you carry. At that price you can't possibly cover all your expenses and still have enough left over to make the job worth your time and effort.
In fact, I'm still waiting for someone who can show me how he’s making money with a labor rate of $55 to $65 an hour. (See my May 1996 column, "The Cost Of Not Knowing Your Costs.") No takers so far. Yet, a $280 water heater job translates to far less than $55 in labor, even in the most remote rural town in our country.
I also know that if you try to supply and install it for $280, you better be moving super fast in order to cut your losses. You'll have no time for the customer niceties that go along with providing superior service, and you may have to cut many corners to get the hell out of there and on your way to the next $280 job.
Of course, if you draw customer complaints, your "company" will get fired by the big-box operator. They'll suffer a bit of embarrassment perhaps, but they'll shrug it off and find another serf to install the next water heater for $280.
I have to believe that the only contractors who would be naive enough to work for the "big boys" are those who don't have the slightest clue as to what they're worth, and whose technical and customer-relations skills are so terrible that they can't keep customers on their own. They certainly don't know the first thing about developing a proper selling price based upon knowing one's true costs. After all, no one in his right mind, not even the most ignorant contractor, would knowingly take a job to lose money. (Though sometimes I wonder!)
Professional PHC service companies that take pride in their work and place a high level of value on customer service, and who know their individual costs of doing business, would never crawl into bed with the big boys. Would you?