Keeping prices high comes with its own cost, says Ellen Rohr in Small Shop Talk

I gotta let off some steam. A friend of mine just called. He is a respected plumbing professional. His company has been in business for 24 years, passed on from grand-dad to dad to him. He learned the trade at his father's knee. But, his dad didn't know a lot about making money. In fact, until a few years ago, they were still using grand-dad's selling prices. And going broke.

So, my friend invested in his own business education. He went to seminars, joined progressive contractor groups and started crunching numbers. He raised his prices and gave his team of plumbers a hefty raise. He's spent a lot of time and energy learning about marketing. He learned how to communicate to customers why you are more expensive than other plumbers. He learned new ways to add value to the service call to make it a great deal for the customer. He has become a savvy businessman and marketer. And, he is the only contractor in his neighborhood to provide full insurance benefits and a company funded retirement package.

I'm proud of my friend because it takes guts to make those changes. It takes courage to buck the going rate, and to rise out of the poverty mentality that mires this industry.

That's why right now I am steaming mad!

You see, my friend just told me that he has been called to justify his "exorbitant" prices to the attorney general. One of his customers filed a complaint with the DA's office. Interestingly, this is a customer who didn't complain when she approved the work before the technician began turning wrenches. This customer was delighted with how fast my friend's company arrived to handle the plumbing crisis, as the disaster happened Sunday afternoon. She had called two other "24 hour - 7 days a week" contractors but didn't get an answer. So, this customer was just tickled pink with my friend's company. Until the following Monday morning.

That was when one of the other "24-7" contractors finally returned her call. She explained to him that she had used my friend's company and didn't need any help. That was when this contractor replied, "What? You used them? They are the biggest rip-off contractors in the area. They love working on Sunday because that's when they can really take advantage of customers. They charge three times what we charge. You've been ripped-off, lady." Or something to that effect, because that's what this woman told the district attorney.

And that makes me so mad. It's hard enough to make a decent living in this industry. Why do your fellow contractors sabotage you when you try to raise the bar? I just don't get it.

The Copper Elbow Story - Revisited

Dan Holohan tells a wonderful story about a copper elbow in his book "How To Teach Technicians Without Putting Them To Sleep." Dan maintains there are no boring subjects, only boring people. To illustrate this point, he tells a story about a copper elbow.

It's a mundane little item - not much to it. But think about that copper elbow. Imagine its beginnings. Perhaps in Chile, where a copper miner with rudimentary tools digs in the dark, scratching the copper ore out of the earth. The miner then loads the ore into a cart and hands it off to another man, who is responsible for pushing the cart through the mountains to a truck.

The truck driver bounces the ore over rough roads, down to the dock. Then, it is loaded into a cargo container, and the copper ore heads across stormy seas to Sweden or Germany or Japan. There, it is fashioned into a copper elbow by a young girl with blonde braids who rode a bicycle to work. The copper elbow is scanned by an infrared machine to check the accuracy of size and shape. Then it is packaged, stamped, labeled, boxed and shipped to the USA.

"A few months later, a young man with long hair drives a fork lift onto the back of another truck and unloads the fittings into boss's warehouse. He has a date that night with a girl he will someday marry. He's not thinking about the copper, only about the girl." Finally, the copper arrives at the plumber's shop. Armed with that copper elbow, the plumber is capable of harnessing and directing the awesome power of water. How about that?

What impresses me about this story is this: Think of the number of people it takes to get the copper from the earth to the contractor. Think of their families. Literally thousands of people are depending on the contractor to set a price for plumbing goods and services that will support that whole chain of distribution.

Dominoes

Now, let's imagine a plumbing contractor presenting a remodeling bid to one of his customers, Mrs. Fernwicky. Mrs. Fernwicky gasps when she sees the price.

"Oh dear! This is just so expensive. You know my Italian marble put me waaay over budget. My husband will go through the roof when he sees this price. I really like working with you, and I want you to do the job. But, do you think you could sharpen your pencil a bit? Could you take off 10 percent?"

He says, "I'll see what I can do." After all, he doesn't want to be a rip-off artist like some of those other contractors, charging $200 per hour.

Then, he goes to his wholesaler and beats him up. He tells him that he needs another 10 percent off or he is going to lose the job. Finally, the wholesaler caves.

The contractor gets the job at the lower price, and the 10 percent price cut ripples through the chain of distribution.

He does the work, and it takes more time than he thought it would. In fact, he loses money on the job. So far this year, he's barely made enough money to keep up with minimum payments on his loans and his wholesale account. He feels burnt out and decides he needs a break from the business. So, he puts the phone on forward and heads to the lake for the weekend. Good for him.

On Monday morning he returns to find a message from Mrs. Fernwicky. She left a message Sunday saying she needed help with a clogged drain. When he returns her call, she explains that she couldn't find him, so she called his competitor - my friend, the one who charges three times what he does and loves to go out on service calls on Sunday.

Who's the real rip-off artist?

Mrs. Fernwicky wanted a great deal, and he gave it to her. But why should she get a discount? Mrs. Fernwicky has more disposable income and a higher standard of living than anyone else in the entire chain of distribution. He went to bat for the whole chain of distribution and made thousands of people take the hit. Who's ripping whom off?

No wonder manufacturers have chosen to sell through home centers. What are contractors adding to the price to make it worth the hassle of working with them?

You may choose to raise your rates so that you can provide a better living for yourself, your employees and all the folks who work in this industry. If you do:

  • Don't expect support from your competition. Sure, it would be nice if everyone crunched the numbers and created a selling price that would support a professional's salary. But, the majority of this industry won't see it that way. Expect to walk a lonely road.

  • Learn all you can about marketing and customer service. If you are going to charge more, you are going to have to BE more - more knowledgeable, more available, more communicative more everything. A great book for developing a golden reputation is "The World's Best Known Marketing Secret - Building Your Business With Word-of-Mouth Marketing."

  • Handle all customer complaints swiftly and to the customer's complete satisfaction. I know you aren't doing anything wrong by charging more than another contractor. But loud-mouthed bottom-dwelling contractors have polluted the waters. It's not fair but it's the way it is. So, deal with EVERY price complaint with this response:

    "Mrs. Fernwicky, I understand you want to get the most from your money. And you don't want to spend more than necessary for a repair. Our prices are based on our costs of doing business, which, given the nature of what we do, are high. While are prices are fair, in this instance, we have failed to communicate the full value of our services. For that, I apologize. What can we do to resolve this problem and keep you as our customer?

    Then, do what she tells you.

  • Prepare to become a celebrity. Raising your rates will set you apart from the crowd. You are going to get noticed. Learn how publicity works. A fascinating book on the subject is "High Visibility" by Rein, Kotler and Stoller.

  • Have a plan in place for unexpected media attention. What would you do if you learned "48 Hours" just filmed your plumber on a service call at Mrs. Fernwicky's house? I recommend using a media professional to help you with this. Joel Roberts is an outstanding media and publicity expert who helps business owners and executives who find themselves in the media spotlight. Contact Joel at 310/286-0631.

  • Be of stout heart. It takes a brave person to raise prices in this industry. Keep your standards, and your prices, high.


Put Up Or Shut Up

Jim Olsztynski's article "The Pay Still Stinks" (February 2000) generated strong reactions from PM readers. The pay does stink. Raising the pay will take price increases. There's no way around it.

That's the challenge. So far, the big service providers and consolidators have not significantly improved the pay and benefits offered to technicians, although they may. But that doesn't let the small shop off the hook. How about you? What are you doing to improve the pay in this fine industry? What are you doing to help keep and attract skilled workers?

You are either raising the bar or holding it down. If you aren't going to help, then do me a favor:

On Monday morning, keep your mouth shut.