Simple MathIn reference to Frank Blau's column in the August issue ("The Impact Of Material Sales"), I have learned the hard way how true his thinking is. We were a contract installer for both Sears and Lowe's. We did an average of 12 installs a day between the two companies. After one year we ran a cost analysis and came up with some very shocking statistics.
After a full year, our company did more than $100,000 in installs for these two companies. After subtracting our costs in fuel, insurance, payroll, waiting time for stock to be pulled, hassles with buyers who refused to pay for code upgrades, waste disposal, vehicle maintenance costs, and all the other things involved, we found it cost us $1 to install their merchandise.
What was even more amazing, after this analysis we talked with the installation managers for both of these companies; we explained our situation and asked for a slight increase in the contracted price for each install. We were told that it would be impossible to give us an increase. We told them it would be nice to turn any kind of profit from our work. Again they declined. Funny thing about this when you step back and look at it is 1) both companies turn a profit on the sale of the merchandise; 2) both companies make a profit on our work; and 3) both companies make a profit by financing the sale of products and the installation.
What I found that amazed me was the Sears installation manager stated he was required to turn a 30 percent profit margin on all installs. We would have enjoyed making any kind of a profit.
Any contractor who feels he can turn a profit by doing this work and thinks the big boys are looking out for him had better take a good look at his costs, because the only thing these large stores are out to protect is their own bottom line. The only company that can turn a profit is a one-man shop, and he will be working for wages. There will be no profit to repair the trucks, put tires on them or even pay for help. There will be no money to replace the truck after putting more than 100,000 miles on it in less than two years.
The average price Sears or Lowe's pays for the installation of a water heater is $85 plus the permit. Here is some simple math: Pick up and wait for the merchandise takes about 30 minutes (if you call ahead). Travel to jobsite in town takes 15 minutes. The typical installation in a downstairs location (draining, pulling and install) is 90 minutes. Then you have to haul away the old unit and dispose of it, another 15 minutes. We can assume there is a minimum of $7.50 for materials. Let us not forget about $2.50 in fuel.
So we have spent $10 in fuel and material. We have devoted at least two hours on the job. Let's assume a $2 disposal fee is charged, very cheap. That means we're starting with $85 minus $12 for material, fuel and disposal. From the remaining balance (wages and overhead) of $73, we divide by the two hours used for job. That leaves wages per hour of $36.50 for each hour.
I personally cannot see how a company can pay for its insurance and other operating costs at this rate of pay. If you happen to be paying a plumber $20 an hour and have to pay matching taxes, you just spent about $26.60 of your $36.50, leaving a grand total of $9.90 to pay all your bills.
I think you can see where this is going. If you like working for nothing, I recommend becoming an installer for one of the large home centers or department stores.
Name Withheld Upon Request
Biased And UnprofessionalI write to express my disappointment with your magazine's decision to publish Mr. Ballanco's obviously biased and unprofessional article ("Watch Out for Sewer Problems," August 2002. Why Mr. Ballanco's claims (and I quote) that the city of Sandwich, Ill., is "stupid," "crazy" and "nuts" did not immediately raise editorial red flags is a mystery and ceases to amaze me. In fact, the article is mean-spirited in tone, fails to disclose important facts, and presents gross factual inaccuracies.
Mr. Ballanco failed to disclose several key facts, including:
Choosing to engage in demeaning the city and its attorney in lieu of disclosing these pertinent facts, Mr. Ballanco also presents outright falsehoods not supported by evidence at trial. These include:
All the city of Sandwich has ever sought was for all industry in town to comply with the simple dictates of the city's ordinance. Mr. Ballanco's "good friend" is the only industry who refuses to comply, apparently at Mr. Ballanco's insistence (with the end result being Mr. Ballanco earns significant fees while urging his "good friend" to continue his company's noncompliance). The dollars spent on Mr. Ballanco and the law firms defending his "good friend" could have paid for decades of compliance with the ordinance and avoided trial altogether.
A more balanced and factually accurate presentation would have allowed your readers to decide the true facts for themselves.
If You Don't,You Don'tThis is just a short statement to say how absolutely tired I am of hearing clients repeat over and over again, after the job is completed, that the "other guy" is cheaper. I don't agree with T&M on any level, but I'm also not into lecturing someone about their business practices.
If you don't want to make any money, then don't. However, it makes my head hurt when I hear how these contractors just shoot prices out over the phone, without diagnosing, assessing or viewing the situation. I guess their mentality is, "Hey, even if I paint myself into a corner with my foolish over-the-phone price, at least my guys will be working!"
I recently had a customer who flat out refused to pay my company for its services, based on what some slug told her over the phone. I've heard it all before; "I'm sorry to say, you've been had, ma'am." Or my favorite; "We absolutely could have done it for less!" Yeah, they could have done it for less, but the customer's driveway would have had a big oil stain on it because Mr. T&M couldn't afford to fix his head gasket.
What a sad, sad state of affairs. It's almost like dropping a chunk of spoiled fish in a shark tank to watch them feed. So many guys are so quick to cut the hamstrings of another, just because he's making more money, and running a better business.
John L. Wood Jr.
Hub Plumbing & Mechanical Inc.
Big ChangesI would like everyone to know that as of Sept. 3, we became a flat rate company, and also began offering service agreements.
I had been trying to get our company to try this since 1996, but my former business partner would not even give this a thought. I couldn't even get him to go to any of the seminars. I eventually bought Numbers Crunchers, had to pay my own way to see Maurice Maio, joined QSC and attended a Frank Blau seminar he gave at one of the QSC Power Meetings. I also purchased Maio's manuals and other items to try to convince him to do this.
In all I spent over $10,000 of my own money trying to convince him to give this a try and he wouldn't even look at the books. Hell, I couldn't even get him to read any of the trade magazines.
When I joined this company in 1973 there were three office employees, one of which was the owner and seven field employees. When six of us purchased the company in 1978, the ratio was two full-time office employees, and the rest of us were in the field. The "problems" began in 1985. But I was too young to see it. We hired a friend of my former partner to be the secretary, account manager, etc., and also work the sales counter. That only put one full-time office employee to handle up to 11 field employees.
At that time I did not have any business knowledge to speak of and just went along with the flow. I worked in the field until about five years ago when my truck got stolen and they took all of my tools. I decided it was time for me to get into the office since my partner was reaching retirement age. And that's when I found out how bad it really was.
After trying to buy out his 50 percent interest for more than three years I finally said enough was enough and started to make certain changes. After losing money on bid jobs that he looked at without charging what was agreed upon for an hourly rate -- which was sometimes less than half of what it should have been anyway -- I let one of the plumbers start doing the bidding and I took over the billing.
My partner retired in November 2001 and since that time I have implemented a lot of changes. Some of which were changing over to flat rate pricing, service agreements, new software systems and more advertising.
We have had only one complaint since we started and that was that one of the prices in the book was too high as an add-on. We adjusted it to a more favorable price. But we also have had praises for making our changes. We had one client that we have worked with for more than 30 years who said that she was happy we got out of the Stone Age even though our prices were higher.
We now have a CSR, who also does the bookkeeping, and an estimator, who is also my second-in-command. I also hired a plumber who worked for a flat rate company in Colorado to help us implement these changes.
There are less than four flat rate companies located in our town. Some of the others are talking about it, but I think they are waiting to see how we handle it.
Financially I don't think we are doing too well. We had a negative net worth of more than $125,000. For our 10 months ending July 31, 2002, we had total sales of $755,050, cost of goods of $345,347 (45.14 percent), gross profit $409,702 (53.55 percent), overhead expense $382,443 (49.99percent) and net income $32,009 (4.18 percent).
Last year at this time we had a net worth of $144,709, sales of $723,676, COG of $310,541(42.91 percent), gross profit $413,134 (57.09 percent), overhead expense $396,581 (54.80 percent) and net income $20,647 (2.85 percent). We'll keep you posted on how we're doing.
Name Withheld Upon Request
Poor OprahJust a quick note to say how much I enjoyed Ellen Rohr's column ("Concerned Letter To Oprah," August 2002). Poor Oprah. Ellen realizes something that none of my college professors understood: The government doesn't create any wealth; it simply redistributes wealth. Wealth is only created by the production and sale of goods and services for a price substantially above their cost.
This ought to be as intuitive as gravity (you know, "waste" runs down hill!), but escapes many who are in control in my neck of the woods.
Keys Plumbing & Heating