Know the numbers of your business, and you'll find a hidden treasure trove of profits.

What's the secret to making big money in your plumbing business?

What separates the struggling business owner, who works 12-hour days, who can barely pay his suppliers, who works for peanuts, from the owner who consistently earns double-digit net profits, who vacations for weeks at a time, and who has a business that runs like a Swiss watch?

It's a question that should be on the mind of every business owner. And I'm going to give you the answer.

The most successful contractors I've worked with had one thing in common: They knew the numbers and ran their business by the numbers.

Contrary to public belief, ignorance is not bliss. And not knowing the numbers of your business is like driving a car with a blindfold on. Eventually you're going to get in an accident and get hurt -- in the wallet.

Michael Gerber, in his book, "The E Myth," writes, "Most entrepreneurs are merely technicians with an entrepreneurial seizure. Most entrepreneurs fail because you are working in your business rather than on your business..."

He's right. You are worth more to your business by putting systems in place to help the business run like a Swiss watch rather than working out in the field.

So let's take a short quiz to see how well you know the numbers of your business.

How many calls came into your office that did not turn into appointments?

Imagine spending thousands of dollars on a phone book ad...and you never discover that the people who answer your phone are losing hundreds of potential customers. Sound like a bad dream?

It happened to one of our clients, who discovered that his call takers were losing almost 17 calls each and every week. At an average sale of $288, he realized that he was losing almost $5,000 a week in business. He was so embarrassed, he asked that I keep his name a secret.

Now he runs a phone call report on a daily basis and sees for himself what his call takers are doing. And if he needs to, he can motivate and train them to get their numbers back up to where they need to be.

How much did that lost job cost you? How many calls did you lose today?

How many happy calls did you make? How many unhappy customers called you? How many happy customers called you?

The phone is the lifeblood of your business. Use it to your advantage. Start by calling all your customers to see if they are more-than-happy with your service. Notice I didn't say call them and ask if they're satisfied. No one wants to be satisfied. Customers want to be impressed -- so impressed that they tell all their friends and neighbors what a fantastic company you have.

But the first key is to call them. Make sure they're happy. That's why it's called a happy call. And once you know they're happy, then you can ask them how you can serve them better. Then do it.

If you call them and they're not happy, you can do the right thing before they tell all their friends and family what a terrible company you have.

Most unhappy customers won't call you and complain. They'll just leave. And they tell everyone about the bad experience they had. That's why a happy call can make all the difference in the world.

The key is to keep track and follow-up. Don't promise an unhappy customer that you're going to fix the problem and then drop the ball. You'll make the situation worse.

How much time is it taking your techs to do a job vs. what it really should?

Technicians aren't perfect. No big surprise there.

Some jobs are going to take longer than expected. But what's the purpose of having a flat-rate system if your technicians are constantly taking longer to do a task than it should have taken?

There might be a problem with the technician. Maybe he's too slow or perhaps he doesn't have enough training. So he needs to be managed more effectively or provided with more training.

On the other hand, maybe you really misjudged how much time the task should take. And you need to make the necessary change for that task so it's priced properly.

Either way, it's a problem. A problem that's costing you money. Lots of it.

But you'll never know unless you're running a report that tells you the hours allocated for a task versus the hours he actually used. How productive are your techs? Don't know? Don't you think you should?

The majority of service contractors use a flat-rate system, but only a small fraction of them compare those numbers. It can make a world of difference to your bottom line.

What's your tech's average ticket? And how much revenue do your techs bring in?

Imagine this. One of your technicians comes to you and asks for a raise. He says he's been with you for five years and deserves it. What do you do?

Most owners would ask how much the tech wants. Then the owner and the technician will negotiate a little and agree on a "reasonable" amount. But some business owners tell their technicians that "they can't afford to pay more."

Is that what you do?

The most successful and profitable contractors I know would look at the performance of the technician. The owner could run a few reports and see:

  • how many callbacks that tech has had since his last review;
  • what is the tech's average sale;
  • how much revenue does the tech bring in;
  • what is the tech's productivity rate; and
  • how efficient is the tech -- by looking at the time he's supposed to take to get a job done vs. the time he actually takes.
Then the business owner can share this information with the tech. The two of them can then understand where each is coming from. More importantly, they can work together to help that technician earn more money while making him a better performing tech.

How many callbacks have you run and what have they cost you?

Even if your techs didn't come asking for a raise, don't you think it would be critical to finding this out?

That's because callbacks can reduce your profits -- fast.

You should be able to run a callback report and find out what it's really costing you. More importantly, you'll find out if your technician is doing sub-par work. And that's another problem all together.

How many tune-ups did you schedule? How many maintenance agreements did you sell? How many service and maintenance agreements expired?

I firmly believe that maintenance and service agreements are the key to the stability of your company. But unless you have a plan of building up your agreement base, how will you ever accomplish it?

More importantly, how are you going to manage all the agreements you sell?

Unless you've got a system in place, it's going to be a paperwork nightmare.

How many service calls did you run? How many calls cancelled? How many warranty calls did you do? How much did they cost you?

I think most business owners believe in setting goals. Unfortunately, most don't keep a "scorecard" to see if they're meeting their goals or not.

And not tracking your progress makes those goals worthless.

If you've got a goal to do $500,000 in service work this year, then you need to break that number down to a daily goal -- $500,000 divided by 52 weeks is about $9,615 per week. And if you only work 5 days a week, your company will have to bring in $1,923 per day.

Now we'll assume your average service ticket is $200. $1,923 divided by $200 equals almost 10 calls a day.

That's your goal. So looking at your month-to-date numbers, how far under or above goal are you?

Don't know? How committed to those goals are you?

And how much money are those cancelled calls costing you? More importantly, why are they canceling in the first place? You should be calling those customers back and finding out the real reason. Maybe they found another company who could get there faster and perhaps you have a scheduling problem to solve.

Or maybe they found another company who charged less. And perhaps you have a problem with your call takers not explaining the value of your services.

But until you have the numbers, you'll never know if there's a problem.

The same holds true with warranty calls. They can add up fast and eat away at your bottom line.

How much do you owe your vendors? How much do your customers owe you? How much cash on hand do I have?

Cash is king.

Did you ever hear that? It's true.

The most successful contractors I've worked with always know what their cash position is. They know how much is their accounts receivable total. And they know their accounts payable total.

What is your overhead? How much does it cost me to open my doors everyday?

If cash is king, then overhead is your enemy.

If it doesn't bring in revenue or help your business, get rid of it.

Management guru Peter Drucker said it best: "Because its purpose is to create a customer, the business has two -- and only two -- functions ... marketing and innovation. Marketing and innovation produce results, all the rest are costs ..."

Examine every dollar that goes out the door. Unless you know what it really costs you to open your doors, how can you price your products and services properly and make a profit?

The answer is simple. You can't. You're flying blind.

Did you ever hear someone say, "I don't know where all the money goes. It just seems to disappear."

Or what about the person who says, "If I was bigger, I'd be making more money."

That's flawed thinking. If you're doing $500,000 a year in business and you're losing money, what makes you think doing $1 million would help?

You'd probably be in more debt because the increased cash flow would cause you to think you were making more, but in reality, you'd probably increase your overhead by double or more.

What is your gross margin? What is your cost of direct labor? What is your cost of goods sold? What is your net profit?

Again, if you don't know the answers to these questions, how can you price properly? And growing your business would probably put you out of business faster.

I've seen this happen hundreds of times: The owner who sells a hot water tank replacement for $400 and he thinks he's making money, because the tank "only costs him $150."

He thinks he can make a smaller margin and then "make it up on volume."

Great idea.

Talking to this guy is like talking to a wall. How many years of losing money will it take him before he gets the big picture?

Don't know. I can't help him.

Now don't go complaining that these reports will take your staff hours to put together every day.

Running a profitable plumbing business is based upon making good decisions. But without having the numbers at your fingertips, how can you make a good decision?

That's why these reports are so critical. On the other hand, all these different reports are worthless -- unless you use them.

Can you imagine what would happen to your bottom line if you knew the numbers that I've asked you about?

Stop what you're doing. Put together these reports. Get to know the numbers. And get to work making the business the most successful it can be. You can do it.