When your customers shop retail, think of it as a lead to long-term service.

The subject at the distributor counter today is “contractor stuff” being sold at retail home handyman stores. Once again, perhaps as always, passions are hot. Water heaters and thermostats have been there for a many years, but each person makes his own discovery in his own time. This is what I overheard from a couple of contractors:

Chuck to Jim: “Wha'd'ya think about those thermostats in Home Depot! I tell you, I don't know what the world's coming to. Anyone can buy our stuff these days, and at low prices, too. How's a guy to make a living?”

“Heck, Chuck, this has been going on forever. Remember when water heaters showed up?”

“Well, this is just something else. Looks like there's no end to it. I can't make any money when people are buying their own stuff, and then expecting me to put it in.”

“Why can't you make money on installing a thermostat? Isn't that the business you're in?”

“Heck no! You're dumber than I thought. I'm in the business of selling stuff. Boilers, furnaces, air conditioners, water heaters. I make money on the markup I put on it. So when somebody buys it somewhere else, they're taking money right out of my pocket.”

“Don't you charge for installation?”

“Well, just my hourly rate. For no longer than it would take to put in a thermostat, it wouldn't be worth the trip.”

“So you don't charge for knowing how to put the thing in?”

“Everybody knows how to do that. They don't wanna pay extra.”

“Chuck, how much does a sales lead cost you?”

“Heck, I don't know. Guess I'd have to look it up.”

“I went to a class where they said it costs maybe $350 to get in somebody's house. You know, Yellow Pages, or putting an ad in the paper. Let's say you pay $700 for a newspaper ad. Two people call you because they saw your ad. That means it cost you $350 for each of those calls.”

“Never thought about it that way. That's a lot.”

“So if somebody calls you out of nowhere to install a thermostat, that didn't cost you anything. You got $350 worth for free.”

“No, I didn't. It's costing me what I didn't make by not selling them the thermostat.”

“Well then, why didn't they call you for a thermostat in the first place instead of buying one at the store?”

“I think they were just walking along and saw a sign that said, 'Save money on your gas bill with a new thermostat. Put it in in five minutes.' It's a - whatcha call it? - an impulse buy.”

“So, even if they hadn't bought the thermostat at that store, they wouldn't buy one from you, right?”

“Not unless their heat went out. Now they're expecting me to come out there and not make any money. That job's not going to take any more than 15 minutes. That means we charge her the $55 minimum hour rate. But we should be getting that plus the 50 bucks profit I'd make selling her the stat.

“I got expenses. They probably expect me to warranty it, too, and I'm not going to.”

“What if you charged her $125 to install the stat? Or $150? Or $200. Would she complain?”

“Maybe not - she just wants it done. But that's not how we charge!”

“Let's try it another way. What's a quart of motor oil cost you?”

“Shoot, I don't know. I go to that quick lube place where they do it for you.”

“How much do they charge you for an oil change?”

“Oh, I guess about $30.”

“OK, let's say a quart of oil costs $2. Times about five quarts, that's $10 for the oil. Add another $5 for the filter. $30 for the oil change less $15 for the oil and filter is $15 for the work of changing the oil. How long does it take them to change your oil?”

“Oh, 15 minutes or so.”

“So 15 minutes is a quarter hour. Fifteen dollars times four is $60 an hour they're getting for changing your oil. We're paying $60 an hour to have some kid change oil! But my point really is, when you get an oil change, are you thinking about how much you're paying for the oil and how much for the labor?”

“Heck no. I'm thinking about how I don't have to get under that truck. I got better things to do. It'd take me half the morning messin' around. Nobody changes their own oil anymore.”

“And almost nobody changes their own thermostat, either. You have the tools and the know-how to do it in probably a few minutes what it would take the homeowner all day to do, even if he wasn't afraid of electricity. He's paying to have a problem solved, not for a certain piece of your time.”

“I understand what you're gettin' at. But what's that thing again about the $350 I'm getting for nothing?”

“That's about what it costs you for an advertisement to get into somebody's house to quote something. When they call you to put in the thermostat, while you're there you can see if the boiler needs to be replaced, find out how old the water heater is, or sell 'em an anti-scald valve to protect their kids.”

“Well, heck, you stirred up a real hornet's nest for me. I never thought before about how much those oil change guys charge, and now I'm thinking, $60 bucks an hour! Well, I'm worth more than that!”

After overhearing this conversation, I decided to test it with some real contractors.

Tony Oakman is the owner of Lee's Heating, Air Conditioning and Refrigeration in Salt Lake City, Utah. He's adamantly opposed to the general public being able to buy contractor products in retail stores. He says, “I have to be able to sell a humidifier for $450-$500. When people can see it for $125, they think the contractor is ripping them off. The part I'm passionate about is it erodes my integrity.”

Jared Corpron is operations manager at Lee's. He says, “Homeowners have no idea what they're in for.” He tells of folks who think installation is going to take half an hour and who, after four hours, give up in frustration and call him. He thinks homeowners lose perceived value of the product when they try to install it and it doesn't work.

Scott Blashaw, service manager at Builders Heating in Denver, sees it differently. “It gets us in the door for a long-term relationship. It's a lead. And it can bring referrals to friends.”

He thinks a water heater is about the worst, because the homeowner has to break into the gas line. “They don't understand flue pipe installation, pitch or load, how far from flammable material they need to be, whether they need single- or double-wall pipe. The buyer just doesn't know, so he goes the cheapest way.”

Jared says, perhaps a bit tongue-in-cheek, that a water heater's not as bad as other products. “They give up and call us sooner,” he says, “when they smell gas.”

Ah, yes, the little matter of knowing what to do about the gas, or the oil, or the water, or the electricity! That's what sets our guys apart from the ordinary person. Too often we take our expertise for granted - in our small world it seems like everyone can plumb or tin or wire. But out there in the big world, there aren't that many people who know how to make things work. And that's why we have to stick up for ourselves when we're providing our services.