Ride Your Own Ride
December 1, 2006
One of the benefits of two-wheeling on long trips is that I get to ponder for miles with few distractions. Sure, there are plenty of things to pay attention to (Van Wort, Kan., for instance, does NOT have gas and you will not make it to the next town) but there’s nothing quite like “quiet time” with nothing but the road and the roar to keep you company.
While on a 2,300-mile visit to the Blau Quality Deer Management Ranch in rural Wisconsin, I began to notice how much I enjoyed not having a bunch of other bikers to coordinate with. Sure, I sometimes like to join a thundering herd but when I’m riding with a self-imposed goal of 1,000 miles in a day, I don’t want to be limited by someone else’s fuel or bladder capacity. And there are rides where keeping up with the herd means I miss out on the sights I want to see. (Have you ever actually stopped to read those roadside historical markers?)
The bottom line: I like to ride my own ride.
As a consultant to plumbing contractors, I’m frequently asked about what the “other guys” are doing. What do the “other guys” charge? How much are the “other guys” spending on marketing? What do they pay their techs? What’s the ratio of warm bodies in the office to producers in the field? I suppose I could rattle off some sort of simplified ratio and tell my clients to aim for it, but much of the time, a simplistic answer like that wouldn’t be doing my clients a decent service. Although there are some basic rules of the road, everybody needs to ride their own ride.
Selling Price Vs. Profits: A frequent question is, “How much do the other guys charge?” My frequent answer is, “How much water is in a bucket?” The rules of the road are that no matter what, your price must be one that’s profitable for your business. Beyond that, I’ve found that the proper selling price is more a function of believing in the price than it is of calculating the right price.
For example, if I’m doing sales training for Company A, we may be selling a plain toilet for $700 installed. The plumber I’m coaching may have no problem with the price and we can sell them all day long. Across town, however, I could be doing the same coaching gig for Company B. But the B Team thinks that $500 is too much to charge for a standard toilet. They would face quite a challenge trying to charge $700 for it simply because the plumber is not convinced that the price is right.
The toilets are the same. The customer demographics are the same and the customer satisfaction is very likely going to be the same. So, who has the right price?
But is the selling price the big issue or is it the profits that really matter? What if Company B is netting 30 percent on every $500 job, while Company A only makes 10 percent? That means that the B Team is pocketing more than twice the profit dollars from their $500 sale as the A Team nets from their $700 sale. Now, who has the best price?
But there’s more - oh my! Let’s say that the reason Company A is only netting 10 percent is due to the fact that it pays its plumbers more, including a nice health plan, retirement, ongoing training, nicer trucks, maybe even an apprentice in every rig. Now, who has the better company?
Or, what if Company A lacks commitment to customer service? Instead of earning referrals from happy customers, it has to spend hundreds of dollars for each new customer. Now, in spite of its higher prices, the company still can’t make a decent profit.
In other words, bragging rights for the highest-priced toilet in town isn’t the whole tale. But neither is a high profit percentage. Each contractor has to find a ride that works best for him.
More Road Rules: Let’s look at some other variables that beg for a rule of thumb which may not add up for every company every time. How much do you spend on advertising? I’ve seen companies spending 20 percent of gross sales for advertising and I’ve seen budgets as low as 4 percent. So, who should you ride with?
To begin with, your selling price has a direct effect on the percentages of everything in your budget. Company A, charging $700 for that toilet, might have gross sales of a million bucks a year, spending 10 percent on advertising. That means its ad budget is $100,000 per year. If Company B, with the $500 toilet, is grossing $700,000 per year, a $100,000 ad budget would set it back more than 14 percent.
Or, to look at it another way, if the B Team simply decided to spend 10 percent, like the A Team does, then they’re limited to only $70,000. Maybe that’s enough, but the point is, you can’t just look at what someone else is spending in order to set your budget.
Here’s another example: Perhaps you know of a well-established company that’s not worried too much about growth. It may only spend 5 percent of sales on advertising. A 5 percent ad budget is a worthy goal to strive for, but it requires a stable of satisfied, repeat customers who are sending referrals.
Getting to that point may initially require a hefty ad budget just to get the customer count up. You can start rolling off the ad budget throttle as you see the referrals building up. But you can’t really compare your budget to the other guys’ because you may be at a different point along the road than they are. Ride your own ride.
Recruiting and retaining employees is another area where contractors need to demonstrate a biker’s individualism. The “going pay rate” has never been more entrenched than in the contracting business. We need more contractors to ride their own ride. Company A may pay its craftsmen hefty commissions but still have problems with turnover because of stress, mistrust or a general lack of company purpose.
Developing a great work environment requires vision and a commitment to employee satisfaction, something that many companies just don’t seem to understand. If you take the initiative to develop a winning environment for your team, you’ll be the lead rider, instead of following tail lights through the curves. When you ride up front, you don’t have to watch what the other riders are doing.
Sometimes riders get into trouble because they’ve saddled up on too much bike. If you’re accustomed to a nimble, 400-pound crotch rocket, you may find yourself skidding off the guardrails if you mount a fully dressed touring behemoth. (OK, maybe not, but let’s work with the analogy anyway.)
If you have a small shop in a big area, you may be tempted to advertise all over the area, just like the big shops do. The obvious problem is that you can’t be as many places at one time as the “big guys” can. Instead, spend ad dollars to spread yourself a mile wide and an inch deep, offer faster service to smaller territories by concentrating your advertising in a tighter area.
Debt is another way to drive your ride off the edge. When we look at successful contractors, it’s easy to get excited about their shrink-wrapped super trucks and state-of-the-art computerized inventory control. If you’ve been somewhat successful yourself, your banker will probably give you excellent terms to buy all the trappings of success, but beware: When the road makes a twist and your sales take a slide, you may be stuck with more hog than you can ride. Pay attention to your own needs; don’t get caught up in what the other guys are doing.
The important thing to remember is this: Decide what you want out of your business, then map out how to get there. Ride your own ride.