Fictitious Contractor (OOPS!) Service provider

[Deleted User]

I tried crunching your numbers, using your numbers and I come up with a higher number. Whatever.

Just curious, who pays for your hired help for running around from warehouse to warehouse picking up the materials necessary to do the job?

What do you figure your "billable hours" at?

Trust me my friend, I too watch my numbers VERY closely and I must charge a lot more than you do just to keep my head above water, and no one in my comapny is driving a Mercedes Benz.

Are you claiming to make $43.00 per hour for yourself, and paying your mechanics $45.00 per hour?

Do you pay them for vacation?

Do you pay their insurance?

I just can't see you making anything worth while unless you've got hundreds of employees out there generating billable hours...

Are you the person that showed up at Franks seminar at ISH-NA and disputed his claims?

Wondering minds want to know.

How many hours a week do you think you work?

I'll just shut up and wait for your response now.

Thanks for responding.

ME

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mp1969

Water heater installs!



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mp1969

Water heater installs!

OK enough of this slug pricing, I am going to buy my water heaters like everyone else and I am going to crunch my numbers as suggested by the industry leaders.
$165.00/ heater
$55.00/permit
$ 75.00 parts

Total costs of materials (job related costs)
$295.00

Cost of doing business $410.00/hr

Total cost of install (as per exact crunching)
$705.00

20% profit as suggested by gurus $141.00

Total selling price per catalog $846.00

This is the weekday rate! For weekends $1,110.00

SOUND EXCESSIVE ? This is the price for heater installs in the Milwaukee area from high overhead flat rate practitioners.

Do you think this pricing might chase customers to Sears and the box stores? Answer: It does in droves and also creates not only company complaints but industry complaints!
The PM message spelled out clearly the low end installers,this spells out the other extreme, HIGH OVERHEAD companies who use their expertise in marketing to sell same quality heater installs at outrageous prices!
Customers walk through and see the private label State and Rheem heaters every day. There has to be a medium range that keeps us in the water heater business!
Are the high end sellers really good for the industry?

MP 1969

hr

If you therory is correct

Sounds to me like the middle range contractors would thrive, since the wise consumer would get more than one price quote.

Are you saying their are only two choices in that area, high dollar and box stores?

Hard to see how a $300.00 installed price is possible with your material price example

hot rod

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Dave Yates (PAH)

Same quality Rich?

Sorry, I don't subscribe to that theory. Bottom feeder pricing will weed out the quality in the long run. HR is correct. Those of us who crunch the numbers correctly and provide high quality service/installations find we have as much work as we can handle. Those who price according to the structure you've outlined find themselves with lots of idle time, which feeds their belief that their pricing structure is correct Kind of like many recording artists - one hit wonders!

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Mark Eatherton1

What constitutes \"high overhead\"?

The owners of the company making what they deserve? Paying their employees what they're worth? Providing them with the benefits they dearly need?

I just want to make sure I don't fall into the "high overhead" trap...

So long as there are Yugos and Mercedes-Benz's there will be price differential. Not everyone is a Benz person IMHO.

ME

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DanHolohan

Being a Milwaukee-area contractor,

I'd be interested in hearing what you would charge for this same job, Rich, and how you would arrive at your price. Care to share? Thanks.

heatboy

Overhead is necessary.........

unless you want to remain stagnant and not improve your place in business and ultimately our personal lives. I walk a fine line at all times by examining what I need for the business and things I just plain want. Even running a modest overhead, labor charges are $142 per hour. Now that includes a healthy 10% net profit. I don't rely on equipment sales to generate any overhead money since it's just not consistent enough. Who ever said a small business can charge less because they have less overhead has undoubtedly never run one.

Warm Regards,

hb

"Expert in Silent Warmth"™

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Heatermon

Heatermon Speaks

Rich, I guess I would be considered by you to be a high end water heater seller. Our "book price" for a 40 gallon natural gas water heater with installation is $945. I consider our company "good for the industry" and here's why:

1. Our water heater isn't a "low end" water heater.

We provide a high efficiency water heater (self cleanining, of course) with a 12 year warranty that costs us a lot more than 165.00.

2. We replace all water and gas connections around the water heater.

A leak from an old connector can ruin a new heater. It's like getting a brand new car and saying "i'll keep the old battery and radiator because they're working fine.

3. We provide a safety catch pan with every install.

Water leaks can't do much damage - can they?

4. We install a W.A.G.S. valve to further protect water damage.

You can't be too carefull.

5. We stand behind our work.

I can't tell you how many times I've heard from "slugs" "Once I've gotten paid, I don't ever want to go back for service - that's what the manufacturers' are supposed to do". How many of you actually do perform your own warranty service on the products you sell? If all you do is R&R and walk away, then you deserve the wrath of the industry. Not long ago, we had that "dip tube" thing if you may recall. We ended up replacing over 300 dip tubes and even a few water heaters AT OUR EXPENSE to prove to our customers that our guaranty is more than just " lip service".

Now to give you guys a little more insight to the industry:

Water heaters have always been a unique part of the plumbing industry. They're what I call "somewhere between a toilet and a washing machine" part appliance - part plumbing fixture - and have a market truely unique to itself. Water heaters have only been around a little more than 100 years. They started out as "cutting edge" technology for industrial applications or a convience for the "rich". Now they are a commidity that no home can do without. Kinda sounds like a computer doesn't it? At first there were many different producers of this new machine and they took unique, time consuming, skills to both produce, install, and use. As time went on, many water heater companies faded, some merged, and the technologies became easier, faster, and cheaper to produce, install and maintain. The major water heater companies are so big and and advanced today, that any one of them could supply the entire nation's water heater needs and still have capacity left over. What this does is make them complacent, mirroring each other and making changes only when they're forced to by governmental regulation (I can't wait to see what comes about next year). Anyway, we have found the best way to market these "commodities" is to be divergent in both our products and services. We feel that by offering "high end" products, backed by service, we fill a need for the consumer who "wants the best and is willing to pay top dollar for it". For those customers who want a bargain, we do provide alternatives that get us the majority of our business - "How would you like a dented unit with a 1 year guarantee for $325 Mr. Jones?" If not - we have products between the extremes that can fit into anyone's budget, its just a matter of salesmanship. I know to some of you that is dirty word, but that is what we are, whether you like it or not. In my opinion, the differnce is in how you sell it. Do you say "That guy is a ripoff because he does shoddy work and charges too much for it" or do you say "I'm the best solution for your needs because ...". The difference between these two attitudes is what holds us back. What this industry needs is for its members to quit picking on each other, stand up on their own merits and quit worrying what the other guy is doing. The rip-offs will go under in their own time and the one's that are doing it right will always be amply rewarded. (Note to that guy in Milwaukee: "I hope you get many sales at that $846 price, but if you come around here, you better back that up with alot of service or we will eat you alive".)




Note to Dan: Sorry I can't make it next week, but at the next round table I'd like to mediate the table marked "water heaters".

From the trenches,

I om the Heatermon

P.S. to Rich:

I just want us to be clear that I find your comments NOT to be directed to me personally and I have no ill feelings about you and your comments. We need to air out these issues of pricing and service every once in awhile and hopefully create a better understanding of all of our differing positions.

mp1969

My Quote

I would quote a not to exceed $475.OO including permit and haulaway. I look at and supervise/inspect all installs.

1 hr. at cost.......... $43.25.
1.5 hr install(restricted appliance mechanic)
$45.00.
Administrative time $25.00.
Permit fee $55.00.
Water Heater $150.00.

Subtotal $318.25.
Per/hr cost of doing business
25.00 x 2.5=
=62.50.

Total job cost
$380.75.
Profit margin
$94.25.

Extra for additional piping,venting or chimney concerns.
I do not do many water heater installs and I do not have a CSR. I also do cost accounting,keep my inventory low (in a Metro area you almost always can find your materials) use my wholesaler as my inventory source and have absolutely no yellow page advertising. My customer base is almost always referrals and that speaks for OUR quality and treatment of customers.
MY POINT WITH THIS ENTIRE THREAD IS THE NEED TO MONITOR OVERHEAD,A VERY KEY COMPONENT OF SUCESSFUL BUSINESS IN THE 90S AND INTO THE NEW MILLENIUM.SAVVY MARKETING AND SHINY TRUCKS ARE NOT WHAT THE SEARS AND H.D.S USE. THEY WANT CLEAN EFFICIENT INSTALLS DONE ON TIME AND DONE TO CODE! THE BOTTOM LINE AND QUALITY ARE WHAT CUSTOMERS ARE LOOKING FOR. THIS IS NO DIFFERENT THAN WHAT WE LOOK FOR WHEN WE SHOP.THE KIRBY APPROACH TO SERVICE WORK IS ONLY GOING TO RESULT IN THE SAME NICHE MARKET AS THEY HAVE!IF YOU ARE COMFORTABLE WITH THAT SO BE IT.I SUSPECT THAT THE SAME 90/10 RATIO APPLIES IN THE VACUUM BUSINESS.

MP1969





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mp1969

Credentials Quality

Sir,
I respect your quality and the included extras. I also respect your ability to market these features sucessfully!
However, if you want to compare credentials,quality and experience,to justify your tossing that slug label my way let's go for it.
I will match my credentials,experience and business ethics with anyone!

E-mail me! richk@nconnect.net

I started plumbing at age seven, we come from a mechanical contracting family that is highly sucessful!I am not a specialist or niche player as I find that as a limited type existence. I do all aspects of plumbing contracting and wet heating. I have been project supt. on a Kimberly Clark $1,100,000 plbg contract and on a district heat project (wood fired boiler system) for two schools and a hospital. If this qualifies me as a slug than maybe we should have a face to face talk!
Note: ALL projects met profit goals!

DanHolohan

Thanks, Rich

Does that pricing put you between the most expensive guy in the area and the home centers?

BTW, the all-caps typing is tough on the eyes.

mp1969

Dan,
My pricing is consistant with local union shop installs using Bradford White heaters. My overhead is extremely low as intended!

Thanks MP 1969

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mp1969

> unless you want to remain stagnant and not

> improve your place in business and ultimately our

> personal lives. I walk a fine line at all times

> by examining what I need for the business and

> things I just plain want. Even running a modest

> overhead, labor charges are $142 per hour. Now

> that includes a healthy 10% net profit. I don't

> rely on equipment sales to generate any overhead

> money since it's just not consistent enough. Who

> ever said a small business can charge less

> because they have less overhead has undoubtedly

> never run one.

>

> Warm Regards,

>

> hb

>

> "Expert

> in Silent Warmth"™

>

> _A

> HREF="http://www.heatinghelp.com/getListed.cfm?id=

> 103&Step=30"_To Learn More About This Contractor,

> Click Here to Visit Their Ad in "Find A

> Contractor"_/A_



Mark,
Exactly I am a Buick type contractor !

MP 1969

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DanHolohan

Are the home centers

less expensive than you in the Milwaukee area?

DanHolohan

Also

I'd be interested in hearing your thoughts on drip pans and WAGS valves. Thanks.

DanHolohan

Rich

I don't think he was calling you a slug. Why put on the shoe if it doesn't fit? And there's no need to call him out. We don't do that here.

Deep cleansing breath, please. Thanks, Rich.

Heatermon

Thanks Dan

for the support - I meant nothing personal - to anyone - with the "slug" comment. For those of you that don't know, that word was coined by a well known person in our industry to describe what he, and many others in our indrustry, including myself, see as the "problem". My use of that word was to describe the people who don't give a damn about their customers after they've gotten their money. Sorry for the misunderstanding, I thought the P.S. would be enough.

Heatermon

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DanHolohan

Rich used to work

for the well-known person, which might explain his sensitivity to the term that the well-known person uses a lot.

I think we're all better off without any name-calling. It just drives people apart. Thanks.

Dan Foley1

Overhead

Rich,

If you can make money doing water heaters at $475.00 installed, I must be doing something wrong. I am in a large metropolitan market and I would charge $855.00 for the same installation. My direct costs, while similar to yours, are higher but in the same ballpark. How can you cover rent, utilities, truck expenses and payments, liability and workmans comp insurance, shop tools and supplies, group health, dues, education, accounting and payroll expenses, and growth expenses at $25.00 per hour? No disrepect intended, Rich. I was just wondering how you do it. Respectfully, Dan Foley.

Steve Ebels

Whoa!!!!!! I\"m working in the wrong location

Around here the going rate for a gas water heater replacement is $300-350. I KID YOU NOT! Anyone, (I don't care if you showed up at the front door with roses for the lady of the house,) Anyone quoting $800+ for a water heater changout would be

A. laughed out of town.

B.Hauled into court for fraud

C. black listed so badly he would never work in this area again.

D. Shot and buried somewhere out on the back forty with the last revenue agent that showed up at the door.

I'm not saying that $350.00 is the right or wrong price but ALL of the people that do it for that are driving dumpy 10 year old vans and are one man shows with no insurance, no permit pulled, no workmans comp etc.

I do not install water heaters for obvious reasons.

leo g_23

we charge by the

changeout, not the unit. every hwt we have changed has been time and material. i find "averaging" the price to not work for us.

leo g

Earthfire

profits

And I would bet that they think that they are making about $150 per unit installed after they pay? for the material. If they have 2 Jobs a day, the're making about 300 a day And they are getting rich!?!?!? 5days a week $1500, 50 wks a year.$75,000. Now he screws up his back or breaks a leg at the bar league softball game, six weeks later he's being evicted from his apt, and has no place to live but the back of that beatup van which is getting towed away cause the cops came to get the liscence plate cause he didn't pay the insurance installment. and the infernal revenuers are looking for him (some thing about back taxes). he's a aquaintance of mine but I can't get the cost of doing buisness through his head . He can't afford to spend the money or the time to figure IT out or so he says. The really sad part is that he capable of doing good work but he says he can't afford too and gets more depressed about things. How many guys do we know like that in the trades?

mp1969

Answers

Gentlemen,
I will shed a little light on your questions?
I am a trained professional who has what I would call high business ethics. I am the owner of a three person firm with very low overhead. I have a young staff that happens to be related and eager to learn from a very seasoned master plumber and mechanical contractor.
I am indeed the one who confronted Frank Blau because I was denied a fair forum for debating his business practices.He did not want to have a debate because he is fearful of exposure of some of his business practices. Mr. Blau is an excellent numbers cruncher and marketer. He is also very innovative and resourceful. I believe that his business practices are legal but his business ethics are suspect!
Mr. Blau's marketing expertise has erased his awareness of unbelievable overhead. His ratio of field (producing)workers to office (overhead) personel is top heavy and therefore non competitive.
Due to my time spent as a service technician and my awareness of his tactics , he is afraid of a fair debate or discussion.
Frank's street reputation after doing service work is often questioned. He has at least three different company listings in the yellow pages Why??????
His servicemen and his workmanship are of very high quality. He pays his servicemen well and has excellant benefits. He has good inventory control and excellant money collection policies.
My major complaint with Frank is his bad mouthing of streamlined competition and his reluctance to address runaway overhead. Frank also has employee retention problems due to the feeling one gets after charging up to 2 times the going rate!
For the record I quit due to price structure, I did not get laid off or fired.
Frank has a lot to offer when it comes to numbers crunching and marketing. His reluctance to trim overhead and his hopes about converting myself and others to his style of flat rate pricing are pipe dreams!
I was brought up quoting and living by my quotes and I do indeed know my cost of doing business. The large difference in most of your math is that I am a working owner not a bean counter. Bean counting can be done at the end of the day,or week or month or year!
Many of us find sitting at a desk as a necessary evil (not something we use to make money!)
I am a mechanic first that does quality work and I share my time, talents and treasures. If this is sluggish so be it! My challenge for debate is still open!

MP 1969

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DanHolohan

The forum you chose.

Rich, considering that Frank's forum at ISH-NA was set and advertised to the conference attendees for what it was, and considering that those folks paid good money to hear him (their choice), do you think that it was polite to disrupt that meeting as you did? Seems to me that it wasn't very considerate of your fellow professionals who wanted to use that time to hear him out. They paid to be there.

DanHolohan

PS

Still interested in hearing your thoughts on drip pans and W.A.G.S. valves. Thanks, Rich.

hr

Steve, how do you sell Viessmann

in an area like that? There must be some way you present the product to get twice the dollars of domestic stuff?

hot rod

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mp1969

Dan,
It was not me alone who disrupted Frank's seminar,he verbally attacked me once he found out who I was and was equally to blame. My strong sense of honesty and fairness compelled me to challenge his guru status when I have first hand knowlege of the negatives of his system!
I have no problem with marketable add ons if presented and sold on merit.Whether they are flood control devices or alarms.The water heater lifetime control offered by some is actually a good buy at $39.00 to $50.00.
I believe that old financial adviser who says "We do it the old fashioned way we work for it"
While I too paid for the seminar, I feel it is an injustice to tell only half the story. A bad reputation and lost volume is difficult to recover!

Have a good evening!
M.P. 1969

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DanHolohan

Rich,

thanks for the explanation. Let's hope that cooler heads will prevail (on all parts) in the future.

We're all just human. You have a good evening too.

Riles

www.nosecrets.com, good insights

yet probably considered controversial by Rich. Tom McCart has helped improve the approach of many. Rich, If he is ever in the Milwaukee area catch his "Pricing for Profit" and "The Business of Business" session (2 days, 1 day for each, 8am to 4pm). Your perspective and experience would be enlightening.

If it is works for you continued luck.

There is a lot to be said for accounting for the items Dan Foley references and others.

I understand different areas have very real differences. Take gas prices for one. California might be $1.70 a gallon where it is $1.15 elsewhere. Windshield time in L.A. or D.C. puts a real damper on actual billable hours compared to a rural setting.

I know some contractors in my area have the "make it up on volume" pricing strategy. Only problem is you still need to be profitable. People's Express was packed and loaded with flyers the day they went out of business.

Not being from your marketplace I commend you on being profitable at the price of $475.

In our area, that price range ends up with a "Rusty Van" showing up for the install. Then when the homeowner calls 18 months later about a leak "Six Pack Charlie", the installer, has gone out of business.

I by no means am categorizing your business. Sounds to me like you run a good conscientious business. I am just speaking to that price range in my marketplace.

I do appreciate you initiating this wonderful dialogue.

Again, continued good luck.