Extra Edition / Business Management

Hot Topics, Cool Solutions 12: Making Money, And More

February 5, 2005
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Al Levi
Editor's note: Consultant Al Levi helps contractors run their businesses with "less stress and more success." HVAC and plumbing contractors seek his advice regularly. Al has agreed to let us share with readers of The News some of the questions he gets and the answers he provides. The focus is strictly on problem solving and handling the day-to-day operations of a successful contracting business.

To send Al your own questions, which if selected will run anonymously, send him an e-mail at info@appleseedbusiness.com or fax him at 212-202-6275.

This column is meant to be a resource only. Please check with your own trusted business advisers, including your own attorney, to make certain that the advice here complies with all relevant laws, customs, and regulations in your area.

Dear Al,

I sometimes get the techs to do more than the job they were called to do. I sometimes get the daily sales numbers posted. I sometimes hold the weekly sales meeting. I sometimes do sales training.

And I sometimes make money.

Sincerely,
Sometimes

Dear Sometimes,

The answer lies in the "sometimes" instead of "always"

Currently, no one can take what you're doing seriously because it's not part of your culture to be consistent. You need to commit to having all the things you do sometimes from now on done each and every time. It's got to take precedence over everything else to produce the results you desire.

Start by writing out what the company must do each day, each week, each month, each quarter, and each year. Then, do it!

Why leave your business to "sometimes making money?"

Regards,
Al Levi

Dear Al,

I did a breakeven analysis with my techs about 10 years ago. But, I sense they don't believe in the selling price. They rarely if ever sell more than one task per call. The total dollars sold is not enough. Why don't they get it?

Sincerely,
Breakeven Analysis

Dear Breakeven Analysis,

It comes down to sharing the numbers and how you came up with them. But you need to be doing this training all the time. Doing a breakeven analysis to find your true selling price is good, but only sharing how you arrived at it every 10 years is not.

Remember, people quit, people get fired, people get promoted, people forget, and more. How much do you remember from 10 years ago?

Every year around October or November you should be doing a projected budget for the upcoming year. This budget is your best guess at what it will cost to run your company in the coming year. Then you'll decide what gross profit you want to make. You now have your company sales goal. Divide the company sales goal by how many techs you have times how many hours they can work in a year. Adjust the amount of hours by their billable hour efficiency, which is typically 50 percent (that means in an eight-hour payday you get four hours of billable time). Now you have your true breakeven price. Add the profit margin you want to make and plug it into your flat rate book pricing.

Divide the company sales goal by the number of techs who can make this money. That becomes their individual sales goal. Now, everyone knows what it'll take in the coming year.

The problem is that, unless you go through line by line to show how you arrived at the breakeven and selling price, techs are free to think they make $25 an hour while you're charging $200 an hour, so you're ripping the customers off and pocketing $175 per hour.

Do the process of showing them why you need to charge what you charge at least once a year and you'll get the buy-in from your techs. Also, to get them selling more tasks per call, create a bonus plan for them should they exceed their individual sales goal. You will be happy to pay this type of bonus because it costs the company nothing. You'll be paying them with the money they created with their added sales.

Regards,
Al Levi

Al Levi of Appleseed Business specializes, as his Web site says, in "Making Contractors' Lives Less Stressful and More Successful." Through private workshops, on-site assessments, customized operating manuals, and staff training programs, Levi delivers the benefit of the experience he gained from years of operating a large family-run HVAC and plumbing business. Learn more by visiting www.appleseedbusiness.com. You may also contact Levi by e-mail at info@appleseedbusiness.com or by fax at 212-202-6275.

Publication date: 02/07/2005

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