Financial Power: The Power of Budgeting
Charge the appropriate price for quality work
Before I joined C2000, which was the forerunner to the Nexstar Network, I used to think that if I bought a motor for $30, paid a tech $30 per hour to install it, and charged $100, I was making a ton of money. Nice!
Then, I had my financial blinders yanked off my head when I went to my first budgeting class. And, for the first time, I heard about this crazy thing called a budget.
My company had been around for 60 years at this time, and here I was, the third generation now working in our family plumbing, heating, and cooling business. We had food on the table and a roof over our heads. Thanks to my grandpa, dad, and uncle, there was a growing business for my brothers and I to work in.
We were making money by accident. Surprisingly, you can go quite a long way like this; however, the road is very dangerous. Fortunately, I learned this while I was still young enough to be open to new things.
SET A BUDGET
Flat-rate pricing was relatively new at this time. What I had yet to understand is that the right selling price needs to come from the execution of a proper budget. The next concept I had to come to understand was that it wasn’t just the billed hours I had to account for but all the indirect overhead costs.
My brother and I did the first budget together. We arrived at a selling price of $150 per hour back in the mid-1990s. We were shocked. At this point, my brother asked me to do it again.
To our horror, we settled on the $150-per-hour selling price again.
Like most things, what seems to be the worst thing at the time can actually become the best thing in the long run. In that moment, I knew not everyone was our customer. If they were only interested in cheap everything, we were not their company. It also forced me to become better at sales and marketing because I needed to reach my target audience who would indeed pay for a higher level of service.
Financial power is what put me on an intentional path to make money at work versus working for what I called exercise and hoping the money would follow.
A budget is really a wild assumed guess (WAG) when you start. It only becomes really useful as you continue to plug back in your real-world numbers. Just like a flat-rate price book is a WAG at first and it remains that way until you plug in what it takes your team to do the work in both actual time and material.
The more you put the numbers back in, the better it gets.
The next thing is to make everyone at the company know how they affect the numbers. It’s going to be hard for them to understand we might charge more than others.
So, you owe it to them to do the “Why the Price is Right” exercise that Dan Weltman of Weltman Home Services in Berkeley Heights, New Jersey, taught me.
In a one-on-one setting:
- Take out a blank page;
- Have them do the writing;
- Have them write down their hourly wage;
- Explain they’re only 50 percent efficient, so they have to account for their non-billed paid hours. So, write down their hourly wage again;
- Have them write down what it costs broken into hourly rate for the cost of the building, utilities, taxes, and more, so they have a workspace worthy of their craftsmanship;
- Have them write down in a bundled hourly rate the cost for all the other employees, like customer service representatives (CSRs), dispatchers, accounts receivable (AR), accounts payable (AP), and others, who don’t turn the wrench or screwdriver; and
- Have them write down in a bundled hourly rate the cost for all the computers, phones, smartphones, laptops, tablets, and more.
There is a lot more you can add to this list, but they will quickly come to see there’s a reason they may get paid only $30 per hour, but we have to charge $150 per hour or more to cover all the costs of being in business the right way.
A customer doesn’t know what it takes to have a tech at their door fully trained, licensed, and bonded in addition to all the support they want but don’t realize they have to pay for.
THE PRICE OF DOING BUSINESS
The short answer is: You need to charge more because you know what it takes to deliver a higher level of service. There is a cost involved with delivering clean, sober, and drug-tested techs. Professional workers who do expert work and exhibit habits that promote safety, cleanliness, and home protection don’t come cheap. Your workers will return, if necessary, to a job site with a smile on their faces to make things right, and all the work is backed by an industry-leading warranty.
Know the numbers, charge the right price, do expert work, and differentiate yourself in the eyes of your existing customers and prospective customers who will be better served in the long run by hiring the right company — your company.
Publication date: 6/26/2017