DENVER, CO æ Here in the Mile High City where the air is thin, a local shop has a t-shirt that says, “Got oxygen?” During a lengthy 4-hr presentation on the Quality Service Contractors (QSC) 2000 Member Survey, Tom Grandy of Grandy & Associates never once called for oxygen and he delivered a great deal of information.

The QSC is a service group of the Plumbing-Heating-Cooling Contractors-National Association (PHCC-NA). The results of its second member survey were presented as one of the sessions at the QSC Power Meeting XIII.

Grandy started out with a provocative quote: “The future is not what it used to be.” Things are changing rapidly, he warned. “If we continue to run our companies tomorrow like we are today, in three or four years we’ll be out of business. The industry is not the same as it was a year ago, two years ago, or three years ago.”

QSC member companies are doing quite well, reported Grandy. Owners take home approximately 10% of gross sales. Smaller company owners had average package income increases of 28%.

The most difficult period for a growing company is in the $800,000 to $1.2 million gross sales range. Overhead goes up, profits go down, and you have increased inventory. There is a need for added middle management, and you likely have to change your computer software to handle the growth in the business.

Growing Pains

A high percentage of contractors “literally work themselves out of business” at this point, Grandy said, because they cannot make money anymore.

At the $1 million to $1.2 million level, he stated, you need to have a rate of about $80/hr ($79.46/hr) to make 10% net. As the company gets bigger, that rate goes down. It drops to $43.44/hr at the $2 million to $2.5 million sales level.

All members report being current on payroll and taxes, and most are current with suppliers. On the whole, Grandy noted, distributors say that only about 10% of contractors pay on time.

“Very few contractors create an overall marketing plan,” he continued. Even less take advantage of co-op dollars. Yellow Pages advertising makes up 50% of the total marketing budget. “Track your leads if you’re not doing it already,” he recommended. Make sure your ad hits the mark and “get it professionally designed.”

Member companies are computer savvy. All use computers, over 50% have websites, and nearly 100% have e-mail.

Service Contracts Critical

Utility competition is an increasing problem, with most of them offering service agreements. Grandy stressed to the contractor attendees, “Service agreements are the foundation stone for profitable growth in the 21st century.”

The best marketing tool for selling service agreements is flat-rate pricing, he said. “I know contractors that have sold 500 to 600 service agreements a year with flat-rate pricing.”

The small contractors found utility competition to be the biggest problem. Grandy recommended that firms “focus on customer service” to combat the utilities. “Focus on running your company better than anybody else’s.”

Nearly all members offer the option of paying by credit card. Overall, less than 20% of contractors let customers pay by credit card. Grandy pointed out that although you can’t charge customers directly for your credit card fees, you can add the fees into your overhead cost and build it into your hourly rate.

Asked if they believe there’s a tech shortage, most attendees raised their hands. However, Grandy maintained that if contractors would offer better pay and benefits like other industries, it would be less of a problem.

Has a consolidator tried to buy your company? A lot of the companies said yes. In the $1 million to $1.2 million range, 50% of the companies were approached in the last year.

Publication date: 10/09/2000