ST. LOUIS - At the Quality Service Contractor's (QSC's) Power Meeting XXIII, attendees had the chance to soak up some solid business advice from some top-shelf consultants.

QSC executive director Charles Wallace, chair Patty Frank, and the QSC staff put together a well-rounded program, which offered something for everyone.

"QSC is accelerating into the future with a growing inventory of exciting programs, products, and services, designed to meet your needs," Frank informed the 90-plus attendees. "We learned a lot from your critiques and, as a result, have produced a program for you that responds directly to your many observations and suggestions."

Phone Skills Are Important

Keynote speaker Nancy Friedman - aka, the Telephone Doctor® - addressed all of the do's and don'ts of answering the business phone. Friedman admitted that while she did not know that much about the plumbing, heating, and cooling contracting business, she did know a very important element of each company.

"I am intimately familiar with your customer," she pointed out. "And we like it when people are nice to us. We'll pay if the service is great."

Before starting her presentation, titled "Hell Hath No Fury Like A Customer Scorned," Friedman passed out sheets containing 10 observations concerning customer service. (See sidebar below.) The object was to select a number from 1 (strongly disagree) to 5 (strongly agree) concerning each statement. The highest score to obtain was 50, but most fell in the 27-44 point range, which Friedman described as average.

"But you don't want to be average, do you?" she asked her audience. "You want to stand out from the rest of your competition. You want them to remember you for your great service and friendly employees."

In regard to irate customers, Friedman suggested using the "ASAP" approach. In this case, it means apologize and acknowledge the problem, sympathize or empathize with the customer, then accept the responsibility, and be prepared to help.

"Do not use, ‘I know exactly how you feel,'" she said. "That line will only make it worse."

In her estimation, everyone in an organization - including management - should be trained to answer the phone in a uniform manner. She suggested three parts to any greeting: 1. A buffer (Example: "Thanks for calling."); 2. State name of company; and 3. State name.

"Your customer wants to be greeted, know who they are calling, and then who they are talking to," said Friedman.

She suggested to shy away from adding "How can I help you?" in the initial greeting.

"You can ask that after the caller indicates why he has called," said Friedman.

Among her five forbidden phrases is: "I don't know." A better answer for a customer is, "Gee, that is a very good question. Let me check and find out."

"If you are a service company, you need to supply service," she said. "Don't tell them you do not know. Find out."

She said there is a big difference between "difficult" and "impossible" customers. She estimated that 80 percent of the calls might be difficult, but an answer can be given.

"This is where you insert the ‘wish' statement," she said. "‘I wish I could give you an exact time when my service tech can come out.' ... The idea is to tell them you are willing to work with them."

Friedman pointed out that the No. 1 frustration for any customer is to be put on hold.

"Never say, ‘Hang on a second,'" she said. "First of all, it's never a second. Instead, ask if they can hold. ‘Are you able to hold, Mrs. Smith?' And then wait for a reply. That's important."

In regard to who should man the phones, Friedman recommended inserting a proactive person to that post. She said passive people "do not take information and do nothing with it." She said average people "take information, but don't know what to do with it."

"Proactive people are naturally inquisitive," she said. "They are usually in sales. They not only ask questions, but they usually listen well."

In another handout, Friedman provided information concerning what to look for in hiring a person who answers the phones. (See related story, "Back To Telephone Basics," in this issue.)

According to consultant Tom Grandy, pricing needs to be based on a contractor’s cost of doing business. “Any other basis of pricing will literally put you out of business,” he told the QSC attendees.

Pricing For A Profit

Tom Grandy provided two in-depth, back-to-back sessions focused on producing product and service pricing, all designed to make a profit. The consultant had the audience go through 10 worksheets, each designed to help a contractor know exactly what is needed to charge to cover costs "while generating the profit you desire."

"Remember, your pricing should not be dependant on what you want to charge, what others in town are charging, or what you feel like the customer wants to pay," he said. "Pricing needs to be based on your cost of doing business. Any other basis of pricing will literally put you out of business."

Grandy said many contractors have a budget, which forces an owner to look at the business in detail, maybe even for the first time. A budget can provide accountability and help plan for growth, but he said a budget does not solve all problems nor will it be of any use if it is not followed. He noted that a lack of cash flow dooms most businesses.

"So you really have to have a handle on what it costs to operate your business," he said, noting it takes anywhere from one to four years to find out if a business has a problem. "You need to have accountability. Once we know what it costs to do business, then we can know what we should charge."

One of his first recommendations was to raise rates.

"The fear factor of raising your rate is not on the customer, but on you," he told his contractor crowd. "Customers today are looking for quality work, so provide it. Do what you say you do, and do it when you say you are going to do it. If you do all three, you will not have a question about price from the customer."

In his estimation, the top two costs of businesses are equipment replacement and the cost of nonbillable time. He termed the latter as hours that the company pays field labor for but cannot charge directly to the customer. Typical nonbillable time includes 80 hours (two weeks) of vacation, nine paid holidays, and 40 hours (5 days) for sick leave. This equates to 9.2 percent of a full-time employee's work. Assuming that a model employee has a minimum of one hour a day that is nonbillable, this still equates into 235 total hours, or 11.3 percent of a full-time employee's work.

"The industry norm for non-billable time for a service tech is 45 to 55 percent," said Grandy. "For an installation crew, it's 20 to 35 percent."

He said the biggest error most companies make is overestimating the number of billable hours that are charged to the customer. Therefore, the largest saving can be made by physically tracking billable and nonbillable time.

"Anything you can do for accountability can figure into better productivity," he said.

When it comes to pricing, he suggested that contractors turn to flat-rate pricing. Grandy said most customers' concerns center around how long the job will take and how much it will cost. Among other benefits, flat-rate pricing eliminates these customer concerns, he said. Also, he said such pricing provides much-needed cash flow for the business.

For the majority of his two sessions, attendees worked through worksheets to determine, among other factors, fixed overhead costs and variable overhead costs, using specific formulas created by Grandy. In the end, the object was to calculate labor overhead rate with a break-even rate to determine an hourly rate to charge - a charge that would factor in, among other criteria, nonbillable hours and equipment replacement.

"Net profit is profit after all materials, labor, and overhead costs are paid," he said, adding that the industry average for net profit is 3 percent to 5 percent. "Overhead can only be absorbed by three things: gross profit on materials, gross profit on subcontracting, and direct labor."

In regard to service agreements, he said to make sure to price them based on the company's hourly rate.

"If your service agreements are not priced right, service profit will disappear," he said.

More Business Strategies

In his session, consultant Ron Collier discussed service pricing, too, but zeroed in on the differences between flat-rate pricing vs. time-and-material pricing.

"Your goals should include a profit greater than 10 percent, proper pricing strategies, marketing improvement, co-worker and customer retention, and long-term stability," he said. "We all seem too busy and have too little time to become focused, but success requires focus and change. Change is difficult, but if you want to get to second base in baseball, you have to take your foot off first."

In his estimation, the evolution of a business begins with a solid financial base. And, he added, there are only three ways to make money in a contracting business: sell more "stuff" by increasing volume, cut costs of doing business, and/or raise prices of both products and services. Since most contractors are in the price-driven business, he recommended raising prices of both products and services.

Consultant Ron Collier zeroed in on the differences between flat-rate pricing and time-and-material pricing.
"Raise your rates and take care of yourself, your co-workers, and your customers," he suggested.

Collier noted that flat-rate pricing is the same as contract pricing. "When you issue a proposal for a job for an exact selling price, you have issued a flat-rate price," he said. "The price issued is a firm price regardless of the cost of materials or the cost of labor. A better name for flat rate would be ‘average' price based upon previous experiences."

In addition to moving to flat rate, Collier asked his audience to upgrade its parts pricing strategies. In a workbook, he provided multipliers to determine the cost of parts so as to determine profits for selling parts.

"You can have better parts pricing strategies with flat rate," said Collier. "You can also offer better warranties."

According to his figures, flat-rate pricing allows a contractor to earn 20 percent to 25 percent more in profit, gross margins of 65 percent to 70 percent on each call, and gives the technician more opportunities to sell service agreements.

"When a technician is supplying the proposal, he can inform the customer that if he would buy a service agreement today, he can knock off a percentage of the bill," said Collier. "When you show a customer what they can save, they will sign that service agreement."

To set up flat-rate pricing, he recommended that a contractor develop service agreements or discount programs, purchase a flat-rate software program, print books with two or three columns, train office and field staff, review the book and make needed changes, but most of all "get the final book on the street within two weeks."

"Get started," he encouraged. "You can revise the book as needed through field input and by new products, parts, or market changes." There is no need to inform customers if you switch to flat-rate pricing, he said.

"Flat rate is a pricing change, not a service change," said Collier. "Tell them you are charging the diagnostic to travel to their home, thoroughly inspect their system, and then tell them the price to repair." He also recommended developing a diagnostic charge for clients close to the office and charge more for those farther out. For after-hour charges, he recommended adding $20 to $30 per location "and give this extra money to the on-call person."

Sidebar: Telephone Doctor® Customer Service Training
10-Point Organizational Self Assessment

Invest three minutes in the health of your organization by completing this 10-point Organizational Self Assessment. When you complete this form, think about your experience, your co-workers' experience, and most importantly, how you'd imagine your customers might answer each question. Select a number from 1 to 5.

1. Our entire staff has been comprehensively trained on the techniques needed to handle, diffuse, and retain angry customers.

Strongly disagree - 1 2 3 4 5 - Strongly agree

2. When handling calls from our customers, all our team members employ a uniform, effective greeting.

Strongly disagree - 1 2 3 4 5 - Strongly agree

3. When an employee has a performance shortfall, our managers are trained to implement a proven coaching process.

Strongly disagree - 1 2 3 4 5 - Strongly agree

4. Customer contact employees at our organization know how to present negative information in a positive way.

Strongly disagree - 1 2 3 4 5 - Strongly agree

5. Our team is skilled at knowing how and when to use a variety of questioning techniques in customer interaction.

Strongly disagree - 1 2 3 4 5 - Strongly agree

6. New employees are well-educated on issues such as dress code, limits on personal calls, and steering clear of office politics.

Strongly disagree - 1 2 3 4 5 - Strongly agree

7. Our customer contact employees do a great job of rapport building and making our customers feel like friends.

Strongly disagree - 1 2 3 4 5 - Strongly agree

8. When a team member is having a "bad day," that negative emotion is NEVER obvious to a customer.

Strongly disagree - 1 2 3 4 5 - Strongly agree

9. At our organization, co-workers are always treated as well as we try to treat our customers.

Strongly disagree - 1 2 3 4 5 - Strongly agree

10. Customers are usually astounded by the high level of care they receive from our team.

Strongly disagree - 1 2 3 4 5 - Strongly agree

Publication date: 09/12/2005