Do Higher Fuel Prices Threaten Contractors' Free Estimates?
While there are still some contractors who concede rising fuel costs are the "cost of doing business" and continue to monitor the effect on service rates, others have waited as long as they could and decided to add a fuel surcharge to their rates. Some clearly show a fuel surcharge on their invoices while others have increased their hourly or service rates to include the increased expense.
Let's face it; last year at this time fuel was about $1 per gallon cheaper. If you kept everything the same today as last year and figured out your additional costs you may not like what you see. And if you do decide to make the comparison, just be sure you are sitting down and there are comfortable pillows and a pitcher of water around. Having a phone handy with 911 on speed dial might be an option, too.
WHAT IS THE NEXT TO GO?
I was reading about a California contractor who had bumped up her service rates to cover the added fuel costs, but she didn't think it would end there. She was also considering eliminating free in-home estimates. Say it isn't so.I pictured all of those Yellow Pages ads where HVAC contractors tout free estimates. It is a nice selling feature and one that most home or business owners have come to expect over the years. I know I have. I wouldn't consider making a major improvement or investment in my home without a few good free estimates. If a company wants to compete, they should at least offer some value-added service.
I know a lot of people don't like to be unpaid consultants, knowing that their hard work may not end up with a signed agreement. But then again - and not to beat a theme to death - that is the cost of doing business.
Fair enough, yet I think there has to be a point when a contractor needs to say enough is enough. We could debate forever the absolute defining point of enough is enough, dictating when a company has to change its policies, but that decision must be based on what each individual business needs to do to make a steady, planned profit. If you are a stickler for numbers and the added cost of higher-priced fuel sets your profit margin back by one-half of a percent, do you bite the bullet and say, "Oh well"?
For some contractors one-half percent represents a good chunk of change. It may mean the difference between giving workers a slight hourly raise or taking a couple of extra days for a vacation.
DO THE MATH
I am not advocating eliminating a valuable service that contractors provide for would-be customers. And I certainly wouldn't expect contractors to cut back on free estimates for existing customers. In fact, angering existing customers is tantamount to committing business suicide. You absolutely need your existing customer base.But if you don't want to eliminate free estimates, there are a couple of solutions you can consider. The first is to limit the free estimates to a certain geographical area. I'm not sure you want your salespeople to make a 100-mile roundtrip to give an estimate on a furnace replacement for a phone-in prospect.
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Secondly, you can make it clear that free estimates are for replacement equipment such as furnaces and condensing units, not for add-on equipment like electronic air cleaners or dehumidifiers. However, add-ons may be higher margin sales that you don't want to give up. It's your option.
Is it riskier to give free estimates for jobs that are more labor intensive, where you can mark up your labor higher than you would normally mark up your equipment? Maybe you can see what types of jobs you can afford to give free estimates on before making any adjustments to your procedures.
As always, I am open to your suggestions.
John R. Hall, Business Management Editor, 734-464-1970, 248-786-1390 (fax), johnhall@achrnews.com
Publication date: 05/22/2006