Difference Between New Work And Service

mdshunk

Copied from a recent e-mail. Too good not to share:

Will Pay To Plumb

"We've been peering into the differences between NRC (new residential construction) plumbing businesses and service plumbing businesses. I hope you're seeing that these two industries are as vast as being a bar tender versus driving a Bud truck. (Note to self: update your analogy software TODAY!).

One item many NRC contractors (and lots of service contractors too) pay too little heed to is the cost of getting a service call. It's easy to get enough NRC work to keep your crews working overtime. All it takes is a sharp pencil. Here's the definition of "sharp pencil."

* Add up costs of doing the job, then subtract 10%. This 10% is the fee you pay to the builder/general contractor for the privilege of installing your plumbing in their buildings.

* Be willing to carry perpetual receivables. Example: "If you'll go ahead and set fixtures on this job I'll let you make a fat first draw on the next one I have lined up."

* Accept the occasional GC/builder bankruptcy as a cost of doing business. Here's how the math works: Since you're getting 10% less than cost (item one above) this reduces the amount of money you lose when the GC goes belly up. This makes it more affordable for you to do more of the same sort of work for the next GC, who hasn't folded. Yet.

Service work is much different. Instead getting work to not get paid for, you have to pay for jobs that you do get paid for. In your budget spread sheet, in place of the line item called "Bad debts I incurred because I was naive enough to believe the GC" you'll have "Advertising Expenses." Contractors who are making the switch from RNC will typically just write checks to the phone book people (they're accustomed to paying someone for the privilege of working so the phone book salesman takes the place of the GC). Once their check is in the hands of the phone book, all they have to do is sit back and answer the phone. There was a day when this actually worked (I think it was February 17, 1947 but I'm not sure). Now days, millions of phone books end up in land fills, having never even been opened (except by plumbers looking to see what position they were in the plumbing section). But the phone still needs to ring so money must be spent.

Marketing (the umbrella covering advertising, visual identity, market targeting and customer acquisition/retention ), costs money. That money can be calculated very similar to calculating how much labor to put into a NRC contract. For example: Let's say you're burning $1,000 per month in a phone book ad, plus, sending out 3,000 direct mail pieces per month (let's say for $2,000). Your cost for these efforts adds up to $3,000 per month. Now, let's imagine that you're handling a hundred service jobs per month. Many, maybe even most, of these jobs are coming from repeats/referrals but the fact remains: Cost = $3,000 Job Count = 100. That works out to $30 per job. (Reality check: If you're actually tracking your ad costs you already know that I'm quoting some really low numbers. This is because I don't want the NRC guys to go puke in the toilet just yet.)

Look at it this way: Instead of paying for the privilege of working for a GC, you're now paying $30 for the privilege of driving over to a strangers house to look at their smelly toilet. That's pretty crazy, isn't it? Spending money just to go talk to somebody that might buy something. That's almost as crazy as me sending out Plumb-Biz, hoping that someone will actually buy a price book or something.

Plug in your own advertising expense numbers and see how much you're spending just to ring a door bell. Simply add up all your advertising costs and divide that by the number of service calls you do. There are more sophisticated ways to figure this stuff but the bottom line is: You're paying for each and every time you ring a customer's doorbell."

-Randall Hilton
Plumb-Biz

GregS

While I agree with all the stuff about the GC, the service call stuff is a little different.

Plumber I called charged $65 just to show up at the door before doing anything. All I wanted him to do was check out all the old cast iron pipes in my basement and tell me if there was any major concerns (there was evidence of a leak but no apparent fix)

I had no problem paying that because I know time is money. But just wish I could get away with that in my biz. But then again, I don't pay anywhere near $3000 to advertise either.

Chris G

I see no reason why you can't. If you're going to a place for only an hour or two, I think it's fully expected to charge an extra fee. If you're there all day, probably not.

I'm not really up on the laws governing wages, but I believe an employer must pay a minimum of three hours time to an employee, whether he works for one hour or three. That's to ensure a reasonable use the worker's time. I only use that a reference point to indicate that a minimum sum charged is understood by most people. Anything under 3 hours and I charge a $50 set up fee, (which is a little low actually), AND a one hour minimum.