Sooner or later it happens to everyone in the business. A disgruntled customer notices the prices of parts and merchandise sold at the retail stores and complains about the big markups charged by the contractor. This is a bigger problem for time and material firms, whose prices are itemized for all to see at a glance. However, even we flat raters face it from time to time.

In my on “The Cost of Not Knowing Your Costs,” I challenged contractors to prove that they could make money and provide decent income and benefits for employees at the PHC service industry’s prevailing labor rates of $50-55 an hour. I got no takers, although Paul Swan sent me an interesting letter pointing out that many contractors who charge extra for travel time are billing for more labor hours than they actually put in.

Our Sheltie, Humphrey Bogart, likes to herd things and to protect the house. It’s instinctive. Unfortunately for Humphrey, we don’t keep sheep or cattle in our backyard and the squirrels and rabbits have learned to keep their distance. So what’s a Sheltie to do? Chase aircraft!

We live north of DFW Airport and can easily see planes flying over our house on final approach. Humphrey can see them too. He doesn’t like them.

Frank J. Blau and Associates came up with the valve tag idea many years ago as a way for service technicians to market their company to the homeowner more effectively. These valve tags are distributed through solely through ShuBee (877.974.8233 | www.shubee.com).

Here’s how it works – at the end of the service tech’s visit, he asks the customer if he or she knows where the main water shutoff is to the home. Most people do not know, and those that do usually cannot tell where the shutoffs are to various appliances around the home. This gives the technician a chance to perform a valuable service for the homeowner by offering to identify and tag each shutoff.

What do we get out of it? Plenty.

As you can see from the sample attached, the flip side of the valve tag is a company business card. They end up hanging at a half dozen or more locations around the home as permanent advertisements for your company. Whenever something goes wrong, guess who will be the first company these people are likely to think of calling! It gets them away from the Yellow Pages and all of your competitors’ ads.

Let’s face it. No one likes calling a service company. It’s a hassle. Usually, it involves repairing something, which means something broke down. Thus, the situation is negative and irritating before the first call is made.

Complicating matters for in-home service is the need for the homeowner to wait around for the technician to arrive. It makes people feel helpless. Once the technician is on the scene, once the repair has been made, there’s a sense of relief. It’s over. And it probably was less painful than the homeowner feared.

My last couple of articles dealt with compiling job costs on the way towards developing a useful profit-loss statement. The so-called “P & L” is the bedrock of financial reports to a business owner. When constructed properly it ought to tell him at a glance how much money he is making (or losing), and why.

In the course of my consulting work I have looked at hundreds of contractor P & L statements, most of which were developed by the firm’s accountant. Unfortunately, many CPAs don’t understand our industry and thus do not properly construct a P & L suitable for a contracting firm.

When I ask contractors how many receive profit-loss statements within 15 days of the previous month’s business, fewer than 10% raise their hands. A few more hands go up when I ask who receives quarterly statements. The vast majority of PHC contractors take a look at their business numbers merely once a year. That’s when they have their accountant prepare a statement leading up to tax filing.

This means business is a guessing game for most of you. You don’t know what’s going on until it’s too late.

When an airplane flies long distances it has to make numerous mid-course corrections in its route. If it followed the same heading from beginning to end, a mistake of even a fraction of one degree would make it go many miles off course. A plane headed for Paris, France, might be looking for the airport over Spain or England!

My hero Oprah was on the Dave Letterman show recently. Touted as “The Super Bowl of Love”, it was Oprah’s first appearance on the show since May of 1986. Dave claims that his people had been contacting Oprah’s people every week for every one of those sixteen years.

“No, no, no, no, no”, they said.

Finally, Oprah said, “Yes,” and made her way to the Ed Sullivan Theater. I imagine that Oprah – smart chick that she is – took into account the opportunity to promote the opening night of her Broadway production of the musical “The Color Purple.” Oprah arrived and Dave conducted a thoughtful and interesting interview.

The last couple of articles dealt with the importance of calculating dollar-per-hour overhead (DPHO) for your business. DPHO, however, is only one component of a costing and pricing system that results in profits. The rest requires a precise measurement of labor and material costs.
Material is the easiest to compute. You know to the penny how much you pay for most job materials. One exception is consumables, which ought to be spread across all jobs as part of overhead, but this seldom amounts to much.