When your business phone is ringing and customers are requesting service, life is great! Oh, I remember those days. Where have they gone? Bring on the bitterly cold weather of winter, the sweltering heat of summer, the flash flood waters of spring—and bring it on quickly!

It was exciting to watch the Vikes beat up the Dallas Cowboys this past Sunday, advancing them to the NFC championship game. As I watched the game I was impressed by the Vikings defense; they were relentless. Tony Romo will have nightmares of #91 Ray Edwards pursuing him for yet another sack.

Recently, I have been working on an inventory project at our company. In October, we sold our company assets along with 2 other companies to form a new entity in the Twin Cities, Noah Acquisitions, DBA Ben Franklin Plumbing now has 20 plumbing crews doing service and repair work. In this new business, our old system of inventory quickly became outdated.

In the fall of 1990, while listening to my mentor Frank Blau, I asked the questions, “When should I add a truck? When will I know it’s time to grow?” Frank looked me dead in the eye and said, “You should always be looking to grow. If you’re not growing — you’re dying.”

It’s no secret this past year has been different. This year, nearly everyone has been focused on staying alive. Congratulations! You made it this far alive. Know that many competitors around you are nearly out, or have gone out, of business. This is a growing opportunity for you. Let me explain how to grow when others are merely surviving:

As explained in the previous article, “productive” hours are those hours charged directly to a specific job, as opposed to the so-called “nonproductive” hours that are not charged to a particular job but must be spread across all jobs. The nonproductive hourly cost, therefore, is overhead, along with various other costs associated with equipment, office supplies, utilities, etc.

Nonproductive hours are a measure of the time spent by support personnel, as well as by field people engaged in something else besides working on a revenue-producing job, such as vehicle maintenance or stocking warehouse shelves. In order to calculate dollar-per-hour overhead cost, it is essential that all hours spent by mechanics working on a particular job be identified as a direct cost of that job. Likewise for the working owner, who may be involved in a multitude of activities ranging from estimating, trip to city hall for permits, material pickup at a supply house, or working with the tools, all of which should be identified as either direct or indirect (“nonproductive”) hours for the job at hand.

“Overhead” is often referred to as indirect cost, as opposed to direct cost. Direct costs include the wages-benefits you pay to your field workers and your cost for materials. They can be calculated rather precisely for each job.

Indirect costs include expenses for items such as tools, mechanical equipment, office supplies, trucks, fuel, advertising, liability and health insurance, utility bills, administrative salaries and various other things required to run a successful business, but for which it isn’t practical to figure the amount used in conjunction with each job. Instead you must measure the total expense over the course of a year and apportion it to every job performed.

Along the way you have to grasp the technique of providing for replacement of “expendables” – trucks, tools, etc. that wear out or become lost. Who should pay for the truck or tools that wear out? You personally, or the customers you serve?

The answer obviously is the customers, all of them. You could not expect the last customer served to pay for a new truck if the old one fell apart at his door, so its cost must be distributed among all the customers it serves during its working lifetime. It naturally follows that all customers must be called upon to share in the replacement cost of other expendables you provide in order to maintain an efficiently operating business.

How many times have you uttered that all too familiar phrase; “if I only had more calls?” I have heard it countless times. Just this week, I heard an owner say with great certainty, “there is nothing wrong with this company that a bunch more calls wouldn’t fix.” Well then, our work is done—let’s just wait for the phone to ring—in 2010—if you are to believe the economists.

Now, I will be the first to admit, running a service business is a lot more fun when you have an abundance of calls. You can hold firm on pricing, charge dispatch and diagnostic fees to further qualify customers; even increase your pricing. Lots of calls means you can justify the hiring of inside staff to take the pressure off you in the day-to-day operations of the company. Yes, having an abundance of calls is a goal every service company should have. It just makes life a lot more fun…and profitable!

In my first article on Markup, I revealed that PHC contractors earned an average of only 2.7% net profit on gross sales before taxes. Evidently, this information shocked quite a few readers, judging by the letters I have received from contractors around the country, as well as conversations over the phone and in person. Typical comments were “sad,” “ridiculous,” “stupid,” “inadequate,” “we ought to have our heads examined,” “what can we do about it?”

What we can do about it, of course, is to educate ourselves to become better businessmen. That is the point of this series of articles, and it’s time to get down to the task at hand by learning one of the most important business skills of all – how to figure markup.

Are you building a budget without a revenue plan? A revenue plan defines all of the activities and improvements to attain a desired budget. Take into consideration your call counts, revenue, billable hour efficiency, ect.

What do you consider to be a “fair” profit for the goods and services you offer? Judging by the way many contractors do business, I get the impression that they feel guilty accepting any money at all!

I’m all for charity and philanthropy, and am proud to say that I share some of my good fortune with various worthy causes. But if I had not run my business with sound financial and pricing policies over several decades, I might be receiving charity rather than giving it.

It’s estimated that the average American is exposed to more than 3,000 commercial messages a day, and as a whole $620 billion is spent each year by businesses with the aim of making their product more desirable to the public (Union of Concerned Scientists, http://www.ucsusa.org/publications/).

So how do we maximize our advertising spending to make sure we’re capturing and keeping as much business as possible? Read on to learn the secrets to successful advertising: