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.

Fringe benefits represent a huge investment that employers make in their employees. As a PHC union employing contractor, my present day fringe benefit package amounts to 43 percent of gross hourly wages. Our service technician fringe benefit package includes the cost of contributions made into the Blau Profits Sharing Plan as well a the union pension plan, while non-signatory employees participate in both the Blau Profit Sharing Plan and Money Purchase Plan. This is a considerable amount of money. According to the U.S. Chamber of Commerce, fringe benefit costs throughout the economy average around 40 percent payroll. Because of our aging population, it’s been estimated that by the time the year 2000 rolls around, many of us could be looking at fringe costs approaching 50 percent of payroll.

“How much will a new water heater sot me – mine is leaking?” Anyone in the PHC service business hears this question and others like it numerous times a day over the phone. Most attempt to answer it by quoting an hourly labor rate or giving a “ballpark” estimate of what the job will cost based on the caller’s description of the problem.

I conducted a seminar before my largest crowd ever at the International Liquid Waste Haulers convention. More than 800 people attended. As always, when I asked for a show of hands asking how many people knew what it costs them to do business per productive hour or per gallon of waste hauled, almost nobody raised their hands.

It’s an all too sad and all too familiar story. As a result, their industry, like ours, sells its services short. Many of their members charge between $60-75 to dispose of 1,000 gallons of yuck. In most cases they need to charge three to four times more to earn a decent living for their families and be able to operate in a professional manner. Instead, just like our industry, they slave away for 70-80 hours a week trying to make ends meet.

I’ve been called narcissistic, arrogant, a cult leader and an “old fart.” I’m not going to complain, since I coined the equally attention-getting term “slug” to describe people who just don’t get it when it comes to covering costs and turning a profit. Still, I’ll admit that the “old fart” label stung a little more than the others because it reminds me that I can claim more years than most of our Buzz readers, though I think age is more about attitude than years spent on this planet. Nevertheless, the years do teach some valuable lessons – if you’re paying attention.

In fact, I’d like to take time this week to talk about some of those lessons that have stayed with me.

I hope that, based on my last two columns about constructing balance sheets and P & L statements, you are now convinced that clear and concise information serves as a foundation for intelligent decision making. None of this information is as important as getting a handle on how many actual productive, i.e., billable, hours your business generates so that you can establish an accurate dollar-per-billable-hour overhead figure, which in turn is the only thing that allows you to calculate a reasonable selling price for your labor. You better be sitting down when you figure out how much it really costs you to operate your business.
This month let’s tackle another key area that can help put an end to the guessing games that take place in your business. You want to know how often the phone rings, and what information you can garner from those conversations.

At various times I have stressed the importance of reviewing a profit & loss statement at least monthly. Let’s take a look at one that is just about right, submitted by a good friend and fellow PHC contractor with a six –truck service firm. Items #15 and 16, flagged with bold capitals, ate the only areas that I take issue with, which I’ll explain afterward.

This P&L statement covered a nine-month period. Take a look and then continue on with my article.

This is strictly a service & repair company – no new construction work.
This is a “C” corporation and at the end of the year the company was six years young.
They employed three persons in the office, one of whom was part time.
There were six full-time service technicians and installers.
The owner worked 500-600 hours in the field – in addition to another 3500 hours or so being the “boss.”
Field technicians were paid for 9,634 payroll hours at a rate of $13/hour, including mandatory fringes. (Base wage rate was actually in the area of $8.40 an hour.)
The company used a flat rate program with a retail labor rate of $65 factored in. (Obviously not enough.)
There was no profit sharing or medical plan for the owner and his faithful associates. (This sucks.)
The owner joined Nexstar and is now in the process of transforming his former “slug” company into a model of success.
The owner is a wonderful student and gentleman – a Blau “cult” member whom I have a lot of love and respect for. He’s going to make it big time.
After the owner gets it all together, he wants to learn how to play golf so he can pick my pockets!

When you decide to go into business for yourself, you may have had a vague idea of what a day in the life of a successful entrepreneur might be like. For some people, it’s breeze through the door at 10:00 a.m., chat a bit with the office staff and then troll through the service department inspiring the adoring dispatchers and service techs. Then, after a heavily martinied lunch, comes a leisurely round of golf. Your evening would be spent at some exciting social event, rubbing elbows with the rich and famous.

A typical day for the owner of a contracting firm, right?