The fastest way to a strong bottom line is to build the top line. While the small business owner must always watch expenses, no one can save their way to prosperity.

The surest way to build the top line is good marketing. The four P’s of marketing are product, price, place, and promotion. Over the rest of this series, we will deal with each, but will start with pricing. For service companies, pricing breaks down into four areas…

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.

Last eBuzz, I pointed out some problems with the format of an actual profit-loss statement from a Midwestern service contractor. You may wish to re-read “Numbers Tell a Story” article to refresh your memory. This edition I’m going to take it a step further by reconstructing the format and plugging in some new numbers that make more sense. The line items highlighted in bold face on the chart are the ones we concern ourselves with.

First, look what I have done with the revenue side. The numbers are higher because I factored in modest 9.62% increase in selling prices for this firm. This was an arbitrary percentage that I came up with to achieve a reduction in direct cost of sales from 44.5%, which was too high, in my opinion, to a more reasonable 37%. I believe that this firm could raise its selling prices and revenues by much more than 9.62%. However, for the purpose of this article, I wish to make the point that even a modest increase in price can reap great benefits.

If you were driving 80 miles an hour, in the dark, with your lights off, heading towards a cliff, would you like someone to yell, “STOP?”

OK. Stop!

Do you produce financial reports – the balance sheet and income statement – every week? Do you analyze sales, costs, cash flow, and debt every week? If not, you may be heading for the cliff.

STOP. And find out. This is the year. This is the day. From here on out…you are going to KNOW.

The 2002 and 2003 profit and loss statements attached reflects an actual case for a Midwestern plumbing and drain cleaning firm. In 2002, the business was a partnership jointly owned by a plumber and a realtor. The realtor bought out his partner and, after attending one of my seminars, revamped the business in a way that resulted in revenues almost tripling. The 2003 financial statement was also much improved, though, as I will explain, it still falls short of the ideal.

The most glaring problem with the 9-month statement for 2002 is in the Cost of Sales category near the top. All it shows is a single line item for Plumbing – $19,115, amounting to 8.7% of sales. I don’t remember what this was supposed to measure, probably materials. In any case, it is an inadequate breakdown. (I was told that this statement was prepared by a CPA, which goes to show how little many accountants know about our industry.

As you see with the revised 2003 format, the Cost of Sales category was expanded to include several items that previously were tallied, mistakenly, under Operating Expenses. We see wages broken out for both plumbers and drain cleaners, as well as subcontracting costs, commissions, parts & materials, permits and payroll taxes. All of these are direct costs, or what we call overhead.

Service Agreements can be a great way to help develop a life-long relationship with your customers. And they can also be a ticket to wasted time and energy. Read the following article to help you get priced right. Then, if you choose to offer Service Agreements at less than a profitable price, create systems that will help you capitalize on the sales opportunities presented during the Service Agreement call: Use a survey, ask good questions and listen, offer appropriate upgrades…and be quiet long enough to get a YES!

You want to make more sales and more money. Good for you. And it’s good business.

Here’s the problem. More sales at a losing selling price is like cliff diving into Lake Powell. You might not hit bottom, but you might. It’s going to hurt if you don’t know what’s below.

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.

In my last article I described the intent of the “boilerplate” language that appears on all Blau Plumbing job tickets. A number of other features to use with important day-to-day business are as follows:

Cost Breakdowns: On our job tickets you will see the various charges that go into compiling the final bill. (No time and material charges, however; we are a strictly flat rate company.) One change from our previous job tickets is the inclusion of a “diagnostic fee.”

Like most progressive contractors, for a long time we have used a “travel fee” or trip charge to cover costs associated merely with driving the truck to the door. However, we have found that with heating equipment getting so sophisticated nowadays it’s taking a longer time to diagnose the problem. So we have lowered our trip charge and added the diagnostic fee to reflect this.

Take a look at that picture. That’s what fun looks like. That’s what positive energy looks like. That’s what winning looks like.

It’s a picture of the University of Utah MUSS…Mighty Utah Student Section. These kids agree to sit together, wear their school shirts and cheer on the Running Utes football team. A powerful student section can give a team the home field advantage…wherever they play. It’s all about energy focused on winning the game.

Imagine if this is what your weekly Sales meeting looked like.

Blau Plumbing recently introduced a newly designed job ticket that serves a number of purposes besides the routine recording of everyday transactions. It does so many things, in fact, that it will take me three articles to describe them all.

Our job tickets contain three distinct parts, five pages altogether:

1. A form in triplicate (two office copies, one customer copy)
2. A separate proposal for work that arises unexpectedly.
3. A heavy paper stock back cover with a $5 off coupon, postage paid reply card and customer communication about the work we do. All of this will be covered in this three-part series.