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Eight Things We Can
Learn From Joe the Plumber! - Part 1
By Tom Grandy
There are two
ways to learn how to run a profitable business. The first, and most often
taken path, is to simply start the company and learn as you go. Sometimes
that works and sometimes it doesn’t. A better way would be to find a very
successful company, get to know the owner, and allow him or her to mentor
you. In other words, learn from their mistakes and find out what works for
them. Most business principles are pretty generic; therefore they work in
most businesses. Don’t worry about mentoring taking all the problems out
of your business. Chances are, even with mentoring, you will still make a
lot of mistakes all by yourself!
I have shared
the following true situation with contractors for years. Sometimes it’s
during a keynote address, sometimes a live webinar and almost always during
our three-day “Basic Business Boot Camp”. I’ll be talking about real
situations, from a real company in this article but the name of the company
will not be used. However, just so we can kind of stay current with
national events we will call our company Joe the Plumber. You might
remember hearing about Joe during the recent presidential election. If not,
don’t worry about it as this is a made up name anyway!
This will be a
two part series. This month I am going share the true story of “Joe the
Plumber”. Next month we will discuss eight things we can learn from Joe’s
story.
Think back to
1995. Joe was having a tough time. He was what I would call the typical
plumbing company. He was doing service, new construction and remodeling.
The bottom line was pretty clear. Joe was working really hard but not
making any money.
They say
necessity is the mother of invention, and that’s what spurred Joe to make a
change. After taking a close look at his company Joe realized he was not
doing any of three things well, so Joe made a decision, a decision to be
profitable! Joe decided he was going to become the absolute best service
plumbing contractor in his city. That’ right, Joe decided to do one thing
and to do it really, really well. That got the ball rolling.
Now we all know
how hard it is to find time to really think during the course of the normal
business day, so Joe took a couple months off. He needed time to think and
he needed time to plan. If he was going to make the switch to 100% service
work he also knew things would have to change dramatically. The current
model simply did not work, not even in the service department. Then the
thought hit him. “Why don’t I design my new company the way I want it to
run?”, and with that, the process began. Joe began to look at his
company through different eyes. He decided to address each weakness he had
so he could do it the right way in his new company. To do what Joe wanted
to do also made one other fact crystal clear - when it was all said and done
it was going to cost a lot of money to run the company the way he wanted it
to run. That meant he would have to switch to flat rate pricing. What was
the unknown? What rate would he have to charge per hour to be truly
profitable?
Joe took that
time off, found a quite place to think, and began addressing the problems he
had in his current company in order to “correct them” in his new service
company. Joe addressed the following items:
High Employee
Turnover Rate – Joe was experiencing high technician turnover. His
techs would stay a year or two and then move on for an additional $1.00/hour
down the street. That had to stop.
Solution:
The new company was going to
pay the techs well. The modeling of the new company would be based on his
average tech making between $50,000 and $100,000 a year and the company
would pay all the techs medical, dental and vision insurances. In addition
to that Joe decided to include a 401K plan and profit sharing. With that
kind of program, he could surely attract and retain the top techs in the
area. By the way, last year, Joe’s average tech made $93,000 plus benefits!
Junky Looking Trucks
– Joe’s vehicles looked bad. He had pickups, vans and basically a mishmash
of old vehicles.
Solution:
The new company would be
different. The new company would have only new (very expensive) box vans.
The reasoning was quite simple. First, the box vans would serve as moving
billboards which would help market the company. Since they were new and
kept clean, the initial impression to the customer was very good. The move
to box trucks, however, was a little more foundational. Joe was well aware
of the cost of non-billable time. It was very expensive to have his techs
driving back to the shop, or the distributors facility, to pick up parts
that were not on their truck. The new box vans would literally carry
everything needed on the job. The basic parts would on the truck but so
would things like water heater, toilets and sump pumps. The new company
could not afford to run their new highly paid techs all over town to pick up
parts. Box vans became part of the business plan for the new company.
Techs Were Poorly
Trained in Customer Service – Customer service is a huge part of
being highly successful. The initial impression the tech gives the customer
can make or break the relationship, and guess what? Joe’s guys were not
very good at customer service.
Solution:
If Joe was going to meet his
goal of being the best in the city, he was going to have to continuously
train his techs in customer service, customer relations and add-on sales.
The new business plan included massive amounts of training dollars!
Poor “Response Time”
to His Customers Needs – Joe had another problem. Customers would
often call his company only to find out it was going to be several hours, or
perhaps days, before he could send out a service tech. Well everyone knew,
including Joe, that the customer wanted service when they wanted it, not in
two days.
Solution:
After a bit of thinking Joe
came up with a way to overcome this problem as well. The new company model
would include one additional tech and one additional box van that he did not
normally need. In other words, his model included an extra tech and all his
costs (insurances, taxes, uniforms, cell phone, etc) just sitting around
waiting for the phone to ring. Hey, that was the whole idea. Joe wanted
extra capacity so when the phone rang he could provide “immediate service”!
The customers would love it. An idol tech, with all their related overhead
costs was going to be very expensive but that didn’t bother Joe. If he was
going to be the best in town, he would do what he had to do and would charge
what he needed to charge. Joe simply built the extra tech into the cost of
running the company, just like rent and utilities.
To Many Customer
Complaints – Joe’s current company was getting way too many
customer complaints. Not only did he receive far too many complaints, when
they did come in, they were handled poorly. That had to be solved in the
new, highly successful, and profitable company that was on the drawing
board.
Solution:
This one took a while, but
Joe found a way to solve it. The additional training in customer relations
would definitely lower customer complaints but he knew there would still be
complaints. Soon Joe had a plan. He called it “100% Customer
Satisfaction!” The bottom line was that Joe would personally handle all
customer complaints. To help solve each complaint would cost money, so Joe
built 3% of his projected gross sales into the overhead of the new service
company. With money in hand, and time to talk personally to the customer,
complaints would be solved quickly and efficiently.
Techs Needed a Vested
Interest to Work Hard – Joe also understood human nature. It was
going to take some kind of an incentive program to make his potentially
profitable techs work hard.
Solution:
Joe solved the problem by
paying all his techs minimum wage to begin with. The techs then earned the
remainder of their income by earning a percentage of all the dollars they
billed out. The neat part was that it was a sliding scale. The first
$2,000 brought in during the week would earn a certain percentage. When the
gross sales increased so did the percentage they earned, always retro-active
back to the first of the week. As the techs worked harder, they would make
more money. Problem solved!
Joe Was Not Making a
Decent Profit – Joe’s current situation was not unlike many
contractors in the industry. The owner was working really hard but wasn’t
making much, if any, profit. That had to stop and stop soon.
Solution:
This was simple. Joe was
going to total all of his real cost of doing business and then add in a
decent profit. If he was going to invest the time, energy and money it was
going to take to be the best in town, he for darn sure better be making a
decent profit.
Joe addressed the problems
listed above and he built all the costs of doing business into the model of
his “new” company. Joe knew from the outset his rate was going to be high
so he was fully prepared to move to flat rate pricing so his needed hourly
rate would never be seen by the customer. Well, Joe was right. He ran the
numbers and guess what? Way back in 1995 Joe’s hourly rate for his new
company needed to be about $250/hour to cover costs while still making a
decent profit.
Charging $250/hour today on
flat rate is not all that unusual, but back in 1995 it was downright scary,
but Joe was committed. He made the changes and charged what he had to
charge. Today Joe truly is the best plumbing service company in town and
today his rate is well over $300/hour! Guess what? Customers love him and
Joe is making a nice profit!
Next month we are going take
a few steps back and see what we can learn from what Joe has done. We’ll
talk about eight foundational principles we can learn from Joe the Plumber.
By the way, Joe attended our
three-day “Basic Business Boot Camp” and fine tuned his company a bit more.
If you would like to attend a boot camp you can check out the coming dates
and locations on our website by clicking www.GrandyAssociates.com/bbb.
Are You Asking Your Accountant The Right Question?
By Bill Kinnard
You’ve seen it. You may have even participated in it. Near the end of
every year, small business owners from across the country are driving new
trucks and buying new equipment for the shop. They have to! They met with
their accountant and were told that need to go out and spend some money or
they will get nailed with taxes the following spring. How can they argue
with their accountant? After all, that’s what you’re paying him for, right?
That’s why you sit down with him in the first place – so they can give you
good solid advice regarding the financial side of your company. It must be
the best thing for you to do – after all, they wouldn’t steer me wrong?
After working with contractors for over 25
years, I’ve seen the annual dance repeated over and over again. If you fall
into this boat, you’re not alone. Towards the end of each year, small
business owners everywhere are told that they need to spend money to avoid
the penalty of taxes, then in February, March and April, they are running
60, 90, 120 days or more behind on paying suppliers. In a typical year, many
are just now digging themselves out of that hole, however this year; the
slower economy has made the climb even more difficult.
The Problem is Not Your Accountant!
In most cases, your accountant is not to
blame. Chances are, whether you realize it or not, he or she is doing
exactly what you are asking them to do. Stop and think about it? When you
sit down with your accountant towards the end of the year, what is it that
you are asking them to do for you? You’re typically looking at some year-end
planning and if there are ways to keep your taxes under control. Even if you
don’t ask this question directly, chances are, that’s the thought process of
your accountant. It’s what they do.
Often times, the advice provided is that you
need to spend some money before the end of the year in order to reduce the
amount in taxes you’ll have to pay next spring. You go out and buy that new
truck, job trailer, or bobcat and in your mind, have done what is best for
your company. Did the advice meet the objective? When you purchased that new
truck, did that accomplish the objective we talked about above i.e. lowering
taxes? Sure it did. It provided an additional write off that you could take.
Based on the question you asked your accountant (whether you uttered the
words or not), they accomplished exactly what you were looking for.
Did You Ask The Right Question?
How specific were you when you sat down with
your tax accountant? Did you let them assume why you were meeting with them
or did you ask specific questions? The correct question should have been
“How can I lower my tax burden while still maintaining the cash flow I need
to run my company throughout the next year”? That’s different – and
will result in a different answer. If you simply look at each year on its
own, without considering the ramifications that decisions will have on the
next year, you are setting yourself up for financial pain and heartache. As
a team, you and your accountant need to look at how to reduce your tax
burden while maintaining the cash flow you will need to carry you through
the typical down months that tend to start out the year for many
contractors.
In order to accomplish this, you will need to
project your cash flow needs for the next year. Look at your projected sales
and expenses for the next year and see what you will need to get through the
lean months. Contractors go out of business for one of two reasons – either
improper labor pricing or lack of cash flow. Those that go out of business
due to lack of cash flow, tend to do so in what would have been their most
profitable year. They just couldn’t get through the lean months first. Work
with your accountant to get in the best possible position while hanging on
to this cash for when you need it. It will make their thinking process
change but what would you rather – pay the absolute minimum in taxes and go
out of business in the first half of next year? Or pay slightly more in
taxes, but be able to stay current with and take discounts from your
suppliers.
There is a process to creating a cash flow
budget. If you need some help with this process, now is the time to start.
Don’t wait until November or December. You still have time on your side to
fix problems. If you wait until that sit-down with your account, it may be
too late. Consider attending one of our three day Basic Business Boot Camps
where you will create a complete month by month, department by department
cash flow budget for your company. Know the numbers and how they impact your
profitability. Make the changes you need to while time is still on your
side.
Attend a FREE Webinar to learn more about the Basic Business Boot Camp
Grandy & Associates has bi-monthly (free) "live" webinars so you can learn
more about the three-day
Basic Business
Boot Camp and how it can benefit your company. All
you need is access to the internet and a phone. Attending the live webinars
allows you to ask questions and to discuss your company issues with Tom or
Bill.
Upcoming
webinars are scheduled at 1:00 PM Central on:
Are Your Techs Creating Add-On Sales While Performing
Maintenance Agreements?
By Tom Grandy
Maintenance agreements can make or break the
overall profitability of your service department. The average tech has
about 90 days per year that are slow. Those days need to be filled, and
Maintenance Agreements are the way to do it.
For the last couple of months we have been
looking at several Key Performance Indicators in the service department.
This month we are going to look at the KPI entitled Average Repair
Revenue Per Hour listed under the heading Residential
Maintenance. Simply performing maintenance is not enough. The
tech needs to be creating additional income while on the job for
one very good reason. Most maintenance agreements are priced below the
service department’s normal hourly rate. To make up the difference, the
technician needs to generate additional income through repair revenue and/or
add-on sales. Again, we are going to glance at the KPI Report (from a real
ProfitMaxx user) below:
You will notice the goal is to bring in
$130.29/hour billed to the customer. You will also remember we selected
Bruce, our highest producing tech at $130.83/hour, to transfer to install
for half a day. Was that a good choice? Well if we look at our four techs
you will notice Bryant is our lowest
You will notice the goal is to bring in an additional $40.00/hour while
performing maintenance. That is a very doable number. Now let’s see how
our techs are doing. You will notice all but Roy are right on target. Roy,
however, is only at $13.30 per hour. This is only about a third of what he
should be bringing in. Why? Well look up a couple lines and you will find
out. The Maintenance Agreement Efficiency is a measure of
how long it actually took the tech to do the maintenance verse the
structured amount of time. You will notice our friend Roy has an efficiency
of 63. That means he only used 63% of the allotted time to perform the
maintenance agreement. What’s Roy’s problem? He is rushing through the
call. What will the service manager need to do? The manager needs to have
a meeting with Roy to tell him to slowdown and take time to
look around for additional repairs and/or to create add-on sales. When Roy
slows down and starts being more thorough, his dollars per hour earned will
soon be back on track!
It’s amazing what happens when you set specific goals (KPI’s) for your
techs and then measure their performance against them. Things that used to
be a problem suddenly get taken care of! Now, if you really want to watch
productivity and profitability skyrocket tie, performance into a bonus
program like ProfitMaxx does!
If you would like more information on the
ProfitMaxx software give us a call at 1-800-432-7963 and/or sign up to
attend a FREE 45-minute webinar. If you want to check out ProfitMaxx on
your own then visit our website at the ProfitMaxx
Information Home.
Attend a FREE Webinar to learn more about ProfitMaxx
Grandy & Associates has bi-monthly (free) "live" webinars so you can learn
more about ProfitMaxx
and how it can benefit your company. All you need is access to the internet
and a phone. Attending the live webinars allows you to ask questions and to
discuss your company issues with Tom or Bill.
Upcoming
webinars are scheduled at 10:00 AM Central on:
Talking to potential customers on the phone is a given if you are in any
kind of business. To get results through telemarketing you need a plan
which is what this presentation is all about. Believe it or not, 60% of
all sales are made on the fifth call, which means two things. You must
have a plan and you must be persistent.
Key Points:
Ok, I need to call prospects, move effectively
through the screener and state my case positively and with professionalism.
The problem, how do I do that? The presentation will cover the following
areas.
Overcoming the three (3) telephone fears
Creating job and telephone enthusiasm
Four (4) keys to telephone success
Power Openers!
How to handle resistance
Eight (8) strategies to overcome price objections
How to penetrate the screener
How to warm up the prospect after the initial call (60% of sales are
made on the 5th call…..be persistent)
The Service Contractors Business
Presentation of the month features a new trade focused audio presentation
every month. These programs are designed to provide the trades contractor
relevant information that can help their business immediately.
Get more information, purchase this
months program on CD, or sign
up for a monthly subscription today!
