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When the customer knows the price

On occasion I will have a customer who thinks they know how a job should be priced. Their comments will go something like this:

It looks like a professional could do this work in a day. So if you are paying $15 an hour, the price should be around $120 plus materials.

The first few times I heard such comments I got rather annoyed. But since then I’ve learned how to handle the situation more effectively. I now view it as a good opportunity to teach the customer a few things about business (and maybe put them in their place).

Actual labor costs are, of course, only a small part of the price. Labor burden, overhead, and profit are actually a significantly larger part of the final price (or at least they should be). While the actual numbers are none of the customer’s business, the general principles can be discussed.

I try to inject some humor into my comments. Since I am basically telling the customer that he’s a blowhard, humor can mitigate some of the harshness of my explanation. I say something like this:

I’m sure there are some people who could do the work in 8 hours. In fact, I could have one of my guys do it in less time than that. But we’d have to skip the primer and the wall repair, as those are going to require drying time. So, if we are going to do the job properly so that you will be satisfied in the end, we are going to need at least 2 trips to complete this project.

I am also sure that there are people who would work for $15 an hour, but I prefer to pay more so that I get good help. But my costs involve a lot more than just that hourly rate. There are taxes and benefits that must be paid.

Also, I need to pay the phone bill so you can call us. And I’ll need to pay the electric bill so we can operate our computer and see what we are doing.

And that lady who you said is so helpful on the phone– she likes to get paid for being so nice. Come to think of it, I like to get paid as well. So as you see, there is a lot more involved in our price than just what we pay our workers.

Sometimes the customer responds well to this, and sometimes they continue to act like a jerk. In either case, I’ve done all I can– I’ve told them the truth. If they want to believe otherwise, they probably won’t listen to anything else I have to say either.

Do you know what a gallon of paint costs?

What do you pay for a gallon of paint? Do you realize that your actual cost is likely much higher?

Let’s say that a gallon of paint costs you $20. Let’s say you pay your foreman $20 an hour. With labor burden, his actual cost to you would be over $25 an hour.

One day your crew runs a little short of paint, so the foreman hops in his truck and goes to the paint store. It takes him an hour for the entire trip. You still must pay him, so that gallon of $20 paint has now cost you $45.

Unless you have the most unusual crew in the world, they likely will not be quite as efficient and productive when the foreman is away. So during his hour-long trip, let’s say that they actually only accomplish 50 minutes of work. A 2-man crew would then lose 20 minutes of production time while the foreman is gone.

If your average wage is $13, this 20 minute loss would cost another $4.33 plus labor burden, or close to $5.50. Now that gallon of paint has cost you $50.50. But it could be worse.

Let’s say that now only did the crew lose some production time, but that some of the work they did wasn’t up to your standards. When the foreman discovers this he instructs the crew to fix their work. If this takes 10 minutes, we must add another $5.50 to the cost of that gallon, pushing the total to $56.

While all of this is hypothetical and the actual numbers can vary, it should be clear that that gallon of paint can cost a lot more than what the store charges.

Why staying busy is overrated

I frequently talk to someone who will remark that some contractor is staying very busy. They say this with great respect and awe, and there was a time that I would have had a similar attitude. But staying busy really isn’t such a great accomplishment. In fact, it is very easy to stay busy.

Staying busy just means that you have a lot of work. Actually, it doesn’t even mean that–it really means that you are doing a lot of work. But if that “work” consists of putting out fires, are you really staying busy? If that “work” isn’t profitable, is it really a good thing to be busy?

There is one way to stay busy that is almost fool proof. I say fool proof, because it is usually fools who use this method, and they don’t seem to mess it up very often. That method is– (drum roll please) charge dirt cheap prices for your work.

If everyone around you is charging $25 an hour, imagine how much work you can get if you only charge $15 an hour. You will have more work than you can ever imagine–everyone will want to hire you. Of course, you won’t make any money unless you hire a pack of circus chimps to do the work. And then you will likely have lots of problems, which will keep you even busier.

Staying busy is really not what you should be worried about. Making money should be your primary concern. If you could make the money you want/ need and only work 3 days a week, would you complain about not being busy? I didn’t think so. Certainly, we want to have an adequate supply of work. But that is vastly different from staying busy.

Some contractors seem to equate staying busy with success. Au contraire, mon frère. Try painting interior walls with a 2″ sash brush–you’ll be busier than a bumble been. And you won’t be very successful if you consider being profitable the measure of success. In other words, you can spend a lot of time doing something, but if your efforts are inefficient, you won’t accomplish the results you want.

Staying busy is wildly overrated. And usually, the contractors who focus on staying busy will soon be busy doing something else– like looking for a job.

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