The focus of magazines like Contracting Business is successful contractors. Yet, success eludes many, if not most contractors. They struggle. And there is a pattern to their struggles. Here are 10 mistakes struggling contractors make.
1. They Target Consumers Without Money
Contractors should not be concerned with millennials, Gen Y, or Gen X. They don’t have money. The money is with the baby boomers. Boomers have money. They’re at the height of their income producing years. Moreover, they have less inclination for DIY.
2. They Market to Themselves
Contractors are attracted to marketing that appeals to them. This would be great if contractors were just like their customers. They are not. Your customers care more about the Food Network than football. They are more inclined to watch Lifestyle than NASCAR. They care more about your brand (i.e., your reputation) than they do about the brand on the equipment you sell.
3. They Try to Save Their Way to Prosperity
Building a business requires investment. This includes investing in training for your people (and training is like bathing… it needs to be repeated regularly). It includes continuous marketing and a level that will make a difference. It includes new vehicles and tools. It includes compensation and benefits.
Cutting back in these areas starts a death spiral that becomes difficult to pull out of. Fortunately, contractors do not need to worry about paying for smart overhead items. Customers will pay for them if contractors price well.
4. They Price Too Low
Pricing too low may be the most widespread mistake contractors make. Calculate what it costs you to operate your business, to pay your people, to market your company, to invest in the future, and to generate a return for the shareholders. Charge accordingly. There’s really no point in charging less.
5. They Run People-Centric, Not Process-Centric
In a people-centric business, all knowledge is in the heads of the key people. If one of them leaves, the knowledge leaves as well. A void remains. The replacement must fill in the void, which will result in mistakes and different approaches. There may not be anything wrong with a different approach, especially if it’s an improvement. However, different because no one knew how the last guy did things results in disruption without benefit.
In a process-centric business, job knowledge is captured, defined, and optimized over time. Change a key person and the replacement has guidelines. There is no need to reinvent the wheel, to bluff, or to fake it until one makes it.
The result is process-centric businesses handle personnel changes much more smoothly. Management cannot be held hostage when a team member threatens to leave. And, the processes make the business far more attractive to a purchaser when it’s time to execute an exit strategy.
6. They Hire on Impulse
Struggling contractors meet someone, take a liking to the person, and try to find a place for him in the organization. The organization is rebuilt around the new hire in ways that may be less than optimal.
Furthermore, hiring is unplanned. Openings are not anticipated. Owners are caught off-guard when a technician or salesperson leaves, resulting in panic to get a warm body in place because of the money being lost.
7. They Get Distracted By Bright Shiny Objects
Struggling contractors are always looking for the next new thing that will solve all of their problems and make them a fortune. They add new businesses or capabilities before they are ready. This takes their eyes off of the core business, which still has plenty of room to grow. The result is a buyer’s market for slightly used blower doors, insulation machines, and duct cleaning equipment. All of these are great business extensions, but not when a contractor is still wrestling with demand service profitability.
8. They Lack a Maintenance Agreement Program
Maintenance or service agreements are the strongest customer retention programs available to an HVAC contractor. It is not optional. It is essential. It results in more sales down the road at higher margins. It makes a business more salable.
9. They Ignore Liabilities
Whenever a consumer purchases a service agreement, the contractor takes payment, but also takes on the liability to perform and pay for future maintenance. Giving away three year maintenance agreements to secure a replacement sale creates liabilities. Likewise, in-house warranties generate liabilities. Without a reserve account to pay for future work, the work must come from the reduction of operating income.
10. They Price By The Hour
It is hard to imagine anyone in the HVAC industry still selling labor hours. This turns labor into a commodity and makes it difficult to command the pricing necessary to operate a profitable, growing business. It results in pricing games where contractors use trip charges, minimum charges, first half hour charges, and other techniques to generate sufficient revenue. These tactics fog the pricing economics so that it is difficult to understand what the real pricing really is, let alone what it should be.
For help with your business, check out www.ServiceRoundtable.com or call 877.262.3341. Ask about an upcoming, FREE “Success by Design Day,” which are held around the country a couple of times each month.