THERE ARE BASIC truths that apply to all businesses. You can’t be all things to all customers. You can have great service, you can provide a quality product, you can have the lowest prices, but you cannot have all three and survive.
Regardless of the size of your contracting firm, regardless of your target market or markets, your very survival would be well served by keeping this basic axiom as a sign hanging over the front door of your mind.
To make it easy for you understand this, compare the grocery store where you shop for party delicacies with the store in which you normally shop because it has nice clerks and lots of brand-name choices. Then look at my own favorite low-end, aggressively priced alternative grocer, Aldi. Visit an Aldi with an open mind and cash or a debit card. Aldi does not accept checks. You will find almost no choices and few brand names, but you will find aggressive prices and fast checkouts.
A long time ago, in an in-depth conversation with a guy whom I would call “plumber to the stars,” I was reminded that his service charge to repair a one-piece water closet in the home of one of his Hollywood clients would be higher than the cost to originally buy and install that water closet in that Hollywood mansion! He did good work, was very discrete and, as the line goes in “Pretty Woman,” probably did lots of “sucking up.”
The following is not a well-documented axiom but an observation I have made over a rather checkered career in this industry:
It is possible to be a quality manufacturer; we all know of many.
It is possible to be an efficient, high-volume producer of lower-end products or a manufacturer may choose to be the price leader, but only in very special circumstances can you be all three.
One of my favorite exceptions to this has always been NIBCO, which achieved that distinctive quality, volume, aggressive pricing position by unmatched production efficiency and innovative design and marketing. But practice does not always make perfect. NIBCO’s run at low-priced, high-volume finished brass faucets and trim failed and it pulled out of that market 10-15 years ago.
If you were to ask me who is the leader in aggressively priced faucets (and it becomes increasingly more difficult to call them “brass” these days) I would say that I don’t know, but my bet is that the faucets come into this country in a cargo container. I assume to compete under the current rules of making less expensive faucets and trim that you have to radically decrease the amount of brass and radically increase the commute time of the product.
It will serve you well to remember these observations as you direct your evolutionary business efforts whether you are a two-truck shop or a 200-truck major mechanical. And while you may not do the regular grocery shopping, as a reminder, you should visit one of the successful food boutiques in your area such as a Whole Foods Market and then compare it with the nearest Aldi location.
If you are a successful tract home installer of our industry’s products, you will find it virtually impossible to run a profitable, integrated service business. Success is possible only if you develop totally separate operations with separate supervision, separate technicians and a separate customer service attitude. Additionally, if you are a tract house installer providing the required follow-up warranty service on the tract work, that follow-up service must be done by a separate group of people who are more in tune with the homeowner rather than the home builder.
I continue to believe that a quality service business can be the best of all worlds for contractors. A properly functioning, high-quality service business provides the most consistent and predictable profits and the most personal satisfaction.
Such an operation is not a haven for people who have grown too old, too slow or who have developed middle-age “football” knees or over-the-hill mindsets. It is a home for your neatest and your smartest, and they must be compensated for their profitable production. It would also probably be wise that you separate your profitable service business from your profitable mass installation business completely, not only philosophically but geographically. Just as in plumbing, any cross connection is probably unhealthy here too.
The ink jet printer manufacturers of the world have decided that the profit is not in manufacturing the printer but rather in producing a great printer at a low price so they can sell the patented, high-margin replacement cartridges consumed in huge volume by happy users. In the same way, your low-profit massive jobs can be profitably supplemented by a high-profit service-maintenance-retrofit division — if you manage it as a separate and distinct profit center.
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HIGH PERFORMANCE CONTRACTING/FLAT RATE PRICING VIDEO SEMINAR
An excitingly different training program for you and your key employees. Contractors exactly like you have increased their profits quickly using the information provided by these tapes and accompanying manual.
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Schmitt Consulting Group
2141 Schuetz Rd., Suite 201
St. Louis, MO 63146
314/872-9199
Fax 314/872-9399