Tag Archives: compensation

Nothing breaks my heart more than to see old plumbers doing backbreaking work at a time when they should be devoting their days to enjoying the grandkids and favorite pastimes. The physical work of plumbing is a young man’s occupation, and even the business of contracting takes its toll on failing senses and nerves.

Yet, I’ve seen more than my share of guys in their 70s and 80s still hauling toilets and lavs up the stairs and trying to maneuver boilers and water heater to the basement. A few may love what they’re doing, although I suspect many of those who make that claim are merely rationalizing. When you see an old plumber or contractor, odds are you are looking at someone who continues to work because he has to, not because he wants to.

That’s because our industry is sorely lacking in a retirement ethic. There’s not one contractor out of 10 in our industry that has a reasonable plan in place to finance retirement for himself, and certainly not for employees. Talk about retirement plans with them – as I have done on hundreds of occasions – and you see a puzzled look in their eyes. They either haven’t given it much thought, or the thought they’ve given fills them with dread.

The leading edge of the baby boom generation is starting to draw Social Security checks. Many of those who spent their careers in plumbing have bad backs and other physical scars as souvenirs. They deserve to spend their twilight years in comfort and without financial worries, but only a small percentage of them will.

For many it’s too late. But for contractors with a few decades to go before retirement age, consider the following advice.

The Four-Legged Stool: It always amazes me how many people look forward to Social Security checks as their main source of retirement income. They tend to exaggerate in their own minds how much of an income SSI will provide, and underestimate what it will take to support themselves in retirement.

Social Security is a great program, but by itself is not capable of providing for a comfortable retirement, unless you choose to live in a Third World county. Social Security can make the difference between abject poverty and getting by, or between just getting by and enjoying a few creature comforts. But most people who rely on SSI alone find themselves living a bare bones existence.

SSI can be thought of as just one leg of a four-legged stool. Ever try to sit on a one-legged stool? It can be pretty darned clumsy and uncomfortable.

Some contractors have had the foresight to provide a second leg of the stool in the form of modest savings. These typically are “rainy day” funds that sit in back accounts, treasury bills or other conservative financial instruments. At today’s interest rates, you’d earn $1,000-$2,000 for every $100,000 you have invested in these accounts. Most contractors don’t have even $100,000 saved up, so their savings can be expected to provide only a few hundred dollars in retirement income each year.

SSI and savings provide two legs of the four-legged stool. Ever try to sit on a two-legged stool? Not much better than trying to balance against a single leg.

Leg No. 3: What’s missing for most contractors are the third and fourth legs of the stool. Leg No. 3 comes from a profit-sharing program or 401k-type account with regular contributions based on company profits.

Funding is not assured, and some years may contribute more than others, but over time, this really builds up. That’s because of what I referred to in previous columns as the “8^th Wonder of the World,” the compounding of interest. Coupled with tax deferments until money is withdrawn, this pool of money becomes Olympic-sized by the time you use it.

With Leg No. 3, you can be more aggressive in your investments, especially when you are still many years away from retirement. Despite Wall Street’s recent troubles, stock are still the best bet at earning double-digit returns on your money over a long period of time. Yes, many stock investors wince in pain these days with each monthly broker’s statement. But most of them made a killing during the 1990s, and are still well ahead of where they would have been had they spent the ‘90s sinking the same amount of money into bank savings.

PHC contractors with a profit-sharing plan are so rare as to be remarkable. Yet, those that offer such plans generally can look forward to a retirement filled with travel, golf, fishing, hunting or whatever other hobbies they may wish to pursue, whatever the expense.

Sitting on a three-legged stool is not so bad, is it? It may wobble a bit when you get off center, but for the most part it will hold you up.

Leg No. 4: The fourth leg of the stool is the sturdiest of all. It is also rare to encounter in our industry. Leg No. 4 consists of proceeds from the sale of your business. For some contractors that operate profitably and build a business capable of sustaining itself without the founder, this fourth leg represents a huge chunk of change, even running into seven figures. Not too shabby. Most of us could sit comfortable on that kind of four-legged stool.

Unfortunately, this leg represents less than 1% of the PHC companies doing business today. The last Construction Industry Census found about 85,000 PHC companies doing business in the country. (They only count companies reporting a payroll. That total doesn’t include somewhere between 100,000-200,000 one-man shops and partnerships, few of which are saleable.)

I don’t know how many of those 85,000 companies get sold every year for a significant amount of money, but I suspect it is far fewer than 850. The real number is probably only a few dozen.

Business consultant and author Michael Gerber’s “E-myth” books spell out forcefully what is the great fallacy of entrepreneurs – the belief that they are indispensable to their business.

Instead, the greatest task of many small business owners is to make himself dispensable. Only if you can create a business that can run without you will anyone be interested in spending considerable money to buy it. Think about it, why would anyone want to pay good money for a business so dependent on the owner that it’s likely to fall apart when the owner leaves or loses interest in it?

That fourth leg is made of the sturdiest wood around, but it’s so hard to find.

Continue Reading »

For this month’s column, I offer the following tips:

1. Avoid eating foods with a strong odor, such as garlic and onions before heading into the woods.
2. Store your hunting clothes in unscented bags along with twigs, leaves, grasses or deer scent wafers. Do not use hunting clothes for changing oil or other household chores that might fill them with human scent.
3. Bow and arrow hunters, practice your archery while wearing your hunting clothes and gear.
4. Use a tightly sealed urine bottle for nature’s call.
5. Twigs and branches could deflect an arrow. Double-check your shooting lanes.
6. Big bucks tend to be nocturnal in season. Your best chance to get one is very early or very late in the day.

Oh, wait. I forgot. This article is supposed to be about “Business Tips.” It’s become increasingly easy for me to overlook that during deer hunting season.

Not that I don’t have other important pursuits during the off-season. There’s plenty of fishing to catch up on, for example, plus my sorely neglected golf game. I’m embarrassed to tell you how many handicap strokes I carry these days thanks to my screwed-up priorities.

The Business of Contracting: Top priority for the last five decades has been business. First, it had to do with founding and operating Blau Plumbing & Heating. For the last several decades I’ve turned more and more of it over to my capable sons Jimmy and Bobby, but I still had business on the brain. During much of the 1990s, I was consumed with Contractors 2000, which I co-founded in 1992 and helped shepherd into the industry’s finest organization for PHC service contractors.

I also found myself on the road much of the time teaching “The Business of Contracting” to thousands of PHC contractors throughout the country. I’ve contributed this column to the Buzz newsletter for the last 3 years, based on the knowledge I have gained during my fruitful career as a contractor and consultant.

It seems like almost yesterday when it all started, the financial end of contracting was a subject that nobody else seemed to be addressing. Most articles in the trade magazines focused on plumbing issues, with some attention given to marketing. However, it’s always been my contention that you can be the most talented plumber in the world as well as the world’s best marketer, but you still will fall flat on your face as a plumbing contractor if you don’t have a handle of the financial end of the business.

Unfortunately, more than 90% of the contractors in our industry don’t have the knowledge and/or the will to crunch the numbers in a way that results in adequate compensation for themselves and their faithful, hard-working employees, and healthy bottom line. This was true way back when and remains true today. It will remain true for all eternity, until this industry changes its way of thinking about itself.

Through my columns and seminars, I have reached tens of thousands of plumbing contractors with a twofold message:

1)     They are far more important contributors to our society than they give themselves credit for.

2)     They and their employees ought to be rewarded far more than they are.

Nothing in my professional life has been more gratifying than to have been an instrument of change for the better in the lives of hundreds of contractors and thousands of their employees throughout the industry. I’m referring to the contractors from coast-to-coast that have “taken the medicine” and revamped their business practices to get the selling prices they need to succeed in business, and leave a legacy to their families, employees, and communities at-large. It’s led to numerous friendships so powerful that I’ve neglected the deer, the fish, and the birdies.

Easing Into Retirement: This is something most contractors haven’t planned for and can’t afford. So too many of them keep working long beyond the time when they should be expected to. Next month I will give you a little piece of my mind on the “Four Legs of Financial Security” to help you ease yourself into retirement.

It’s time to practice what I preach. Many years ago I began planning for my retirement, and built up a considerable nest egg to draw from. Well, it’s finally dawned on me that it’s time to start doing that.

In the early 2000s I bought 135 acres of prime wooded land in northern Wisconsin. Since then I’ve spent most of my time there constructing and building and creating two and miles of 9ft. wide trails within the boundary lines of the property, and indulging in my passions for hunting and fishing.

I’ll close with one more piece of advice. I’ve mentioned neglecting my beloved pastimes in what should have been my retirement years. Even more deeply, I regret devoting so much time traveling around this country from one end to the other presenting my seminars that I’ve missed out on so many events in the lives of my nine children and 19 grandchildren. Unlike outdoor sports, it’s impossible to catch up on these activities. They are gone forever.

Don’t let these things pass you by. Make time to attend your kids’ ball games, school plays and whatever other activities they may participate in. Once they grow up, it’s too late to make up for lost time.

Continue Reading »

I’ve bemoaned for years the sad statistics showing that PHC contractors are woefully underpaid, earning on average around $45,000 a year based on industry statistics. But you know the old adage about averages – one foot in a bucket of ice, the other in boiling water, and on average you feel quite comfortable. I know hundreds of contractors who make upwards of $100,000 a year – especially those who have “taken the medicine” and started operating like businessmen rather than plumbers.

This means that for every one of them earning $100,000, two contractors must earn merely $17,500 in a year to blend into that $45,000 a year average. Or, if only one out of 10 contractors earns $100,000 in a year, the other nine would average $38,889 in income. Considering that some bring in upwards of $200,000 a year or more, it means out industry teems with contractors who barely earn enough to make ends meet.

I have met many of these poor souls at my seminars. At the beginning I ask contractors to fill out a form stating their annual compensation as reported on the previous year’s W-2 form. I am astounded, and saddened; at how many I see reporting less than $40,000 a year of just a little more. By and large these are small contractors, most of them one-man shops with the wife chipping in to handle office functions without compensation. They typically work even longer hours than the big contractors, because they have nobody else to rely on. Yet, they have little to show for it because they don’t have a clue as to how much their services are worth, or how to price their services in line with the value provided.

Enjoy the Cake: Many of them cherish their independence, and think low income is the price they must pay for being their own boss. I have news for them.

You can have your cake and eat it, too!

Small service contractors are the backbone of this industry. There are more of them out there than there are multi-vehicle operations. Many choose to remain tiny, and there is much to be said for that way of life. You don’t have the headaches associated with hiring and managing people, you eliminate much paperwork and government rigmarole, and you can run your business without anyone looking over your shoulder. God bless you if you choose to remain a one-man shop. Sometimes I envy you.

But you don’t have to take a vow of poverty to work alone. You can earn a decent living based on the same principles I preach to sizable contractors, namely:

• Offer Decent Pay. Pay yourself and your spouse or anyone else working in the business a decent income. For the example that we’ll detail next month, we’ve chosen an annual salary of $75,000 for the owner and $40,000 for the spouse who keeps the books. Don’t fall into the foolish trap of treating your wife as slave labor. Her time is valuable, too, and she could be out earning money working for someone else if she wasn’t tied up in your mom-and-pop business.

It’s important to understand that these salaries are in addition to whatever profit you might generate from the business. Many small contractors don’t pay themselves a thing. They simply keep whatever is left over after they pay their bills.

Because few of them know how to crunch numbers and price their services, they usually find out there is little or nothing left. So they take very little out of the business, cut every possible corner when it comes to business expenses (which reduces their ability to properly serve customers), and stiff their suppliers in order to survive.

You’ll need both an income and profits to properly run your business. Take a cue from the real world of business. For example, Amazon.com, one of the most highly valued Internet companies worth many billions of dollars, has lost hundreds of millions of dollars year after year. But CEO Jeff Bezos and his employees still get paid handsome salaries. Profits, if and when they come, will be funneled back into the business and used to reward Bezos and other with hefty bonuses. But they don’t starve while waiting for that day to come.

• Know Your Costs. Owner and spouse compensation must get factored into overhead, along with every other business expense. Keep track of every business expense and crunch the numbers to derive a dollar-per-hour overhead figure telling you how much it costs to deliver each billable hour of service.

Add this hourly overhead figure to your direct job costs (labor, materials, permits, any sub work) to determine your breakeven point, i.e., the amount you need to charge just to cover your direct and overhead costs. Then factor in a reasonable level of profit, which I believe should be at least 15%, preferably more. This will provide you with your hourly billing rate for service.

• Crunch Your Numbers. If you do all this correctly, you will inevitably find that you must charge far more than the going rate in your market. You’ll discover that whereas most competitors are charging $50 an hour or less on a time and material basis, you need to charge two or three times that amount just to break even.

This will shock you, and you’ll think you made a mistake. So go ahead and crunch the numbers over and over. Do it as many times as it takes to convince yourself that you are right, and they are wrong in their pricing policies.

Sadly, I’ve met many contractors who refuse to believe the evidence before their eyes. They simply cannot accept that it could cost them that much to be in the PHC business, so they revert to charging the “going rate” even thought they know better. They are like lemmings who follow their leaders right off a cliff.

• Move To Flat Rate. Once you determine that the numbers don’t lie, you’ll need to start implementing a flat rate marketing strategy that emphasizes value rather than price. This will take some work upfront, but it will be a giant step on the way to success in the PHC service business.

 

 

Continue Reading »

In my past columns I’ve consistently beat the drum for increased compensation and fringe benefits for the service technicians and journeymen who are the most important employees in our contracting businesses. They labor very hard, and are the crucial link with customers – at least on the service side of our business. How these men and women perform their jobs can make or break our companies.

Yet, all industry compensation surveys show them to be, on average, grossly under-compensated compared to what other skilled and non-skilled people are paid throughout our economy. The most credible source of non-union pay scales comes from an organization called PAS Inc., which reports average wages nationwide of around $16 an hour for plumbing and HVAC service techs. That translates to about $32,000 a year. Moreover, since PAS tracks mainly commercial industrial mechanical contractors, I suspect their figures are a bit higher than the average residential PHC contractor pays.

And, of course, “average” means that many contractors are paying even less. In some parts of the country service techs make less than $10 an hour. The excuse is always that the cost of living isn’t as high as in the big urban centers. That may be so, but I don’t think there’s anywhere in this country where $8 or $9 an hour represents a decent wage for a skilled PHC technician. Nor do most contractors in our industry offer fringe benefits like paid vacation, health care and retirement plans that compare well with those of other industries.

Union pay scales around the country tend to be about a third higher overall, which projects to an annual income of between $40,000-$45,000 without overtime. This is better, but still not enough to my way of thinking.

So what should the skilled PHC service tech earn? That’s the question most asked of me by hundreds of contractors who have responded to my columns dealing with this subject.

There is no standard answer. Pay scales will vary by region and by company. But one thing’s for sure: You can’t pay your people what they’re worth if you are wedded to the traditional “going rate” for PHC services that prevails in your area.

Comparing Value: One way to answer the question of how much to pay is to compare what our employees make compared with workers in other fields. Auto assembly line workers cost Ford, General Motors, Chrysler and other companies on average $45 per hour in wages and fringe benefits. This translates into $90,000 per year for a 2,000-hour year.

How can they afford it? Let’s rephrase the question: How can we afford it? That’s because you and I pay for 100% of those costs every time we buy a car. Cut autoworkers’ pay and benefits in half, and we might save a few thousand dollars in price of an automobile. But the UAW and auto industry management have come to grips with the fact that their employees are not only valuable workers, but also human beings who deserve a decent standard of living.

Keep in mind that auto assembly lines involve fairly simple tasks that most people can learn in a matter of hours or days. Most of the work is categorized as unskilled or semi skilled at best. You don’t have to put someone through years of apprenticeship training to become an auto assembler. You can hire someone off the street and have that person contributing in a productive way within a week.

Information Technology: A recent press release that I came across on the Internet revealed a salary survey for information technology workers by RHI Consulting, a leading specialized staffing service that provides information technology professionals on a project basis. Their annual salary survey is based upon an in-depth analysis of thousands of job orders managed by the company’s U.S. offices. Key findings in an RHI Consulting Salary Guide revealed the following:

• Database administrators will earn between $61,250 and $88,000.
• Webmasters can expect starting salaries of between $51,000 and $73,000.
• Software package implementation specialists, i.e., people who install “off the shelf” business application software, will experience starting salaries between $56,000 and $80,000.
• Electronic commerce specialists will earn between $45,000 and $73,000.
• Project managers will earn between $60,000 and $80,750.
• Software developers with installation and development expertise will earn between $50,000 and $65,000.
• Network administrators will earn between $42,750 and $59,750.
• Chief information officers will earn between $113,500 and $180,000.
• Help desk managers will earn between $67,500 and $85,500.

Granted, these are not unskilled positions. Information technology workers tend to be people with computer science degrees or college graduates in other subjects with extensive computer training.

But does that make them any more valuable than our PHC service technicians? Does it take any less time to train a good service tech than it does to earn a college degree? Does a top service technician have to be any less intelligent than the people who designs and maintains corporate Web sites? Does the work that our techs do in conditions with electrical and fuel connections, have less intrinsic value than communicating via the Internet?

Crux Of The Problem: Deep down, many people in our industry think so. I am haunted by a story told to me by my friend Jim Olsztynski years ago.

As anyone who has heard my seminars know, I firmly believe that every PHC contractor should shoot for personal compensation of at least $100,000 a year in return for all the risk and aggravation involved in running one’s own PHC business. Less than that, you’re probably better off working for someone else.

Jim was attending a seminar I put on at an NAPHCC convention. I had just finished the segment of my presentation in which I discussed that $100,000 a year goal when it was time for a break. While exiting the room, Jim overheard one contractor in attendance say to another, “There’s not a contractor in the world worth $100,000 a year!”

It wasn’t just one man’s idiotic opinion. This is an attitude that I’ve since discovered is widespread within the industry. The sad truth of the matter is that to a great many contractors, the average technician income of $32,000 a year sounds like “good money.” They think just because they have to scrimp and pinch every penny, all of their customers are in just as bad of shape.

If contractors don’t truly believe that they and their key employees are worth more than the pitiful industry averages, how can we ever convince the marketplace to pay the prices needed to provide an equitable living for all of us? And if we don’t, how will we ever attract talented young people to the industry?

Examples Galore: I’ve heard all the excuses. “It can’t be done…maybe in your market, but mine is different. I’d go out of business charging more than the going rate.” Yet, I have received hundreds of letters from followers who have taken my advice and learned to sell on the basis of value rather than price. They have become number crunchers and flat raters. They have finally learned that the customer wants to know the price of the job upfront.

They have had the courage to get their prices where they should be. They have learned to cope with the disparaging comments of their once friendly competitors that accuse them of “ripping off” the public. God willing, those are the people who will lead this crazy industry to a higher plateau in the next millennium.

Continue Reading »