By Matt Michel
CEO, Service Roundtable
THE EASIEST WAY to boost your company's profitability is to increase add-on sales during service calls. For a profitable company, the gross profit from an add-on sale magically falls straight to the bottom line.
Consider the company with an average service ticket of $300. If the parts and the fully burdened cost of the plumber's time add up to $150, the company will generate an acceptable gross margin of 50%. The gross profit will be $150. Not bad. However, we still need to account for overhead.
If the company's overhead equals 40% of sales, $120 is required to cover the overhead component of the service call. Subtract the overhead expense from the gross profit and the company owner is left with a net profit of $30 before tax.
Average service ticket: $300
Less cost of sales: $150
Equals gross profit: $150
Less overhead: $120
Equals net profit before tax: $30
On an average call, $30 falls to the bottom line. A lot of risk and hard work go into the generation of $30 profit, or one thin dime for every dollar billed before tax.
With add-ons, you can magically double the profit. Sell an add-on product and overhead doesn't change. Overhead covers the costs to open the company's doors, to capture the call and to get the plumber to the customer's door with a fully stocked and equipped truck. Overhead won't change with the add-on sale.
She wants you to justify paying more.
Suppose you sell a $50 add-on that generates $30 of gross profit and all the gross profit falls to the bottom line. Like magic, the net profit doubles!
Average service ticket: $350
Less cost of sales: $170
Equals gross profit: $180
Less overhead: $120
Equals net profit before tax: $60
How can you make the magic happen on your company's bottom line? One of the simplest add-ons is washing machine hoses. The last time most people checked their washing machine hose was when they moved into their home or bought a new washer. Yet, insurance companies recommend replacing the washing machine hose every three to five years.
Insurance companies recommend regular replacement because hoses can rupture as they age and the consequences from a burst hose are severe. Allstate estimates the damage from burst washing machine hoses alone adds up to $150 million annually.
"Water is the most common cause of home damage today, even more likely than fire," Safeco's Jim Swegle says.
The potential of a burst hose is a problem you can easily solve. Simply point out the facts and help the customer buy a replacement hose, installed.
Helping the customer buy means more than offering a mere duplicate of the existing hose. The frugal customer may feel obligated to try and replace the hose herself. Yet, she really doesn't want to do it herself or she would have already done it. She wants you to justify paying more.
This is easy. After all, you're a plumbing professional. Offer more than a mere replacement. Offer a braided stainless steel, burst-proof washing machine hose with an auto-shutoff feature. It not only sounds better, it is better.
Buy them for $10, spiff your plumber another $10, sell them for $50 and magically drop $30 to the bottom line.
Spiff or not, some plumbers are going to be unable to offer a washing machine hose as an add-on. Make it simple for them by providing a single-page flyer that makes the case for your customers. Get your plumbers to present the flyer at the start of a service call. The flyer gives the homeowner something to do instead of looking over the plumber's shoulder.
If the homeowner fails to ask about the washing machine hose, the plumber can casually ask the homeowner about the age of the washing machine hose while he's preparing the invoice. If the hose is more than five years old or if the homeowner has no idea about the age of the hose, he simply suggests that the homeowner might want to consider a burst-proof hose, noting that he has one on the truck. If the homeowner agrees, you've just provided an additional level of protection and peace of mind for your customer and magically boosted your bottom line.
It works for washing machine hoses. It works for water alarms. It works for extended water heater warranties. It works for dozens of products you offer.
It works like magic.
Matt Michel is CEO of the Service Roundtable, an Internet-based alliance of plumbing and HVAC contractors. He can be reached at [email protected]. For $50 a month, contractors gain access to more than $3 million of sale, marketing and business building tools. For a free copy of his Excel-based pricing calculators, call Liz Patrick at 877/262-3341, by fax at 817/796-2773 or by email at [email protected].