Beating a Dead Horse?
April 23, 2007
I have struggled writing this article after the two previous articles about the Blue Book. I know I have been up on a soapbox - off on a rant about pricing. You guys are important to me, so is this trade, and it is in trouble. There are not enough young guys coming into the trade because there is not a good future for them. I don’t want to be beating a dead horse…but, I’m sorry Old Dobbin; I gotta give ya a few more whacks.
First, there was a typo in the form letter to the mill presidents - it should have read 2010 not 2110. If you use the form letter please change the date. We don’t want them to think, “Sure no problem, we got a hundred years!”
I know it is difficult to for those of you making $2.50, $3.50, or $4.00 per yard to imagine getting $6.50 plus all the extras for stairs, pull-up, seaming, furniture, closets, patterns, concrete, doors, etc., etc. It was hard for me as well. One of the things to be aware of is that you don’t need to make a huge change all at once to see some real benefits. For example if you do 100 yards a day five days a week, that is 500 yards a week, 50 weeks a year (two weeks vacation, ha ha, yeah, right!). If you raise your price by $.50 per yard, then that’s an extra $250 per week, or $12,500 per year, $.25 per yd $125 per week, or $6,250 per year. Heck, if you only raise your pricing a dime its $50 a week; not much you say; how about $2,500? That’s the dime over a year’s time.
In a previous article (“Cost of doing Business”), I talked about how to figure your per-hour cost of doing business. I showed you how to break every expense down to an hourly cost. This gave you a formula to determine what it cost you, per hour to install, based on 10 yards per hour. This covered most everything, except I left out the cost of your tools. There is a table put together by the CFI on what it cost to outfit an installer with the proper tools (Figure 1).
Now I’m not saying I have all the tools listed, but I have enough of them to total about $8,000, and I’ll bet you do too. “Yeah, so what?” you say. Well you, like most other installers and I as well, accumulated your tools over the years, a few here and there as you learned or needed them. Not plopping down eight or ten thousand dollars at one time for the full kit. But, for sake of argument let’s say you did. What would it cost you? Eight or ten thousand dollars? Sure if you had that kind of extra money lying around. In all likelihood you would have to finance it and that costs money. Ten thousand dollars at 7.25% for 5 years is about $200 per month. For that type of loan you probably would not be able to get a rate less than 10% which would put your payment closer to $300 per month. Or using the formula from “Cost of Doing Business” $1.80 per hour. That’s just for the tools, not the truck or any thing else.
So what’s my point? Know what it costs you to run your business! You are no different than the retailer you sub-contract for; he or she knows what their cost of doing business is and set their prices so they can make a profit. This is how they pay for the building, payroll, and all the things that are required to operate a business. The reason they like to use you, a sub-contractor is because they know exactly what their cost of installation is. They have no truck, supply, or unknown costs associated with installation.
I am not picking on retailers. They are business people and like everyone, want to get the most and best they can for the least. It’s capitalism in all its glory. When the mills’ cost of making a yard of carpet goes up the cost of the carpet goes up. When the retailer gets a price increase from the mill, they raise the selling price. Why? Because they know what it costs them to stay in business and make a profit! When I started in 1970 we were getting $1.50 per square yard. There is a web site that compares the buying power of a dollar of different years in time www.measuringworth.com . I compared 1970 with 2005 (as high as it goes). In order to get the same buying power of that 1970 $1.50 you have to have $7.65 in 2005 dollars. Carpet prices and everything else has gone up. What is your cost of doing business? Or maybe more importantly, what is your cost of staying alive?
If you haven’t gotten a copy of “The Bluebook” yet, by all means get one. Like I said in the second paragraph, you don’t have to do it all at once. Sit down with your accounts and discuss where you want to be and how to get there without damaging their business. For example start with $.50 a yard and add some extras you are not getting now. Instead of $8 or $10 a stair, add $2 a stair if you are not getting any extra for stairs now. Then in six months add another $.25 a yard and another small amount more for the extras. Then add some more at a year and so on until you reach the point you need to be. Then it will be small adjustments for your cost increases. This would give you and your customer a working partnership and a commitment toward the future.
The articles “Cost of Doing Business” and “Selling You” are in the FCI archives. Just put those titles in the search box on the main page at www.fcimag.com and they will come up. If you have trouble getting the articles or the price list spreadsheet, e-mail me (firstname.lastname@example.org) and I will send them to you.
Send the letters to the mills (if you use the form letter, change the date from 2110 to 2010). Will it work? I don’t know, but maybe if we bring enough attention to the problem somebody will come up with a solution.
As for this being an answer, I don’t know. But I am at a loss as to how to turn this installation problem around. We need to have everyone together: mills, unions, retailers and independent installers.
I am open to other ideas; perhaps if we flood the mills with letters and the situation is brought to the forefront of everyone’s attention maybe a better solution will emerge. Remember that tax on tea thing? They went up against the greatest empire on earth and it worked out OK. At the very least let’s try. What’s the worst that could happen? Nothing would change.