Build Pricing That Actually Makes Money
Are you actually pricing your work to make money, or are you just hoping the numbers work out at the end of the month? Profitable pricing starts with understanding what it really costs to run the business, where your break-even sits, and how labor, overhead and job type all impact the number you should be charging.
In this episode of Cracking The Code, Jason Walker and Brad Barron sit down with James Leichter, President & CEO of Aptora, to break down the numbers behind profitable pricing. James explains why service pricing is often misunderstood, how to calculate and communicate break-even, why labor-heavy jobs need to be priced differently than equipment-heavy work, and how poor pricing can quietly erase profit even when revenue looks strong. He also shares why financial transparency with your team can create stronger buy-in around pricing, productivity and profitability.
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00:00:00:00 – 00:00:11:11
I ride with people plumbers, electricians, HVAC technicians. I talked to them. They think you are way richer than you really are.
00:00:11:13 – 00:00:38:03
Welcome to another episode of Cracking the Code with your host, Jada Moneymaker and the co-host, Mr. Brad Barron. And we got a great, exciting peek top podcast for you all. And I’m super excited because this is a gentleman that’s going to be in one of the breakout rooms in epic in 2027. And I’m telling you all, this is a breakout that you all do not want to miss.
00:00:38:04 – 00:01:04:14
He’s going to be dropping bombs just like Brad is firecracker, right, Brad? Boop boop boop boop. But let’s go ahead and welcome Mr. James later in the hot seat. Mr. James, you are the CEO and the president of does pretty much anything and everything technology that you would need with a company. And I’m super excited to learn more about what it does.
00:01:04:15 – 00:01:22:17
But what I’m really excited for is to learn what you’re going to be talking about in the breakout room, because what you’re going to be talking about is price it right now, let me tell you all, when I read that the first time I thought we were going to the game show The Price Is Right, and I read it and it was like, you know what?
00:01:22:17 – 00:01:43:17
This is going to be a great breakout. And then I reread it and I go, man, I gotta fix it because usually I fumble, right? But no, I wanted to let everyone know it’s not the price is right, it’s price it right. And it’s going to be a great breakout room. Talk a little bit, James, about what you’re going to be talking about in that breakout.
00:01:43:19 – 00:02:06:00
Well thank you. Thanks for having me on. It is such an important topic. I always tell people that my biggest concern for any business, contracting business, any business really is pricing. It all starts with pricing. Because if you’re losing a dollar on a widget, the last thing you want to do is learn how to sell more widgets. So you have to get your price right.
00:02:06:00 – 00:02:31:12
You’ve got to have the price right. And that’s that’s why we came up with that title. So we’re talking about what I think is the most fundamental question to starting a business, starting a new department, new division. And that is what are we going to charge for it. Yeah, I was going to say on my end, charging for things correctly is probably the biggest gap that I see in the industry.
00:02:31:14 – 00:02:49:02
Got a lot of people that have come out of their their truck, say, to start their own business. They’re used to maybe pricing that was two, three, four, ten years ago, like one of the coaching clients I work with right now. You know, they hadn’t updated their service pricing right in over five years. And they were looking at me going like, yeah, we don’t understand.
00:02:49:02 – 00:03:15:10
We don’t what’s going on. And and the loss or lack of profitability in their service group. And so one of the first areas that I do like to start is with pricing. But from my seat, you know Baron, we’ve got multi trade HVAC, electrical, plumbing. We do installation service. A lot of companies can usually work pretty well getting their pricing right on the install side, although I will share that there are still big gaps.
00:03:15:10 – 00:03:40:17
And I think I’d like to to dive into those today too. I don’t want to steal all your thunder, James, from what you’re going to be talking about at epic, because I think that’s important. But some tricks of the trade, if you will, or just general things to lean into, would be great. But on the service, if I compare installation against service more often than not, especially companies that are not departmental, they’re going, what’s happening with my margin, what’s happening with my profitability?
00:03:40:17 – 00:04:02:19
And most of the time it’s an issue or a challenge with understanding how to price correctly in service. So maybe we start there from your seat with all of the work. Because you do coaching, you do, you know support of the trades all across the United States? What are some of the primary pitfalls, James, that you see when it comes to service pricing?
00:04:02:20 – 00:04:26:15
Yeah. So you know, first of all, everything I talk about I’ve made these mistakes. I’m not perfect. I always hate to sound like one of those seminar guys that never did anything wrong, you know? So most of what I learned was because I screwed something up. I think that the biggest thing contractors don’t realize is how incredibly expensive it is to run a service department.
00:04:26:15 – 00:04:53:21
It is paramount to the emergency room of the hospital, where Band-Aids are six bucks and they have to be six bucks because you’re capable of doing anything, anything at all. But somebody came in and needed a Band-Aid. But that Band-Aid has to pay for the capability to do anything. All of that capability is there, whether it’s used or not, that’s incredibly expensive.
00:04:53:21 – 00:05:18:23
So the service department, which is often 24 over seven, the truck $100,000, driven by the most difficult person in the world to hire. It’s incredibly expensive to do that. You’re lucky to bill out has today. Somebody has to pay for all that. And when you really take the time to calculate the break even and that’s that’s all I’m concerned with, I don’t tell people how much net profit to make.
00:05:19:00 – 00:05:41:08
I let them decide which make the break even. Most people think it’s a mistake. The number is so high they think that the calculation is incorrect. No, I agree, and I love that. By the way, something you just said I think really resonated with me. It is not our job when we’re coaching or training or educating to tell people how much money their business should make.
00:05:41:09 – 00:06:20:07
Now there are KPIs, there’s industry standards, there’s benchmarks that we can look at. But understanding the word that you used is the word I think is really important for people to understand understanding, break even, not just for their company, although they should understand that what is their daily break even. But you need to understand what the break even is for a division and for a truck like we break down at Barron as an example, like our tech snow, that when we run a call, we have to bring in $244 on that call or we lose money like we know what that number is and we share that that is based on them running four and
00:06:20:07 – 00:06:40:13
a half calls a day, right? Like they understand what that is. But the education two of not only the contractors but the technicians in my opinion is incredibly imperative. Like a lot of a lot of owners are concerned. Right. Sharing that right there. I don’t know if I should tell my text what that number is and they should.
00:06:40:14 – 00:07:03:05
We need to do that because if they don’t have conviction, how in the world are they going to be able to have confidence in the home on who they are, the skills they possess, the cost of training it took to get them to be able to identify what is happening in the home? Absolutely. I think, I think Brad really touched a good remark right there is they have to understand what their benchmarks are, right.
00:07:03:06 – 00:07:27:19
And to break it down, to simplify it to the daily right. I always go in when I do onsite trainings. I have the company and the teams understand. Okay. What’s the revenue annual revenue you want to bring in individually. Right. And then break that down monthly, weekly, daily. And then like you all say, everyone has to understand those benchmarks all the way across the board, right?
00:07:27:19 – 00:07:45:23
Right. Can you imagine playing a football game and and you say, coach, are we winning or what’s the score? We’re not going to tell you that until the game is over. Just go out there and score more points and don’t let them score any. What a good analogy. I love that. I think at the end of the day, transparency.
00:07:45:23 – 00:08:07:00
And I know I brought this up and Jason knows too. There is an inherent sometimes like feeling of of shame, if you will, of having to let people know financials and what that looks like and what it means, not only at the company level, not only at the department level, but also at the individual technician level. But at the end of the day, HVAC, electrical, plumbing companies.
00:08:07:00 – 00:08:32:13
We’re in a for profit business, right? We’re trying to make money. And and the technicians, electricians and plumbers need to know what that looks like. I, I was reading an article. Excuse me. It was a it wasn’t an article. It was just a general forum, if you will, or a recap of a forum where owners were talking about trying to relate the cost of running a service business against the cost of, say, being a lawyer running a law firm.
00:08:32:14 – 00:08:51:02
And this was a really interesting one to me, because it’s actually been something that I’ve used in some of our huddles, talking with technicians to get them to understand the cost. And James, you hit on it earlier where you said some, you know, we’re lucky or some companies are lucky to get over 50% of their day per tech, right, build out in a service division.
00:08:51:07 – 00:09:16:14
So I asked them, what do you think the bill rate is for a law firm? Right. For a lawyer, right. They get a sit at a desk, they get a hit a timer. And we’re talking upper 90% efficiency is a bill. Efficiency right. So if you look at that and that lawyers say on the low end is charging 250, $300 an hour, one would imagine in service in contracting, we’d have to be probably, you know, maybe double that, right.
00:09:16:14 – 00:09:35:22
In some cases, depending on your overhead structure. Right? Yeah. There’s an old joke that only a lawyer can work eight hours in Bill 12. Yeah, I like that. No. That’s awesome. So what are some of the other things, James, that you see on your end when it comes to to the service world? Let’s start there before we move over to installation and sales.
00:09:35:22 – 00:09:51:19
But on the service side, what are some of those big I would maybe say red flags, but just flags the owners should be aware of when it comes to pricing. Right. And some of the things that you’re going to dive deeper into during your breakout. Yeah, during our breakout, we’re going to focus on large commercial jobs, which is really unique.
00:09:51:20 – 00:10:23:22
You’re not getting a lot of information in our industry about that. So we’re going to really focus on the uniqueness of a large commercial job. And and the requirements are quite a bit different. But I’ll tell you this. The most important thing to know what regardless of what department you’re in charge of, the most important thing to understand is there’s a huge difference between labor and Mieszko material, equipment, subcontractors and other direct expenses.
00:10:24:04 – 00:10:54:14
There is a big difference between the cost involved and in selling a box versus selling an hour of my time. It’s easy to sell boxes. You want to buy 100 of these boxes, a thousand of these boxes. I can handle it. You want 100 hours of my time? 1000 hours of my time. That’s very difficult. So there is a big difference between the costs associated with delivering boxes and delivering time.
00:10:54:15 – 00:11:36:16
And that’s why pricing in the service department is much different than the install department versus maintenance versus design build and a small replacement. I think that’s important to understanding the difference right between each level of each one that they’re doing. But I like what we talked about earlier, understanding the break even real quick. If we could kind of take a step back on that, you know, royalty being a newer company, I had to understand what our break even is, because the operations of what we were doing at a two year operation, a one year operation, was much more right, because we had trucks, we had vehicles, we had websites.
00:11:36:18 – 00:12:06:06
We had a lot more involved than what your typical one year, two year operations would be. And so our break even as a new company, just to let everybody know out there that’s watching is about 150 000. Is our break even. So understanding every single month also peak imbalances right. Because we have peak season and we have to understand what are going to be our losses, which Brad and I talked about understanding the lost months and how you guys are going to adapt to those as well.
00:12:06:12 – 00:12:32:22
So, James, I’m really interested in learning more about the software and kind of what companies you’ve worked with have been able to scale their company by using this. Yeah. So a little background. Pretty much since I got out of high school, I’ve been in the contracting industry. I got into HVAC, plumbing and electrical in an apprenticeship program, working towards my master mechanics license.
00:12:32:22 – 00:12:58:15
Master Pipefitters license, and half my wage was paid by the federal government. It was a welfare program. And so I feel really honored to be part of the trade and feel honored to have that career opportunity. But like many people, I thought that they were making a fortune that the company I worked for was making a fortune. After all, if they’re paying me, you know, back in the day, 15 an hour and they’re charging 75 an hour.
00:12:58:16 – 00:13:29:18
They must be making a fortune. And I thought that for the longest time, and I, I will say we touched on this earlier. I will say that the more your employees know about how much you make, the less impressed they are going to be. Why hide it? First off, why hide it, right? That’s one thing, because I do feel like as I go to different companies, more than 50% probably hide their numbers from their employees and they don’t want them to know.
00:13:29:19 – 00:13:50:16
Yeah, I’m telling you, I work with I. I ride with people, ride with plumbers, electricians, HVAC technicians. I talked to them. I do that for a living. We make we make accounting software here. We make an app. And and I talk to these these guys and gals, not enough gals in the industry, unfortunately. But I talk to them all the time.
00:13:50:16 – 00:14:08:06
They think their bosses are a filthy, stinking rich. I know how much the boss is making because I see the W-2, I see the accounting and you know the boss is not entitled to time and a half if you take all the hours they work and just do a little bit of math, their hourly wage is not that impressive.
00:14:08:11 – 00:14:26:19
So the more they know, the more they’re going to feel sorry for you. I guarantee you they think you are way richer than you really are. Love that James. When I started at Barron, this was about ten years ago. You know, my my dad and I are business partners now, but he was, you know, the owner back then.
00:14:26:21 – 00:14:44:02
And at the end of the day, I remember sitting down. This was probably week three, and I was I had sat in on a number of huddles and a number of meetings, and one of the things that was never discussed in those huddles or meetings was, was financials or goals or targets in regards to what that looks like and means, and break even all the things that we’re talking about.
00:14:44:07 – 00:14:59:07
And I remember we went to lunch and I sat down and I told him and at the time when I started at Barron, we were doing about 13.5 million in revenue. And I remember sitting there and I looked at him and I said, you know, we need to start being more transparent with our financials. We need to start sharing with the technicians more.
00:14:59:07 – 00:15:13:17
And, you know, my dad, almost to your point, James was like, well, you know, then they’re, you know, going to understand that the margins in our game are tight at times. And some days, you know, we don’t make money and some months we don’t make money and some quarters we don’t make money. And we have to look at the whole year.
00:15:13:17 – 00:15:37:07
And I said yes, but I told him right now, dad, every one of your employees or our employees thinks that you make $13.5 million, right? Like they look at the top line number and that’s what they think you make. That’s a lot worse than them knowing it’s not nearly as close to that as they think. Right. And so I think it got into his head that we do need to start being more transparent.
00:15:37:07 – 00:15:55:05
And from that moment on, we brought our team in on our quarterly, as we do with the whole company. Like we show what was our past quarter performance, how did it, you know, relate to the years prior? How much retained resources were we able to to put away for the new tracks, the tools, the training, the equipment, you know, all that stuff?
00:15:55:07 – 00:16:23:02
Wage increases, cost of living adjustments, all those things. And it was it was a huge culture shift. And actually it was a huge culture shift in a really positive way. Yeah. You know, think about it. If I, if I really think you are filthy, stinking rich, I will resent the fact that you turn me down for rates. I will resent the fact that you keep harping on productivity and selling this and selling that.
00:16:23:02 – 00:16:47:19
It’s all about just making you richer and richer, isn’t it? Well, I’m sick of it. Well, that’s that attitude. But if they knew, if they knew that you were lucky to have $0.05 on the dollar, if your taxes, if they knew that your net profit was equal to three years worth of accounts receivable. So it’s money you don’t even have yet.
00:16:47:21 – 00:17:09:07
If they knew those things, they they would collect more often. They would work harder. They’d have more empathy. And empathy is where it starts. They’ll work harder when they feel like they’re working for a team, and not just some emperor who’s trying to get richer and richer. Is that why Jason, you called it royalty heating? You want to be the emperor of royalty heating?
00:17:09:09 – 00:17:26:09
Absolutely, absolutely. You know, I always say. I always say it’s lonely on top of the mountain, y’all. It’s lonely on top. Stay. Stay down, stay down. No, we’re lifting everybody up together. Sorry, I had to. I had to do that. It’s the kind of love I have for you. Hey hey hey I am, I am the king, baby.
00:17:26:09 – 00:18:02:12
I am the king of H. Let’s go. Yeah. And, guys, you. You know this. Your owners. But the point we’re trying to make to all the listeners and viewers, the point we’re trying to make, is it all starts with an understanding pricing. It all starts with an understanding that you are not filthy, stink and rich. It is so important that you can get people to support your pricing strategy, because I could tell you that we need to charge a certain amount of money for these transformers for an hour of labor, whatever it is.
00:18:02:14 – 00:18:28:07
But I have to get your cooperation, not your quiet resentment. And that’s why the psychology of this is just so critical. So we have our accounting people telling us what our break even is, but we have our HR type people trying to get trying to get our staff to empathize and support. I want to make a note of something you said because I think it was powerful.
00:18:28:08 – 00:18:53:01
We want cooperation, not quiet resentment, and I think that that is key to transparency. It was that was that was awesome. Hey, James, I’ve said at least one of your breakouts. Yeah. Oh, yeah. Yes. I’ve started on at least one of your Iggy breakouts. I finally said something notable. You say a lot of it. You’re great man. Like I said, I love attending your breakout sessions.
00:18:53:01 – 00:19:13:11
I’ve sat in a number of them. One of the ones that I sat in this was years ago. And you’ve done it probably a couple of times. Maybe. For those listening in, you could explain the analogy, because I think it’s a really powerful one. It’s simple, but it’s powerful that leaders, especially in the service world, but that leaders can share with their team members.
00:19:13:11 – 00:19:39:02
And you use a dollar bill. It’s a fake dollar bill, but you start cutting that dollar bill down. Do you want to describe that a little bit? Because although it’s simple and there’s been other industries that have used it, I still think today and I use it at Barron after attending your session is one of the most powerful ways to start to sort of chop the dollar, if you will, to understand what it actually means from a dollars and cents and profit standpoint at the end of the day.
00:19:39:03 – 00:20:04:02
Yeah. Yeah, I’ll explain that and I’ll explain it the way I did it recently in a large company in the Milwaukee area. And the owner was very concerned about his people knowing too much about the money. And I told them, it’s going to be fine, trust me. But we start out with an enlarged $100 bill. Dollar bill. I use $100 bill now, a large bill.
00:20:04:05 – 00:20:12:08
And hey, James, you you raised up your standards. It I mean it.
00:20:12:10 – 00:20:41:23
We start with $100 bill and on the back of it we have vertical lines. And they represent what we spend on equipment, subcontractors, materials, parts, supplies, insurance. And we break it out in detail so that we don’t go. We don’t say things like overhead and cut it, you know? So we take a big pair of scissors and we cut the $100 bill as we call off all the expenses.
00:20:42:01 – 00:21:05:01
And again, a lot of detail so people realize that it’s real. They recognize some of the things that they’re hearing. And then we get to the net profit. Now at this point they have a good idea of what revenue means gross profit dollars. We’ve gone through the overhead. Now we’re at, say, to make the math easy at 10% net profit.
00:21:05:02 – 00:21:35:04
Well, that’s a small sliver of the paper. But that’s before taxes, I point out. And I had someone interrupt me, almost like he caught me lying and said, we pay the taxes. I said, pardon me. And he goes, we and he, he’s moving in his chair. He’s upset. Oh, you got him out of my check every week. And I said, I am so glad you brought that up because let’s talk about it.
00:21:35:05 – 00:21:56:21
We’ll make a long story short, he was thinking that he was paying company taxes. Company taxes were being paid all or in part from everybody’s check. And I explained how that works. It was a real eye opener. Does that mean because he’s stupid? No, not at all. He’s ignorant. He’s not a business owner. He doesn’t know that. So he cleared that up.
00:21:56:23 – 00:22:27:10
And then we started cutting the taxes. The federal, the state, the self-employment tax, which is the other end of your Social Security, who knows that? Who knows that? Right? So you’re cutting up a third of that 10%. You’re lucky to have 6%. And at this point in this company, 20, 20 million in revenue, I at this point, I look over the bookkeeper and I say, this is the money.
00:22:27:10 – 00:22:47:16
The boss puts it as pocket every year, isn’t it? And she’s looking at me uncomfortable, like, no, of course it’s not. And I said, well, hold on a minute, what’s our accounts receivable? Who knows what that means? And a few people tell me, and she calls the number out, which was three times greater than the net profit. That’s why I mentioned that earlier.
00:22:47:16 – 00:23:15:12
Three times. Because his AR was three times greater than his net. So I said not only could he not put this as pocket, he had to, hang on a minute. And I went and found the interest sliver. I said he had to go borrow money to pay for money he hasn’t collected yet. And then people started interrupting me, asking, did so-and-so ever pay?
00:23:15:14 – 00:23:41:20
Did we ever get paid for? Did we ever collect on? And people started talking about collections? Well, because they never thought about any turning into a bounty hunter. They never thought about collections. What difference does it make? The boss has tons of money. Now they realize the boss couldn’t take that home if he wanted to. Now the powerful care to pull out his W-2 and people thought it was fake.
00:23:41:22 – 00:24:09:09
I pulled out his W-2 and I explained he did not want to share this. I had to talk him into it, and we pulled out a board, a whiteboard, and we did the math of regular time. Over time, we figured out what he would make per hour, and he was a $38.20 employee. And that’s pretty good money unless you’re risking your whole life every day.
00:24:09:11 – 00:24:35:20
Right. And that’s pretty good money. And and I said it was this guy makes pretty good money. And they were so unimpressed because they were thinking hundreds of dollars an hour, hundreds. And they were unimpressed. He later told me he had a couple people come up to him and say, independently, different people. Why do you do it? Why bother?
00:24:35:22 – 00:24:58:01
Why take on the stress for $38 an hour? Yeah, 38. 20 an hour. Yeah. 28. Sorry, sorry. Yes. I was giving him a $10 range. And and think of this. This is not stupid people. They were like. So he can’t get over time. Well, no, of course not. He pays himself and they’re like, yeah, I guess that’s true.
00:24:58:03 – 00:25:32:05
But they never really thought about it. So that was the beginning of the empathy. And they did record that. And it is now I think it hopefully it is. This was the plan. It’s part of the new hiring process. So when you’re hired and on board, no matter what the position is, you watch that video and you go through that education because until we have them educated on the very basics, we’re not going to be able to meaningful create any kind of meaningful pricing strategy and have them be supporting it.
00:25:32:05 – 00:26:00:01
They’re just going to resent it. Well, and it establishes trust, right. And when it comes to people, transparency, right? Creates trust. It allows you to have that position of trust. And also it creates empathy now in a two way direction. Right. You created empathy going back and forth. And the hope my hope is that as I look to the future, the team realizes that that owner or that ownership group, that they’re doing it because they love what they do, right.
00:26:00:02 – 00:26:19:12
It’s a passion. It’s about helping people, improving lives. It’s about doing, you know, building teams and changing their team members to in their careers and what they can do. You know, if the why was all about money, I don’t think anyone in HVAC, electrical, plumbing would do it. You know that that can’t be what drives it.
00:26:19:15 – 00:26:38:14
By the way, there are good years. There are good months, there are good quarters, and there’s good times and there’s challenge, like right now, one of the things and James, you’ve probably listened into to, you know, some of these Cracking the Code episodes, but, you know, right now around the United States, this is a different world than it was, you know, five years ago doing during, you know, that Covid boom.
00:26:38:15 – 00:26:56:22
Like, you know, back then it was sales was shooting, it was order taking. It was, you know, shooting fish out of a barrel. And and even then I think people didn’t have pricing. Right. But because, you know, revenue can overcome sins if you have enough of it. Right. And so they were, you know, I call it the tide was in and things were good.
00:26:56:22 – 00:27:17:23
And then, you know, 2023, 2024 came around and the tides went out. And all of a sudden, those things that weren’t fixed or corrected or refined during the Covid years, they started to rear their ugly heads. And then, you know, owners started to go, oh crap, I, I haven’t raised prices fast enough. I forgot that there was a three month period.
00:27:17:23 – 00:27:43:10
I had 8%, 8%, 8% equipment price increases. Right. Or I had to bump my labor rate up over the last three years 100% to be able to attract and retain technicians, electricians and plumbers. And so pricing and understanding pricing right now is more vital than at any time. I think it has been especially, like I said, Covid covered a lot of the sins the revenue boom, the heat domes, everything that was happening covered a lot of sins.
00:27:43:10 – 00:28:09:17
And now if we don’t get back to the basics as contractors and understand pricing, and that applies not only residentially but to your breakout, to your point, it also I mean commercially as well. There are huge opportunities commercially, and I do want to get to those two because I think we can talk a little bit about that. There’s a lot of listeners here that tune in that do a lot of residential work, but there is light commercial work out there that they could start to flex into.
00:28:09:18 – 00:28:26:18
There is, you know, the right type of design, build with the right contractors that actually pay the right rates that we could talk about. And I do want to get into that here. But before we do that, let’s pivot real quick because I mentioned I want and I alluded to it, I do want to get a little bit of insight from you on the install side.
00:28:26:18 – 00:28:48:16
What are some of your tips of the trade, so to speak, that you bring when you talk to contractors about pricing installation jobs correctly? Well, the first thing that I believe, I’m not sure I necessarily share this with just everybody depends on what I’m trying to do. But you touched on this earlier. It’s easy to make money on replacements.
00:28:48:16 – 00:29:20:04
You can you can have these weird rules of thumb that no accounting people like me would ever recommend, but they still can work and didn’t want to play or divisor. Yeah. And why though? Why is that? We close the ratio of labor versus everything else Mizo material, equipment, subcontractors, other direct expenses. So the ratio of labor versus the equipment is so low, Labor’s low compared to how much we’re spending on equipment.
00:29:20:07 – 00:29:46:16
Then you can make money, oftentimes without even realizing it, without knowing that your calculation methods can be poor and you could do well. But that aside that aside, the the real key is gross profit dollars per person per day. You have to know how many gross profit dollars an installer or an install crew can bring in per day because you’re selling the whole day.
00:29:46:18 – 00:30:19:18
Even if they work one and a half days, you’re selling two full days. The key is, is how many gross profit dollars per day for each person or the crew. That’s really it. And then understand you must price labor differently than me. So that way if you have a labor intensive job, a job where we’re selling not a lot of stuff, if you will, but a lot of labor for a week versus a one day job where we’re selling very little labor but a whole bunch of stuff.
00:30:19:20 – 00:30:42:16
You have to mark those up independently in order to be accurate, because you’ll get otherwise. You’ll get killed on a labor intensive job, and you may miss out on a miso intensive job that would have been very profitable. I think that is one of the most key things for people to understand, because the risk in contracting is with labor, right?
00:30:42:17 – 00:31:05:20
Labor is where the risk lies, and you have to understand that multiplier and that that multiplier is going to be different depending on the percentage of labor on the job against the missus. I love that. Also, the other thing that you hit on that I think is imperative for folks tuning in, whether you’re watching or listening, is that multi-day jobs in this industry are priced wrong.
00:31:05:20 – 00:31:25:22
Most of the time people eat. And by the way, there’s multiple factors of pricing it wrong. If you don’t account for overhead. That’s just part of it. For that second day, we also have to be accounting for gross profit as well for those additional days. Some people and I coach folks across the United States. Some people come in and say, yeah, yeah, we got it.
00:31:25:22 – 00:31:47:05
We price an overhead each additional day and I’m like, time out. Hold on a second. What about your gross profit? Right on that. 2 or 3 or 4 or 5 day jobs. Then we start to job cost those multi-day jobs and they go, oh my gosh. Not only did we not break even, we didn’t even make money on that job because they weren’t building in any gross profit into the additional days and the way that they’re supposed to be doing.
00:31:47:06 – 00:32:12:20
Let me jump in on that real quick. There’s so many times, right, that they don’t understand their numbers that new, because there’s a lot of new business owners like myself that are listening to the podcast right now. And how many of them didn’t develop their numbers of system replacement based off what they need to make? Right. But they did it based off their competitors numbers or, hey, they’re doing this.
00:32:12:20 – 00:32:42:15
So we’re a new company. Let’s go ahead and take off 40% of the system because we’re 40% less, right? We’re not a $50 million operation. And they start doing numbers like that. And it’s crazy because there’s so many operations that I see them basing numbers off their competitors rather than based off their actual facts, information that would be like a household going out and spending based on the Joneses, right, versus their own household budget.
00:32:42:16 – 00:33:04:17
Exactly, exactly. Yeah. There’s there’s something that I’ve written a lot about that I like to call the low overhead lie or the low overhead myth, and that is that we have low overhead because we’re a small company, but actually big companies have low overhead. You should never think of overhead in terms of dollars. Dollars mean nothing to accounting people like myself.
00:33:04:18 – 00:33:30:10
You think in terms of percent. So is a $10,000 printer in the office expensive? Yes, of course it is. Well. Hold on. It’s not if you have 100 employees, but it would be if you had 20 employees. So it’s all about percentage of revenue. So small companies actually have a lot of overhead. If they don’t, they have an underpaid owner.
00:33:30:12 – 00:33:54:03
That’s the only way because they have less buying power, less power to negotiate, lower prices, terms, etc.. So big companies generally have less overhead as a percent of revenue. And that alone is one of the reasons why a lot of companies don’t price things correctly, just because they don’t take it seriously. Thinking we’re small, we have low over it.
00:33:54:04 – 00:34:15:13
James, let me ask you a question. Dive a little bit deeper, maybe more personal information. But what made you start doing this? You know? Did you get passionate about it because, you know, something just like lit the fire? What was it that made you passionate that said, you know what, this is the journey that I’m going to take to make a difference in the trades.
00:34:15:14 – 00:34:39:18
So I grew up very poor student, convinced I was stupid, told I had an IQ of something like 88, 86, something like that. I did very poorly in school. When I got into the HVAC, plumbing, electrical industry, I focused mainly on horseback and commercial refrigeration. I realized how important it was to have good information. I needed to have mean temperature, ambient temperature.
00:34:39:18 – 00:34:59:08
I needed to know what was the humidity level. Wet bulb, dry bolt. Didn’t even know those two things existed. Head pressure or suction. Once I knew all that I could make what some people thought were magical decisions. You have air in your system. You have moisture, your system. How could you know that? We have to evacuate. Recharge it?
00:34:59:10 – 00:35:24:10
That fixed it. How could he have known? It’s like magic. So I realized just how important it was to have good data and understand it and be able to process it. My head and I really had a gift for it. I love what you just said, understanding the data. We just had a massive meeting at royalty this week about data and information, and if it’s not documented or written down or information, it’s not transferred, right?
00:35:24:12 – 00:35:44:03
It’s never happened. So I love that you just talked about data and the information and the importance of that. Yeah, just it’s critical to have good data. So you want to have good equipment, good tools, instruments, get accurate info, be able to put it into your head, process it. But you know, I carried a thermometer before I even knew how to use it.
00:35:44:05 – 00:36:05:19
You got to get that stuff first, you know. So get your income statement, your balance sheet, learn how to read it later. But here’s here’s really the answer to your question. But I thought it was important to have that background to understand it. As I was running my business, we made a lot of mistakes. Here’s a fundamental mistake selling service agreements 15% off.
00:36:06:00 – 00:36:33:16
We were at 8% net profit company. How how what’s my net profit when I get 16% off an 8% net profit job? It’s a red number, James. It’s not good. It’s a red number. Yeah, well, I didn’t know. That never occurred to me. So I realized, you know what? I better start learning how to use accounting information. Like I can service information.
00:36:33:18 – 00:36:55:07
And I realized I loved accounting, I loved it, and I’ve been in the accounting industry since 2012, and we make accounting software. And I dedicated my life to it. But I realized just like being a service tech, I needed data. And if I can get good accounting data, I can make decisions about pricing. I will take this job.
00:36:55:07 – 00:37:18:21
I’m not taking that job. I’ll hire you, not you. Yes, I’ll give you a raise. No. Hell, no. You’re not getting a raise. You can make those decisions with a bunch of confidence if you have the data. That’s what’s critical. That turned me into a freak about accounting, man. I think you just gave us a whole bunch of opportunities to come up with your nickname, James.
00:37:18:21 – 00:37:39:01
I’m excited. You know, the accounting freak, the magic number man. Like, I don’t know, I got my head spinning here. Yeah, a whole bunch of us, Jason. So I tell you something real fast about nicknames. Okay? I already have a nickname, but I’ll take. I’ll take another. It’s Mr. HBC, and it’s a trademark. It’s a trademark and it’s a website.
00:37:39:03 – 00:38:00:13
But how did it happen? It wasn’t a compliment. When I worked for that company, I was so excited to have a decent job, to be important to had people asking me my opinion. Customers asked me my opinion about things. A loser like me, they want my opinion. I was so happy. I was on good mood every day. And I ran to the truck and I ran up the ladder.
00:38:00:13 – 00:38:23:22
I ran from the truck and they went, oh, look at that, there’s Mr. HBC, he’s got a motor in his pocket. Doesn’t even know how to use it. So that’s how I got to be Mr. HBC. I, I loved it, and now they’re watching you just make the massive imprint and impact in the trades. That’s why I love the trade so much.
00:38:23:22 – 00:38:43:02
Because I have. No. Let’s go now. Right now I really don’t. Only in America. Only. Only a trade like that. So Mr. HVAC oh, go ahead, J. Let me ask you a question. This is what we did, Brad. Go ahead, go ahead. Well, okay, Mr. HVAC k, I have to ask you because I like to also go a little bit deeper.
00:38:43:03 – 00:39:08:16
Okay. So I know that you’ve been speaking and training all across the nation, and you spoke in front of thousands of people. Okay. What is one moment that stands out to you that’s like, you know what, this was a moment that was very impactful in the in what I do in the career. I’ve got two I’ve got a funny one and I’ve got a more serious one.
00:39:08:18 – 00:39:34:19
I’ll start with a more serious one. And this is weird. I gave a speech in front of a lot of people, like you said, and later on I got a letter in the mail from a lady who was there, and she said, you may not remember me, but you. I was there with my husband, and he’s on his own business for a long time, and he just recently sold the business because of you.
00:39:34:21 – 00:39:59:22
You said it has to be worth it. You told all of us and it resonated with my husband. It has to be worth it. All the efforts, all the risk, all the stress has to be worth it. And I told a story about how you could be walking down the street, holding your little granddaughter’s hand, and you don’t even notice.
00:39:59:22 – 00:40:21:04
You don’t even feel it because you’re thinking about work. Is it worth it? Is it worth all that? It was not worth it for him. And he sold out and got a job, and she was thrilled and thanked me for it. So I put a guy out of business. And that’s my success story, You put him into his purpose though, right?
00:40:21:05 – 00:40:45:11
He like what I write, and he’s moving towards his wife. Yeah, man. Yeah. Not really. I have that card. It was a card that she sent me. I have that to this day. It is just very important to me. Now, the funny one, if I can tell you this. My daughter’s name is Jessica. America liked her. And when she was a little girl, she didn’t like to see me pack because she knew what it meant.
00:40:45:11 – 00:41:07:06
So she dealt me pack. And one day she said me back and she pulls my dress shoe out one of my dress shoes and puts a dolly in there and puts the shirt back over it. I didn’t know the difference. I get where I’m going. The next morning I put on my tie. I’m wearing a suit that a jacket that I’m going to take off, and I have a tie.
00:41:07:07 – 00:41:34:04
I have my dress shoes. I only have one dress shoe, one dress, and I have to put on a tennis shoe, so I decide. I’ll wear a dress shoe and a tennis shoe. And I walk up on the stage. And this was a distributor annual meeting. There’s hundreds of people and I walk on the stage holding a dolly, a little doll with a tennis shoe and a dress shoe.
00:41:34:04 – 00:41:57:01
And I did not presentation. And only until the end did I explain it and tell the story they were in. They were in suspense. They wanted to here. Oh, they were intrigued the whole time. Yeah, I was locked in from the beginning. Now, here’s really the funny part. When it was all over and I’m talking to people and they’re, you know, saying hi to me.
00:41:57:03 – 00:42:19:12
This lady has tears in her eyes and she says, oh, that was a beautiful story, your daughter. That’s just so cute. I just thank you so much. And she was just so thrilled. And she starts to walk off and the husband said, hey, man, tell me the truth. Is that was that a true story or just some sneaker BS?
00:42:19:14 – 00:42:39:01
I said, yeah, that was a true story. And he goes, I love that he just rolled with it, man. You just went with it. That was so cool. Hey, for the I, I want to make sure before we we end our time together, I want to circle back to something and give you also, James, an opportunity again to sort of plug what you’re going to be talking about at epic 2027.
00:42:39:01 – 00:43:00:12
And Bagus, going back to the commercial world, what are a few things that you want to make sure the listeners and viewers today understand about what you’re going to be talking about and how it applies to their business, because I believe, you know, we were almost exclusively new construction and retrofit work residentially. That’s all we did when I started.
00:43:00:12 – 00:43:23:13
We’re now, you know, about 85% residential retrofit, 15% like commercial design, build commercial. And I like what we’re seeing in the growth of our commercial site. It’s actually a profitable sector for us. It gives our technicians an opportunity to progress from residential up into commercial. Right. There’s a growth path or bear, and we call that a development path right up into the future.
00:43:23:13 – 00:43:46:21
So I think it’s a very worthwhile thing for people to tune in to. And my hope is that folks that attend the conference and hopefully we got a whole bunch of listeners there next February, but I would love them to sit in and get a chance to hear from you. What are the things what would be the big takeaways that they’re going to get when they get a chance to listen in on your 60 minute breakout?
00:43:46:23 – 00:44:16:14
Well, I’m going to teach them many different methods of pricing all the way from a basic rule of thumb that the lender stand in moments that I wouldn’t recommend, but it’s something they could use immediately to something extremely complicated that a CFO might be impressed to learn. Something that requires deep financial reporting data, things like that, and everything in between.
00:44:16:14 – 00:44:36:11
So they’re going to learn everything from a basic rule of thumb so they can stay out of trouble. Just something extremely in-depth and much more technical and complicated. The the, the person that needs to be there for sure is anyone who is in charge of pricing decisions and maybe involved in the sales cycle in a large commercial company.
00:44:36:11 – 00:45:09:22
But even if you don’t do commercial work, there’s a lot to learn. So if you like that subject matter, then they should attend as well because there is a lot to learn. The the important thing to remember with commercial work and it’s true to a lesser extent, the smaller the job, you could, you could spend say 100,000 on labor and 100,000 on material, and you could charge 115,000 for the material and make money, and you could charge 300,000 for the 100,000 in labor and lose money.
00:45:10:00 – 00:45:42:21
It’s that big a difference, that big a difference. You absolutely have to understand your labor burden, but you have to understand it by department for me. So versus direct labor. And if it’s an ongoing job, unlike that two day replacement, you have to account for all the s, the uncertainty such as whether whether could change your costs, your cost could change right out from under you unless you have a contract and you can somehow pass those on to people.
00:45:43:02 – 00:46:07:17
But but one of the challenges with commercial work is a lot of things can happen that are out of your control, and you have to plan for those as best as possible. You know, there used to be a day where our industry called. We had estimators. People still had them. But but the term estimator was more understood because the estimator estimated the cost of the job.
00:46:07:19 – 00:46:31:07
Now we think in terms of send a sales person out there where 30 years ago we said send an estimator. The estimator was a highly specialized function. And they took in consideration every little detail, every little possibility, every little factor, such as vertical costs. How much is it going to cost to get the stuff up there? What if the elevator doesn’t work?
00:46:31:07 – 00:46:48:20
What if you have to wait for the elevator? What if the weather is bad? What if the wind is too high? These things have to be factored in so it can get very complicated. And like I said, we’ll talk about the most simple methods all the way to the most complicated methods. James, I’m super excited for your breakout.
00:46:48:20 – 00:47:09:03
And I’m super excited because like I said, I mean, you are making a difference. You are making a massive impact all across the nation everywhere that you go. And I’m super excited because I will be attending the breakout. Brad, you know, until next time. Signing off brother late.
