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The Myth Of The “Going Rate or Recommended Rate” For Plumbing Services

Unfortunately, the myth that there is the going rate for plumbers or recommended rate for plumbing services is one of those lovely urban myths that will never go away. Some consumers promote it as a method to avoid paying for plumbing services generally after the work has been completed.

Even more disturbing is the fact that it is also promoted by some plumbing contractors who are:

  • lacking in necessary business skills and cannot do basic accounting equations to work out the cost of running their business and provide quality service at a fair profit
  • engaged in payback against other plumbing contractors to undermine their competitors by claiming they are overcharging

Every plumbing business is not the same. Every plumbing business has different levels of cost structures, overhead costs and productivity levels that are required to set a selling price or a break-even price. It is illegal under the Competition and Consumer Act 2010 for business to collude in setting prices or for there to be any set or recommended rates by master plumbers associations.

For many one-person plumbing businesses when they start out, it is just far too complicated to put a budget together and calculate what the cost of doing business is. Reality is they need to do it so that they can ensure they are charging a rate for their services that covers the cost of running the business. Unfortunately what happens most of the time is these one-person plumbing businesses decide that they will charge the going rate for plumbers and be done with it.

So how do these one-person businesses find out what the going rate for plumbers is? Very simply, they ring around all their competitors, pretending to be a prospective customer and find out what they are charging for their services. As no professional plumber can give a price over the phone, they tend to only get prices from like-minded one-person businesses promoting a whole undercutting philosophy based on some mythical hourly rate which then becomes the mythical going rate.

To see how this whole myth of the going rate for plumbers becomes self-perpetuating, consider the following scenario, which is exactly what happens all the time. Consider the scenario where  Trevor decided to buy a van, get a new mobile phone and using his tools supplied to him by his former employer and open up “Trevors Plumbing Service.” Trevor knew his old employer, “Gold Coast Plumbing”, was charging $130 per hour but he knew that his former boss had lots of equipment and paid his employees above the award wages, so he decided to charge only $80 an hour.

A couple of weeks later Jason who does not like Trevor, hears that Trevor has opened up his plumbing business, and he figures he’s much smarter than Trevor plus he’s sure he’s faster and quicker at doing plumbing work than Trevor, so he decides to buy a ute too and open up “Speedy Plumbing.” Jason gets his girlfriend to phone Trevor pretending to be a customer to find out his charges. As Jason does not like Trevor, he figured he could knock him out of business by charging $20 less and getting all his business. So “Speedy Plumbing” is now in business charging $60 per hour.

Meanwhile, Stephen had opened up “Super Coastwide Plumbing” a year earlier and had just had a builder who supplied him with 90% of his work tell him that he was going to be using another plumber to do his work in future. This is despite the fact that Stephen was providing excellent service but at $100 per hour was way above the going rate for plumbers. Stephen panicked on hearing this and decided to call around his competitors to see what the going rate for plumbers was. Stephen discovered that it was ranging from $40 to $160 per hour.  Stephen decided that to keep his business going he need to match the going rate for plumbers and based on where most of his competitors were opted to drop his rate to $65 per hour to be under the rate charged by “Trevors Plumbing Service” who appeared to picking up lots of work.

Meanwhile, over at “Gold Coast Plumbing” the owners are having a meeting. “We aren’t making enough money to cover our costs!” They say. “Well, we can’t increase our rates because we’re already one of the highest in town — $70 higher than some after ringing around to find out the going rate for plumbers is.” The owners are frustrated because they’re gradually watching their business go down, a business that’s been in their family for three generations.

What happens next is textbook accurate and occurs over and over again in the plumbing industry causing unemployment, financial hardship and family breakups.

“Gold Coast Plumbing” starts cutting corners using cheaper materials, cancelling insurance cover, not replacing old equipment, not replacing old utes and vans, charging clients for hours that were not worked, using labourers and apprentices instead of qualified plumbers. Their plumbers become disillusioned and start looking for jobs elsewhere and this forces “Gold Coast Plumbing” to use more labourers and apprentices to undertake the work that requires licensed and experienced plumbers.

Over at “Speedy Plumbing” Jason is struggling to cope with all the work but cannot hire any licensed plumbers because he’s discovered he can’t afford to pay them plus buy more utes and equipment because his rates are too cheap and don’t cover the costs of running the business.

Trevor over at “Trevors Plumbing Service” is still working by himself, so does not need a lot of work to keep him busy plus the customers that hired him because he was the lowest price have left him and gone to “Speedy Plumbing”. Trevor is not concerned as he’s making more money than he did when he was an employee at ‘Gold Coast Plumbing” plus he’s his own boss and he doesn’t have to answer to anybody. Trevor has discovered that he’s got to cut corners to make sure he can pay the bills. He does not renew his QBCC licenses or take out public liability insurance. Trevor adopts a policy of never returning calls to customers that complain, guaranteed to keep him out of trouble from inferior quality materials and workmanship.

Meanwhile, Stephen at “Super Coastwide Plumbing” was struggling to pay bills since dropping his prices to the going rate for plumbers with the losers being his family. Stephen’s wife is forced to return to her old job, working to support “the business” until it gets back on its feet. Even worse cutting corners meant customers were not getting compliant plumbing work undertaken with failures being the norm. Finally, employees started getting reduced or no training with wages failing to be paid on time as there was never enough money.

Every successful plumbing business knows the starting point always is knowing what it costs to do business and setting rates that ensure they can make a profit for the long term which is specific to their circumstances and business model.

No one ever wins in setting up a business based on the going rate for plumbers or recommended rate because they are a myth. The only guarantee is that the business will close leaving employees, suppliers and customers all out of pocket and worse off for the experience in a myriad of ways.

Sadly I witness these scenarios repeating themselves over and over again on the Gold Coast. There are no winners when you don’t operate a business to make a profit after covering every single one of your costs.

Owning A Plumbing Business Is Easy. Isn’t It?

Owning A Plumbing Business Is Easy. Isn’t It?

Plumbing business is a business, not a hobby

Owning any business is a challenge. Owning a plumbing business has always been a challenge. For most experienced master plumbers, the biggest challenge is other plumbers.

“You have overcharged us because I rang three other plumbers and told them what you charged us for that job and they all agree you have overcharged us and ripped us off.” This was I phone call we received at Whywait Plumbing last week.

Whywait Plumbing services agree owning a plumbing business is easy

Joe Bum-Crack Plumber

A call like this always makes us wonder about the competence and integrity of the three so-called licensed plumbers who said we overcharged. For a start, no professional plumber can or should or could give a price over the phone without inspecting the job onsite thoroughly and undertaking a complete diagnosis of what the plumbing problem is.

Joe Bum-Crack Plumbing Company

Generally, the plumbers who indulge in giving prices over the phone use it as a tactic to gain entry to clients home. Invariably their final price always ends up being much more expensive because they find all these additional problems after they start the job. These “Joe Bum-Crack Plumbers” seldom last in business beyond two years. But in the short time they exist, they cause legitimate plumbing businesses countless problems with their shoddy business ethics and lack of business acumen. Sadly every few years another generation of Joe Bum-Crack Plumbers emerge with their brand new plumbing licenses.

Every day here at Whywait Plumbing, we receive phone calls or email from plumbers looking for a job. A significant number of these plumbers fit the category of Joe Bum-Crack plumbers who have been running their own plumbing business and discover it is much harder than they thought it would be.

We have in the past employed such people, always to our detriment. The last person we employed that could be described as a Joe Bum-Crack plumber was a perfect textbook example. In fact, let us call him Joe as he came into the interview perfectly dressed in answer to our advertisement for an experienced maintenance plumber. Joe was in his 50’s and had done it all from working in construction to being an inspector to running his own business. When asked why he was giving up running his own plumbing business, he replied that his wife had told him to go and get a real job.

Joe then went onto describe what it was like running his own plumbing business which he had started with high hopes after 27 years as an employee of various large companies and a water authority. Joe described how he knew what he wanted as his own boss as he knew there was a fortune to be made running his own business plus for the first time ever he was in control of everything and best of all could work when he chose and be at home when he decided.

Plumbing business reality

The reality was much different from Joe’s perception of being the boss. Joe soon discovered that being the boss is much harder than it looks. Joe had found that running a business was more than being an excellent technical plumber.

Now he was the boss that Joe was in charge of marketing, employee relations, customer relations, credit management, bookkeeping, answering the phone, dealing with plumbers merchants and so the list went on.

All Joe wanted to be was a wealthy plumber.

Joe now knew that running a plumbing business was not a path to instant wealth. The opposite was the truth with every minute of his time being spent on running the business. Joe was shocked at the reaction of Reeces Plumbing Supplies when his account was late being paid. Joe, as an employee had used Reeces for years and the people behind the counter he considered as mates. He was shocked when his credit was suspended because after all these were longtime mates of his and he was sure they would understand that a client had not paid him so he could not pay them.

Plumbing business costs

Whywait Plumbing Service is a real plumbing business

Joe was well aware of Whywait Plumbing, and he confided that he had always believed we were ripoff merchants. Joe was aware of our sign-written Utes, websites, yellow pages advertising, radio advertising, broadcast email, diagnostic charges and letterbox drops which he had always regarded as a waste of money because everyone knows word of mouth gives you plenty of work or so he once thought. He was astounded when word of mouth did not provide a multitude of work and that to get his phone ringing he would need to spend what he believed was a “shitload of money” on advertising and marketing to get his name out there.

After 18 months of being the boss, Joe now understood why Whywait Plumbing spends what he called a “shitload” of money on advertising and was astounded when he was informed it was only 4% of our turnover.  Now Joe was wanting us to give him a job because his wife had told him after 18 months of struggling to make ends meet to get a real job.

Joe did work for Whywait Plumbing for three months but in the end, was unable to adapt to a plumbing business that was upfront about the cost of the work before undertaking the work. Joe just wanted to turn on the taximeter and keep charging the client until the job was complete and then let someone else worry about who was paying. This was why Joe, the boss, had his credit stopped at Reeces. This was why Joe, the boss, had constant arguments with clients. This is why Joe, the boss, is just Joe, the disgruntled employee who still thinks he knows more than the boss.

Very simply, there is only one rule in business, and that is to make a profit and to make a profit, you must first know your costs. That is why at Whywait Plumbing we price every job in advance….no if’s, no but’s.

To experience a real plumbing business contact Whywait Plumbing anytime on (07) 5580 4311 because as we always “choose Whywait and consider it done.”

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