We received an abundance of questions from our latest webinar on the labor shortage and increased marketing costs. We greatly appreciate your interest and participation as an aftermath of the program.
As a result, we are going to split the answers over two blog postings.
Q: Your methods suggested on the webinar were great; however, it seems complicated for a small company.
A: Not unusual that many companies will see it that way. Recognize the issue – worst labor shortage in the history of the industry. There appears to be no industry wide solution. So start by making one yourself. Write a plan, follow our suggestions, including the Work Opportunity Tax Credit (WOTC), and revisit the webinar that will be your start. Some of your questions may need answers from a competent attorney or accountant. Many of our successful clients are already on this plan.
Q: Our salespeople are “independent contractors” and we cannot force them to make changes in a program like this.
A: The use of independent contractors as sales reps on its own, is outmoded and outdated, unless you are utilizing Sec 3508 of the tax code, which gives you the right to treat an employee (salesperson) as a non-employee (sub-contractor) for tax purposes only. It’s not that complicated. Go online and find Section 3508 of the tax code. You need the proper contractual words and a program to go with it. That’s one small step. Listen to the program again and it tells you how this has to be handled. This relates to how you manage and direct your sales department. Your salespeople don’t make policy, they respond to it.
Q: The example you used by adding a $500 admin. fee is really a price increase. If the salesperson doesn’t get credit for it they won’t like it.
A: Please, review the webinar one more time. Check out the issue of the admin. fee used in the automotive industry and the title transfer fee used in real estate. Think of it another way. If you were part of a large public corporation, you could create a surcharge for research and development. So, you’re not a large public corporation, but this or a similar plan is and will be a necessary investment, if you wish to solve your labor shortage issue. It is a small price to pay and we do realize it represents a change and human beings resist change.
Most of our clients have faced this regarding major issues of change. The salesperson’s resistance is really a small “blip” on the radar screen.
Remember, this program benefits the salesperson as well. Backlog is costly to the salesperson as well as the company. Those with excessive backlogs will eventually get rescission. In the interim, you may also experience customer dissatisfaction and the negative reviews created by Yelp (and similar) as well as the Better Business Bureau. You have many options, the last of which should be, do nothing because it might offend the salespeople.
Q: Here is a comment we received rather than a question. We are training our sales reps to mention a delay of 8 to 12 weeks when they sell the job. We have only done this for a month or two. It seems to be working.
A: Congratulations – however, what does your contract imply and for every time you state this delay, there will be someone in your market who will tell that same customer they can get to it “sooner”.
In addition, hopefully what you quote is what your salesperson is saying to the customer. How was it interpreted and what does it say in your contract? In short, this may not be a good business practice. If this was temporary and its working – congratulations. Despite what was said to the customer, you might find some who complains to the Better Business Bureau, Yelp or similar and damages the credibility of your company. Although, it varies from state to state. Almost every client we have ever had, who utilized the practice you mentioned, has run into some “grief”.
Q: Relating to the $500 charge – is this shown as a separate item on your retail contract? How do we explain it to the homeowner?
A: You don’t explain it to them. It is part of your internal pricing structure and it is a method to do this effectively without simply “raising the price” where the salespeople, managers, office get credit for this. See the next question, which deals with the same issue.
Q: How does the $500 added to the $10,000, which creates a $10,500 sale improve the customer’s benefit as opposed to raising the price $500?
A: Here is an example: Go back to the $10,000 job and assume that 40% of this was labor and material. That equals $4,000 as a cost of goods. If you add $500 to the cost, which now becomes $4,500, multiplied by 2.5 (which covers all other costs plus a profit), you would arrive at a selling price of $11,250. That of course, would be inclusive of your sales and marketing costs and/or increases in your G&A expenses and inclusive projected profitability.
Based on our experience with hundreds of clients who use this plan, this has proven to be the least expensive and most effective solution to create the capital for this project (i.e. add the $500) which you then place in a special account when the contract comes in.
Incidentally, an attorney representing a major company who participated in the webinar referred to this as “over simplistic” – he is right. Unfortunately, he probably doesn’t understand the dynamics of the sale or the prospects attitude or that of your salespeople. Please, see the next question, which deals with both this, and the prior question.
Q: We are fighting price competition all the time. We are not the most expensive, but our price is higher than the majority of our competition. How do we explain this increase?
A: Look at it this way: Using the previous example you might lose that sale if you quoted $12,000 or more. If this $500 increase is the difference between $10,00 and $10,500, you need to sell the value rather than the price of your project and if the salesperson cannot sell it for $10,500 the chances are they couldn’t have sold it for $10,000 either. I hate to be crass in my judgement, but I’ve trained well over 250,000 salespeople personally. The difference in selling the job is largely based on the way salespeople think.
Q: In the example you use of doing 500 “jobs”, which included a $500 admin. fee, you come up with $250,000. Is this still taxable?
A: Whoa – you’re missing the point. You don’t do this to increase your profitability. You do it to create funds, which enable you to hire a recruiter, to pay subsidies to your current installer (subsidies differ from pay increases).
If you were to start this at the beginning of the year and at the same time hire a recruiter, while setting up a subsidy plan for your current install group, or pay bonuses to your subs, (remember, this was called a contingent incentive plan) you would in fact, be spending the majority of that $250,000. In fact, you might spend more. The reason for all the explanation is it gives you the source of capital to put a plan to work.
And to our attorney/attendees this is still simplistic even though a lawyer or accountant might make it seem complex.
Don’t miss part 2 of our blog posting which will be coming at the start of 2019!