(This is from my work in progress, "Kitchen Sink Confidential"
Looking for a lucrative business opportunity? Have you considered starting a sleazy plumbing company? Some knowledge
of plumbing would be helpful, but it’s not essential. If you believe in business ethics, just stop reading right here.
Begin by renting a small shop with a fenced parking lot in a low-rent part of town. Lease twenty trucks and equip all but
two or three of them with some broken-down old drain cleaning equipment and a minimal assortment of tools and materials.
Hire eighteen trainees who know nothing about plumbing or drain cleaning. Tell them they’re going to make a
lot of money if they follow your commission-based compensation system. Few of them will, but it will take them a while to
figure this out. The kinds of people who take these jobs tend to be fairly desperate, so most of them will stick with you
even when they get their meager bi-weekly paychecks. The trainee turnover will be about 100% a year. You’ll always be
running employment ads. The eighteen trainees will go on call after call with practically no tools or training. They will
mess up a lot of jobs. But you won’t waste money on training, or send them to an apprenticeship school.
will need two or three people to answer the phones and handle paperwork. It doesn’t matter what they look like, but
they must have friendly personalities and pleasing voices. They don’t need any experience because they will be working
with phone scripts that contain set replies to any questions the customer might ask. You will also hire someone, hopefully
honest, to manage your small warehouse of inventory and tools. You will have no trouble finding all of these employees.
Now we come to something a little harder. You will need to hire two experienced journeyman service plumbers and a
heating technician. It will not be easy to find them because well-trained, ethical, responsible workers will be unlikely to
work for your operation. There are shops where the proportion of unskilled laborers to journeymen is ten to one. You will
probably have to settle for PWPs (plumbers with problems). Perhaps they are skilled, but drink and are unreliable. Or they
are drug users, or unstable, belligerent or lazy types who have worked for half the shops in town. In any case, you’re
going to have to pay them well (no games with their wages or commissions) because the trainees are incapable of doing the
larger, profitable jobs they bring in.
The journeymen will drive the remaining trucks, which will be the only
ones well-equipped with tools and materials. They will supervise, or do entirely, the profitable jobs. And they will do callbacks
on the jobs the trainees have bollixed, which will happen several times a day. You may even deduct some of the correction
cost from the trainee’s paychecks.
Finally, you need your most crucial employee, the service manager. He
is going to be the most difficult to find and will be the highest paid. You might have to pay him more than you pay yourself.
He will make or break your operation. As an industry veteran he knows how to juggle a constantly changing flow of work, problems,
crises and disasters caused by your unskilled work force. He understands the mentality of your employees and knows how to
motivate them to sell jobs without crossing so far over the law as to get you into serious trouble. He knows how this kind
of business works from every angle and how to play the angles. He can placate angry customers, when the situation escalates
beyond something the phone people can handle. For obvious reasons, you will make yourself about as reachable by phone as God.
He can sense which employees are cheating you by selling jobs to your customers and doing them in the evenings or on weekends,
using your tools and materials. Or collecting money that never reaches the shop. Or selling drugs in the back of the shop
and not cutting him in.
Your calls will come from a plethora of advertising. Search Engine click ads, phone books,
web sites, cable television, junk mail, major newspapers, free newspapers, community newspapers, magazine inserts, coupon
books, paid services that recommend contractors, radio, sponsorships of school teams, ads in movie theaters, church bulletins,
and all kinds of publicity and promotions. You will give away tons of advertising specialties such as pens, mugs, notepads,
caps, key chains, magnets and mouse pads.
Customers will never, ever be quoted prices over the phone other than
small trip charges and drain cleaning or furnace tune-up specials. Your office staff will deflect questions about your prices
by saying that it's impossible to know the conditions until the “technician sees the job”. And that
once the technician sees the job he will give the customer a firm price to do the work.
So, how much do you charge?
There are a variety of menu pricing systems that have more or less standard pricing with a (very high) hidden underlying labor
rate. The software allows you to produce attractive printed price books that cover almost any service job your workers are
likely to encounter. The printed book adds credibility because people tend to believe things they see in print. Especially
those who never read anything but the Bible. But some bottom feeders have no system at all, they just let the plumber quote
prices as high as he thinks he can get in the situation.
There are all kinds of commission arrangements too complicated
to discuss here, but they amount to this, those who bring in a lot of money get to keep a good deal of it. And those who don’t
get to keep diddly-squat beyond minimum wage. Most of the trainees will never make very much money because they will not have
the drive and the personality of a successful salesperson.
Prices also vary, of course, according to how busy the
shop is and how desperate the worker is. Taking typical prices charged by reputable plumbing companies as a base, the customer
might pay about the same amount, or even less, twice as much, or ten times as much, depending on how much the plumber feels
he can get, modified by how badly he needs to sell this particular job at this moment. If the shop is swamped with calls he
is likely to give a big number, and either sell the job or move on to the next sucker. On the other hand, if calls have been
few, and this is the only job the worker has gone out on in the last few days, he might quote a very reasonable price.
From your point of view, as the owner, it doesn’t really matter, because you have so little invested in the
outcome, as long as there are a steady stream of calls. You aren’t paying your employees for jobs they fail to sell.
It becomes a numbers game. X number of calls equals Y amount of gross sales.
You will have little expectation
of developing a steady clientele -- because the prices of your shop will be so high and the quality of your work so low. This
will be an advertising driven business and it can only flourish in a large metropolitan area. Sprawling suburbs with endless
subdivisions are fertile territory. Americans move on the average, around every six years, so there is an endless supply of
Does this sound cynical? Here is how someone in the business put it to me: In good business practice
you have a pyramid. At the top are the interests of the customers, below that those of the company, and at the base are those
of the employees. But in the bottom feeding universe (could also be electrical, siding, windows, landscape, roofing) the pyramid
is rearranged. At the top are the employees, below them the company, and at the very bottom, the customers. By employees,
he meant not the disposable trainees, but the small number of skilled workers who make the whole racket possible. In other
words, the interests of the customer most definitely come last. Ayn Rand would approve.
Your trainees go after
commissions for selling larger jobs such as replacing sewers, plumbing fixtures, furnaces, and plumbing, gas and water pipes.
The reason they have broken-down drain cleaning equipment is so they will not be very good at clearing drains. You want them
telling people their drains and sewers cannot be cleared and must be replaced. One thing they do have are video cameras they
can run through your sewer -- which is likely to seem worse in the video than it actually is. A few small roots in a sewer
video look like Sherwood Forest.
The trainees are your entry to the profitable sales. Your large jobs will be
priced very high, in comparison to more honorable companies. You will try to get in and do the job before the customer starts
shopping for other prices. Your workers need to establish trust with the customer to sell them big-ticket items like a new
furnace or sewer. When you get a large job the journeymen will be immediately sent out to supervise or to actually do the
work before the customer has second thoughts. Or talks to more knowledgeable friends or family members. If you make any investment
in training it will probably be in bringing in a good sales trainer from time to time.
The trainees who can consistently
do this, and there won’t be many, will make a fairly good living and rise to the top of the pyramid with the skilled
ones. There will be a large board in the office displaying everyone’s name and their sales for the month. There will
be bonuses, vacations and prizes for the top producers. The bottom producers will be on their way out the door. Your commission-based
system could be straightforward, or not. There are all kinds of ways to monkey with commissions by making the system complex,
and deducting various charges from the commissions. The intention being to pay as little as possible without losing your best
There is always an enormous need for plumbing and heating services. A large metropolitan area might have
three hundred companies doing various types of service and construction work. A minority of them, but not an insignificant
minority, are sleazy businesses of this type. They can be very profitable for hard-nosed owners who stay close and watch everything.
You would need the stomach for dealing with a steady stream of angry customers, complaints to the Better Business
Bureau and License Board, troublesome employees, lawsuits, collections, lost and stolen equipment, fake Workman’s Compensation
claims, very high insurance premiums, and every other imaginable kind of aggravation. One owner hired so many people who were
in and out of jail that he let it be known that he carried a concealed weapon. But the government is likely to be the least
of your problems. Enforcement of laws designed to protect the public are practically nonexistent. And if you do get in more
serious trouble, there are fixers and well-connected lawyers to deal with these matters.
If you’re this
kind of business person you are likely to not be paying a lot of taxes. Service businesses of all kinds often show the smallest
profits the taxman will swallow. The IRS is always lusting after high-priced services like plumbing companies, but it isn’t
easy to audit businesses that do thousands of small jobs a year. Double and triple books are not unusual (one for the government,
on for yourself, and one for your wife).
A cash cow? Very likely. But the exit plan? There is ease of entry at
the bottom feeder levels of the plumbing industry. And with no steady clientele, an unsavory reputation and a low quality
workforce, leased trucks and shop, sometimes there is not much value being created. But like everything else in life, it depends.
Here are a few examples: The first was quite large and profitable for a number of years, but then had problems
with a franchise agreement that was suddenly canceled. There was a legal battle, which the owners lost, and they retired on
nothing but their savings and social security. The second owner, the epitome of sleaze, retired prosperously with his real
estate investments and passed the business on to his son. The third managed to sell to a national home services company because
although they had a terrible reputation, they had a very well-known name and skillful publicity. And another is still
in business, rumored to be extremely profitable, and with a reputation that appalls even the othe sleazes.
interested? Let’s do lunch and we’ll talk about my commission.