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A recently released book may be of interest to electrical contractors (ECs), especially in times like these when capital investments in new construction are so low. In “Reinvent Your Electrical Contracting Business With Sustainable Service,” Frederic B. Sargent makes a convincing case for adding service and maintenance facets to your electrical contracting business.
What is sustainable service?
Sargent’s theme is that if a contractor can transform the service part of his business into a self-sustaining entity—whether it is a division or even a completely independent subsidiary—it can transform the nature of the entire business into a reliable source of steady income. More than that, a sustainable service operation can accrue intrinsic value, which can be transformed into cash when the owner is ready to retire or move on. Sargent is an expert in this topic, as he put in a lot of years as an EC and transformed his own business using this model.
What’s a traditional electrical contractor’s work life like?
The first part of the book delves into the difficulties contractors who work on capital projects face. According to Sargent, life for a typical contractor in the construction business is a series of hurdles. The EC is constantly chasing after new projects in order to maintain its backlog. Each project brings with it a new set of problems. One of the biggest sources of these problems is that so many aspects of project work are outside of the EC’s control. Often brought on board after the general contractor (GC) has started the basic work, the EC must contend with all of the other subcontractors to ensure it can get its work done properly without interference. Another problem with coming on-site after the project has begun is that much of the leeway that was built into the overall schedule has probably already been used up, so when the EC gets to work, the time pressure is intense.
The bottom line
Assuming that the project was awarded and the work was accomplished, there is the not insignificant issue of getting paid and making a profit. A typical contract calls for payment in full when the job is complete.
“‘Getting paid in full’ in the contracting business has ramifications that go beyond its equivalent in many other businesses. For ECs this means not only collecting payment, and possibly having to prove entitlement to it. Mistakenly or intentionally, or sometimes both, customers commonly resist paying in full for the total effort that an EC has put forth to do a job,” Sargent writes.
Most construction contracts allow for monthly progress billing and less retainage, and the retainage isn’t released until all the work has been completed.
In calculating profit or loss on a job, the main variable is man-hours of labor. The cost of materials is, for the most part, fairly predictable. If man-hours spent on a job come in at or below what was projected in the bid, the job will most likely be profitable. If something goes wrong or it doesn’t work out, the contractor can lose a sizeable amount of money.
Most ECs do service work, some more than others. A lot of service jobs begin when a construction project has ended and the owner wants something added or changed. The owner will call back the EC who did the installation because of that contractor’s familiarity with the job. The key is whether, when the call comes, the EC tries to squeeze it in or is all set to handle it. Sargent has a lot of good advice about preparing to handle that call—and many others.
One sure thing is that squeezing service in is not the right way to go about it. That’s why the EC who is serious about service work should, at the very least, have an independent department to handle it. This means development of service as a serious generator of income has to start with a decision by the contractor that he is serious about making service a fundamental part of his business—what Sargent calls service-centric. He will have to invest in resources and, as with any startup, expect that it will take some time to begin to reap a profitable return.
The following are some key elements of a service group:
• Have separate management
• Develop a marketing strategy and sales tactics to grow a base of customers who can be counted on for repeat business.
• Cultivate management tools and procedures for handling service requests so that they are recorded and tracked.
• Create a system for making appointments and for having electricians available at the right time and place.
• Have a system to follow up after the job is complete, not only to collect the payment but also to collect feedback about the customer’s evaluation of the quality of their experience.
• Keep records of all of the jobs, a customer database, and a means of tracking sales and marketing efforts.
For most of these tasks, good software can be really valuable. For example, Dispatch Direct (www.dispatchdirect.com) can be used for coordinating available personnel and resources with customers’ calls, and it is designed to interface with standard accounting software.
One of Sargent’s ideas for a marketing strategy may seem to be counterintuitive: offer customers a five-year warranty. If the job was done right in the first place, there probably won’t be a need to make good on it. However, it gives you a reason to call to remind the customer about the warranty and to follow up.
Putting theory into practice
This makes sense in theory; what happens in the real world can be something else entirely. So Alan Linder, vice president of operations for Truland Systems and Affiliates, a large electrical contracting firm headquartered in Reston, Va., was queried. One of its five affiliates, Truland Service Corp., has two major focuses: new construction and service management. Service management brings in 33 to 40 percent of the income and generally has a staff of about 100 people in the field and 20-–25 in the office. This number stays fairly constant in contrast with the construction side. When Linder was asked if he agrees with Sargent’s claim that having a steady income on the service side allows the company to be choosier in the construction projects it takes on, he replied, “Without a doubt.”
There is a marketing department for the overall group, but the electricians and the field managers generate most of the business on the service-management side, Linder said.
“All of them spend a significant amount of time touching base with their customers,” he said, doing what Sargent calls “reminder marketing.” From time to time, someone calls a customer to see if there’s anything he or she needs help with.
The account managers are only in the office doing their paperwork for a small portion of the week. The rest of the time, they are out in the field, about two-thirds of that time supervising existing work and one-third of that time chasing new work.
Truland uses software to to manage the service work. The company is in the process of customizing its Microsoft Dynamics AX business management software for both enterprise resource planning and customer relationship management.
Linder also agreed with Sargent’s advice to offer a five-year warranty.
“It’s essentially a no-cost feature to add for a contractor that does quality work,” he said. “It’s a great opportunity to periodically touch base with the customer a couple of times during each of the warranty years.”
According to Jeff Russell, vice president service management for Truland, Sargent’s advice is realistic. When Jeff started working at Truland as an account manager, the service group consisted of about five trucks and brought in about $1 million per year. Now Truland has 60 trucks working service and bringing in substantially more than that.
But how is the company weathering the downturn in the economy? For three or four months, the numbers were down to about 50 working trucks but four or five have already been put back into use. Russell was, in large part, responsible for this growth, Linder said. When asked what he attributes this growth to, his quick answer was “relationships are everything.”
When a potential customer calls about service, he is assigned an account manager who is available to help customers 24/7 days a week. The manager and customer get to know each other well, and the customer always knows his needs will be attended to. If there is an emergency, a crew will be on the scene within an hour, and in all likelihood, the problem will be solved in time for the morning opening.
Each manager is viewed as being in charge of his or her own profit and loss center, as though this large company were made up of a group of small ones. The service technicians who do the actual work are treated as co-equal members of the team, along with the managers, and are also encouraged to form personal relationships with their customers.
“Every one of those service truck drivers who has a truck and does work for clients is a salesman,” Russell said.
Another successful element of Truland’s service group, right out of “Reinvent Your Electrical Contracting Business With Sustainable Service,” is offering maintenance programs. The group offers preventive maintenance, such as infrared scanning, generator maintenance and fire alarm testing. If a customer signs up for all of the programs, he or she gets a discount.
With these elements in place, you have a business that has intrinsic value. That means another person can take the reins; the success of the business does not just depend on your personal knowledge. There’s an organization with procedures in place and a list of established customers. If you decide it’s time to get out, this intrinsic value can be converted into cash from a buyer.
“Long-term and boom-bust business cycles will eventually catch ECs who depend solely on projects to sustain their organizations. At risk, is their firm’s ongoing viability and intrinsic value,” Sargent writes. Building a sustainable service organization is a way of diminishing your company’s susceptibility to those up and down swings.
BROWN is an electrical engineer, technical writer and editor. For many years, he designed high-power electronics systems for industry, research laboratories and government. Reach him at [email protected] or at www.writingengineer.com, an independent professional writing service.