“Time and Materials” and “Flat Rate” pricing are no longer the only options for tradesmen!

In this article (http://www.thehvacguru.com/flat-rate-hvac-plumbing-companies/) I  talk about an Excel Workbook that I created to accurately estimate jobs and call Sales Engineer Job Estimating System (SEJES). Yes, SEJES is a system that can help tradesmen more accurately account for job costs and become more profitable, and I’ve given away hundreds of copies of this system to tradesmen. (If you are a tradesman and want a copy, then register on this site as a new user and I will send it to you, for free.)

In this article (http://www.thehvacguru.com/flat-rate/) I complain about Flat Rate and (more subtly) Time & Materials.

When I immerse myself in a problem I usually come up with solutions – I’ve done this my entire life and have changed aspects of the industry with my designs as a result. This time I’ve taken lessons from my SEJES system and applied it to the service sector of the trades and have come up with what just may be the next biggest thing in the building trades.

But you are going to have to stay tuned for the solution. Expected release date is February 2012. You’re not going to want to miss this new product!

Further, I believe the Flat Rate method addresses many of the ills in the HVACR and plumbing trade, and I applaud positive innovation in the trade. However, Flat Rate is not the only method of assuring one’s financial success. I wrote this article in 2006. Since then I have developed a solution to the economic conundrums faced by building tradesmen and this solution is scheduled for launch in February 2012!

But first…the problems with Flat Rate and Time & Materials Pricing.

The Advertising

You’ve probably seen them: six-wheel box vans with billboard-size ads on the sides, sometimes displaying a blown up picture of a white-toothed smiley-faced middle class woman on the phone, suggesting everything in life is better for her, now that she’s found a disposable-booties-wearing plumbing & HVAC company. Or perhaps you’ve called one of those colorful full-page ads in the Yellow Pages. You know the kind, they make you feel warm and fuzzy, and define everything you thought you wanted to hear. And what about their application of every credit card logo under the sun? Did that reassure you that if your unplanned plumbing emergency caught you short on cash, then you should, without further thought, simply use your plastic? Did the 800-number, blazing red as fire, subliminally suggest: “hotline straight though to the Maytag Man, who sits patiently awaiting to soothe your flustered mind”? Welcome to the world of Flat Rate plumbing and HVAC advertising!

I bet there’s something you don’t know, unless, of course, you did hire one of these companies – they charge between $125 and $400 an hour. If you didn’t know they charged that rate, you are not to be ridiculed for your ignorance, as that rate is disguised in the sell price of every part that they say (wink) you need.

Well, I am going to shed some light on the dark magic behind the M.O. of the Flat Rate model, then maybe you won’t go into cardiac arrest from sticker shock should you find yourself paying one of these companies after your next plumbing or HVAC emergency.

The Background

Among the self-employed in the HVAC and plumbing trades are those who have long struggled to eek out a decent living, me among them. Traditionally, we’ve charged an hourly rate, plus a modest mark-up on materials. As a service technician for two 2nd generation fuel companies – Tenney Fuels, and Ferns Energy Centers – in the early ‘80s, I was paid $3.75 per hour to start, ten cents above minimum wage. Those companies charged $25 per hour and made a profit on parts, furnaces, burners and boilers, and the sale of fuel oil, the latter bringing in the lion’s share. Then, in 1983, Tenney sold out to a hot shot “petroleum marketer” and my pay was raised to $6.90 an hour. In parallel, the new fuel oil conglomerate raised Tenney’s rates, and started charging the customer for everything from pipe thread compound, and a few sprays of parts cleaner in a can, to speedy dry (kitty litter) to absorb oil we spilled on the floor. It didn’t matter that I spit-cleaned the burner electrode porcelains, the customer still was charged for noxious spray cleaner. The name of the game changed from, service and installation work of the utmost quality (at a fair price), to slap-it-in-as-fast-as-you-can, and maximize profit in every conceivable way, irrespective of quality. The new company even brought in technicians already trained on their new method at other branches, to show our service department how it would now be done. It was a shock to me, a green horn, as every traditional practice bestowed upon me over the previous 2 years was clearly and painfully on its way out. The shock on the faces of the customers, some who had been with the company since its inception, was a poignant experience for them and me. Steadily through the 1980s and ‘90s, the endangered Old School slid closer to ultimate extinction, along with the family-run feel that we were all used to. The Big Boys made their entrance with slick, grand, unimaginative signage, sporting corporate logos that left us – the employees and the customers – feeling like an invasion was underway.

In 1988, I’d nearly had it with the new model that I felt imprisoned by, and resorted to recanting positive affirmations I placed on my service van console – anything to affect peace of mind so I could make it through another soul-wrenching day working for The Man. By this time I was employed by a plumbing contractor who seemed to embody the New School philosophy of taking the customer for all they were worth. Though I had been in the trade for 8 years, a co-worker and junior technician – experience-wise – set out to “show me the ropes” my first day on the job. By noon he’d managed to bill for 8 hours, per man, charging each customer for the time it would hypothetically take to travel to their home and back to the shop. It didn’t matter if 3 of the customers lived on the same street, they still got charged the full hour round trip, as if they were the only service call out their way that day. During the course of our rounds, the profit-motivated technician charged one customer – my dentist – for a light bulb in the furnace room that he bumped his head on and broke. While there, he only wiped the dust from the furnace. The bill came to over $300. Next, he charged a customer for an ignition transformer that was not defective. Then, he charged a 93 year-old woman in a mobile home $285 dollars for wiping the dust from her furnace, and a new oil burner nozzle, despite the woman’s plea that she could barely manage on her deceased husband’s Social Security check. (A month later, when the woman called with a no-heat emergency, she got me, the on-call technician. I went to her house, after normal business hours, and found that the burner master control had failed, so I replaced it…free of charge, as recompense for the bath the technician gave her months earlier. I’d lied on my report, stating that call was a non-chargeable callback due to improperly adjusted electrodes.)

I was paid piecework for the exact time I billed a customer. Otherwise, if I didn’t charge them for, say, a trip to the supply house for parts, or travel to their home and back, or for completing the day’s paperwork, I didn’t get paid for that time. I thought the company owner was a criminal for making his living the way he did, and nostalgically pined for the early days at Tenney and Ferns – honest and ethical companies. I felt the present company not only ripped off (in many ways, not fully explainable in the context of this writing) the customer, but also ripped off me, the employee, by illegally docking my pay for not filling out the daily paperwork correctly.

The last straw for me was when the company charged Kay O’Brien, an elderly woman of 84, for several service calls by a plumber-employee who had no knowledge of oil burners. When I was finally sent to straighten out the original problem, and the additional ones he managed to create with a bountiful helping of sheer ignorance, I suggested that she call the main office and explain (complain). The owner’s daughter (the company bookkeeper) told her to “pay the f-ing bill, or we will take you to court!” This unbelievably disturbing and aggressive lack of gratitude upset me as much as it did Kay, and profoundly affected my attitude, unlike anything I’d felt working for any prior company. I withdrew from participation in company meetings and events and, ultimately, I was fired. The boss man said I “wasn’t a team player”, and I agreed, at least not on his team, which lead me down the solitary road of self-employment…and hard knocks.

5 excruciating years had passed and I realized I could have been making more money working for a New School employer during that forlorn period of pure angst. My earnings peeked over the poverty level barely enough to see the other side, gazing at what the Joneses had that I couldn’t muster from no matter how hard I’d worked. Soon, my wife left me for a lawyer. (Whatever happened to “for richer or for poorer”? I think she opted for richer.) Instead of giving in to working for The Man”, I chose to risk everything on my luck as an inventor (see my essay, “Lessons In Invention Development”), which, by the way, is like jumping out of an airplane without first checking to see that the chute on your back is not really a backpack full of bricks.

Just prior to falling like The Old Man of The Mountains, I was approached by a company wanting to sell me a Flat Rate franchise and poured on the sales pitch in equal parts to the, aforementioned, over-the-top, advertising on the sides of certain trucks. I rejected their solicitation because their business model and methods seemed like voodoo. Bankruptcy seemed a more attractive option. A local plumbing company owner did buy into the franchise, and soon he was focusing all his efforts on service, all the while his excessive drinking showed his behind-the-scenes stresses that apparently forced him into his decision to change his business model to the Holy Grail the Franchiser sold him on. He had a great many service vans with inventory levels I had not seen since the old days. He had a huge color ad in the phone book that must have cost upwards of a $1,000 a month. (I paid $250 for my black & white quarter-page ad.) He had an 800-number, in bold red ink, and slogans that I knew he wasn’t clever enough to dream up by himself. The ad, with credit card logos all in a row at the bottom, convinced me he had gone Flat Rate. I visualized him with voodoo dolls that resembled his customers, squeezing them until their wallets spilled out of the pockets, cash flowing from them for him to seize – the how-to instructions printed on some secret page in his Flat Rate pricing book. I was skeptical of his ethics, as it seemed he had bought into something that suggested profit trumped quality, fairness, and full disclosure. I thought, “If it quacks like a duck…”

I pondered the methodology behind the new buzzword, Flat Rate. Being a creative thinker, and problem-solver, I thought the method was ingenious, juxtaposed to that of the Old School way of generating revenue. I examined the core problems in the trade, but also the lack of fulfillment associated with being self-employed, from my humbled and beaten down point of view. Competition was fierce, and there seemed no way to go up on rates without losing bids, customers, and sales. I felt I was on the precipice of defeat, the sanctified martyr for the cause of doing honest work at a fair price, which seemed passé. Also, there seemed no way to afford employees, and the requisite benefits package they routinely demanded. I held back my spiteful tone with retained thought so as no interviewee would notice when he uttered demands like “vacation”; “insurance”; “holidays”, like so much lava from a volcano, scorching my patience to cinders. He didn’t know, nor would I reveal, out of certain embarrassment, that I had none of these bennies. Once upon a time, I enjoyed all that he asked for at the family-owned fuel companies. Nonetheless, it seemed ironic to provide others with the very things I was missing by not working for The Man.

An established company with 15 technicians in the field can generate sufficient revenue by the Time & Materials model, but I was beginning to see the employee prospects that I interviewed demanded a full compensation package, and that I would never become the company that could afford to pay them. And with customers questioning, “What, you charge $35 an hour? I can get so and so for $25 an hour!” the pressure to suppress the urge to charge more was what I feared and loathed the most, but was ever present. The over arching problem in the trade, that desperately needed fixing, was the perception in the mind of the consumer that no matter the hourly rate, there was always someone out there who should be sought for a “competitive” bid. That sounds like Free Market Competition at work. By not charging by the hour, rather charging for ‘materials only’, albeit, with a hefty price tag that obscures the true cost of the parts, the Flat Rate model appeared to have offered up a solution to the problems I experienced. I’ll explain.

The Way it Works

When you call a Flat Rate Company, typically it’s because you are desperate to have your no-heat, no-hot-water, or worse, “no water” problem remedied, quickly. The typical Flat Rate customer gravitates to the “Yellow Pages” like steel to a magnet, and dials the number in the most eye and emotion-catching ad. The company behind the ad anticipates them coming, and, in a sense, is like the Maytag Man who sits waiting for the unsuspecting and desperate voice on the other end of the phone line. The troubled voice is a common one, and the prepackaged mantras of the Flat Rate Company – “Honey, just call ________.” (Fill in the blank with a name of Flat Rate Company.); “Repairs and maintenance on all systems”; “You get firm, up-front estimates and fair, competitive prices”; “Better quality guarantee”; “90 days no payments, no interest financing”; “At last, a serviceman who is always on time, or you don’t pay a dime”; “Never an overtime charge”; “You know the price, before we start”; “Clean, professional technicians”; “Immediate response”; “Our prices are based on established standards”; “_______ solves over thousands of residential problems a year and we can solve yours now” – are like valium to ease the caller’s anxiety. Those lines hook you fast in your greatest time of need. Hey, if you can get an experienced, neat, clean, and professional plumber who allows you to approve the price before he does the work, and he smells nice (yes, there is an ad for nice smelling plumbers), and you can slap the repair on plastic, then who wouldn’t call? It’s true, the Fat Raters are usually there in short time, have the parts in their warehouses-on-wheels necessary to solve your problem, and you do approve the price before they begin work. However, there’s more to their formulae, and intent by some, than catches the eye.

The Catch

Many Flat Rate companies tell you over the phone when you call, not in the ad, that there will be a trip charge (leverage) if you don’t “approve the price” for remedying the diagnosed problem when they arrive. By then you’ve already done all the hunting for a technician in the jungle of ads that you can stand. When they assure you they can speedily solve your problem, you agree to pay the trip fee should you disagree with their price. Shortly, the technician arrives, and in time he tells you that your problem is such and such, and the cost to fix it is…well, on page 7 of his Flat Rate pricing book. The price seems like a lot, but you have no way of knowing if it is too much – it’s not like comparing brand names to generics side by side on the shelf of the supermarket. Besides, you are in a hurry to get your kids off to school, and get to work, and everyone needs to brush their teeth first. YOU WANT WATER, NOW! So you whip out your Visa card and he swipes it before you, and then busies himself in the basement for a while. Once the repair is made, your nice smelling plumber comes upstairs, utters niceties, and when he is positively out your door, removes his disposable booties, hoping you’ll notice he didn’t dirty your floor, which might be the most profound thing you remember about his visit.

On his way to his next service call, the technician whistles with glee, knowing he just made a 7% commission (an incentive to sell as many parts as possible) on the gross sale, on top of his $75,000 salary. Some of these guys make over a hundred grand a year!

[As a salesman for the last company I worked for, in 2002, I made 2% commission on net profit, which was determined by the owner of the company, though I wasn’t privy to his calculations. I quit a year later and they refused to pay my commission check.]

The Math

So how do they arrive at their high prices? Hypothetically, the well pump pressure switch at the root of your no-water problem cost the Flat Rater $12, but you paid $379.25 (the charge that you ‘approved before they did the work’). $379.25 – $12 (their cost of the switch) = $367.25, the Company’s mark-up. If you hired a time and materials guy, say, at $85 for the hour in your home and one on the road, plus $24 – an average sell price for the switch, you’d pay $194. Now, subtract $24 from the Flat Rate price of $379.25 and $355.25 is the labor amount you’ve been charged. But wait, there’s more. Divide their labor amount by two (hours) and their equivalent hourly rate is $178 per hour – more than twice that of the time and materials guy! You think, “How can this be? He was only here for 45 minutes?” Then you suck it up and remember his booties and your clean floor, rationalizing away your concerns, especially about the new balance on your credit card, which you can make minimum payments on anyway. But don’t forget to factor in the interest, bringing the total cost of the Flat Rate Company’s repair to new heights never before seen in the Old School model. What is the Flat Rate technician’s cut? 7% X $379.25 = $26.55, but that’s in addition to his salary, or high hourly pay.

These are average numbers, of course, but you get the idea.

Some Flat Raters take price-setting to an extreme, raking in up to $400 and hour, then laugh through their admission of guilt to fellow tradesman at the supply house. I’ve actually heard them there, at the counter.

It’s all about their marketing, paired with the desperate consumer’s emergency, otherwise, the entire business model wouldn’t hold up. The consumer pays a premium for the company’s means of letting you know he can have a technician there with the requisite parts, within an hour. But that doesn’t mean that a wholly qualified technician will show up at your door. Anyone can change parts. Besides, the more parts they sell you, the more often you pay that premium…until finally he fixes your problem. It’s almost always a net gain for the company, but a loss for the consumer. If the unqualified technician sells you 3 parts, or more, depending on the true problem and how long it takes to replace parts until the right one is found, the equivalent hourly rate quickly skyrockets to the aforementioned $400 an hour range. It’s math 101.

There is an army of these companies now canvassing the populous neighborhoods all supported by their big ads, hoping to add new customers, as many are one-timers, given the unwanted economic bath they took the last time. Speaking of being taken to the cleaners, how does $950 for a plastic Zoeller sump pump suit you? Maybe $1,900 for a 40-gallon electric water heater sounds attractive? I think not! Check Home Depot’s prices for those items the next time you are there. Flat Rate pricing seems to save the consumer from information they shouldn’t see. What they don’t know won’t hurt them?

More often these companies are franchises and they are popping up around the country, from California to New Hampshire. But a local company (though I suspect it is only a matter of time before they sell franchises) boasts of having 35 fully stocked trucks on the road, in New Hampshire! Surely there must be as many dead moose on the road.

Two Schools Collide

With pricing like that the Flat Rate Company can afford to pay their employees better than the non-Flat Rate competitors, thereby attracting the labor pool away from the Old School guys like me. However, guys with talent, skill, and ethical fortitude tend to work for themselves. The dilemma is omnipresent. I ask, why would anyone work for me if all I paid them was $40K a year, and meager benefits? The Flat Rate method answers this question, as it addresses the quandary of how to make self-employed tradesmen profitable, so they, too, can have the same benefits that their employees demand.

The New School, and Flat Rate have convinced me of the direction the trade has been headed in for some time, and that it will never return to the days when I began as an oil burner technician for fuel companies that had been around since the beginning of oil burners themselves, and coal-fired systems before them. Still, I choose to work by the traditional ethics that I was fortunate enough to be taught, at a time when the winds of change were shifting. I’ve let go of the idea that I would employ many and reap the profits they generated for me. Now I work alone and hire another self-employed guy when I need a second pair of hands to complete a job that requires more than one, rather than go Flat Rate and take advantage of the customer. I do believe in business ethics (surely some of you are laughing at my naiveté). Maybe I’ll never sway from the Old School approach, as I still have zero patience for the sub quality work done by the bottom of the labor pool barrel, and by some of these Flat Rate companies. Call it ego, or call it nostalgia, I call it freedom, freedom to choose to feel great about the work I did today, without having to scam anyone.

Presently, where once I charged only for the time on the job, I charge for the total time that I commit to my customer, including travel time both ways. Also, I charge for diesel fuel to get there. After all, the time and expense of traveling to my customer’s site is not for my benefit; it’s to solve their HVAC problems – my primary business.

I know every task required to complete any HVAC job, and the order in which they should be performed. With 28 years experience, I feel unlike many of the Flat Raters who often only have a few. Really, many are simple parts changers in a neatly pressed uniform, behind the wheel of a moving billboard / warehouse, carting around 25 grand of inventory…and a Flat Rate pricing book.

Despite my many complaints about them, I feel the Flat Rate innovators were very creative and insightful when they formulated their solution to the ills in the trade. However, I feel their method is fraught with deception, and opportunity for fraud. Not all are bad, but take the following as example:

The Fraud

A case in point is my customer Cheri Whittaker’s experience with a Flat Rate company. Cheri called me for a “free estimate” to change the boiler in her home, in Exeter, after seeing my ¼-page black and white ad (that cost $450 per month), in the Portsmouth telephone book. Being a savvy and knowledgeable salesman, I knew enough to get a lot of information up front, before I agreed to give a free estimate – something everyone calling ads in the phone book expects. Estimates take a lot of time, if done carefully and accurately. The answers Cheri gave to my queries – namely who the (Flat Rate) company was that condemned her old boiler two weeks earlier – caused me to suspect she just needed an honest and experienced technician to diagnose the problem correctly. I felt I was her man, and agreed to give the estimate.

Upon arrival in her basement, I noticed that the air gate on the oil burner had been intentionally shut, causing the fire to burn incredibly dirty. Black smoke spewed from the chimney, and the boiler was plugged with soot. Before long, damage to the oil burner would result. Cheri showed me the invoice and recommendations the technician had left with her. There were many reasons listed on the invoice for condemnation of the boiler – every one false and designed to pressure Cheri into buying a new boiler from a “Comfort Advisor” they planned to send out to give an estimate. Had she gone along with their diagnosis and prescription, the technician would have received a $700 commission in his paycheck that week. Imagine him doing this more than once a week and you can see how he would easily approach a $100,000 annual salary.

The last time the boiler and burner had been serviced, prior to the Flat Rate Company’s visit, was over a year, so I knew the Company technician had sabotaged the boiler intentionally. Otherwise, an oil burner starved of air would have caused it to fail in a matter of weeks, and it was nearing that point. In a way, the technician’s statement on the invoice was correct: “the boiler is due to imminently fail”.

Cheri and her husband asked me to confront the Flat Rate Company, in their presence, so no surprise, I agreed. Soon, the technician and his service manager arrived at their home and we converged in the basement. Within 15 minutes, I proved false the Company’s claims in their invoice and of no wrongdoing. The Whitakers were not impressed with the hollow answers and guilty looks from the two, and evicted them from their home, telling them they would never return. I proceeded to clean the very dirty boiler and bring it back to good, safe operating condition for a few hundred bucks – a far cry from the $10,000 it would have cost to replace the boiler.

The Summation

Cliché’s abound for situations like the aforementioned such as, caveat emptor – “buyer beware”. And, “if it seems too good to be true, then it probably is.” Think of all the claims, promises, and guarantees in the phone book ads, then recall what they charged you. Was it a steep price? Had you ever been charged that kind of money for a service call in your past? What about the so-called Trip Fee, did you opt for that and disapprove of their Flat Rate? Did the technician fix the problem correctly the first time, or did you have to call him back? Gimmicks like disposable booties, and surreptitious slogans – “you approve the price” – are devised to dupe the layperson from thinking about the price for a repair. These companies are clever, and getting rich without doing much quality work for the money, but they do sell a lot of parts, which I suppose bolsters the economy.

My Mom and her husband in California were just hosed by a Flat Rate Company, paying twice the price for outmoded air conditioning equipment that is being phased out because its refrigerant destroys the Ozone layer. I wished I could have saved them from the wolf-in-sheep’s-clothing Comfort Adviser that sold them on the idea of replacing their functioning furnace and condensing unit, before that company loosed their disposable booties in their home. I don’t blame the ones who’ve been bitten; I hold the snake charmer responsible for allowing the snake to bite.

But, hey, at least the owner of that one-hour flat rate company is content with not having to work for The Man – something we do have in common!

The majority of American oil-fired boilers, and many gas-fired ones as well, use the single-pass heat exchanger type, whereas,  European boilers like Buderus, use a triple-pass heat exchanger. What this means is an American oil-fired single-pass boiler may have a 400-500 degree stack temperature (temperature of the flue gas going up the chimney), while a Buderus triple-pass design will have between 250 and 350 degrees going up into the atmosphere. That’s approximately 30% less heat going up the chimney and instead going into the space heating water.

What you don’t have as much of going up the chimney with European designs is C02 and a lot of other “nasties”. American-made boilers of the oil variety spew a lot more greenhouse gasses and S02 (the key ingredient in acid rain) into the atmosphere.

Interestingly enough, you don’t see many American fuel oil companies selling efficient European boilers, because that would reduce the amount of oil they would sell to their customers. I’ve often wondered if there is a further ‘cozy’ relationship between the fuel oil industry and American boiler manufacturers. American fuel oil consumers, you gotta wake up! In my opinion (from someone who started his career as an oil burner technician for fuel companies in the early 80s) you should never hire your fuel company to install your heating equipment, or service it either. That’s the same as letting the fox guard the hen house. Certainly, there are some ethical fuel dealers who do offer high-efficiency equipment and who employ decent technicians and sales staff.

The worst American oil-fired boiler types are the kind that utilize a “tankless coil” to heat domestic hot water. These boilers are so in-efficient that they have been banned in some states, like New York, unless it can be shown that the appliance has “an acceptable standby loss”. In my opinion, there is no acceptable standby loss with a boiler that heats potable hot water with a tankless coil, as the boiler must maintain temperature 24/7/365, and much of the heat generated goes right up the chimney. Of course, a stack damper would help, but not eliminate that heat loss up the chimney, not to the room the boiler is installed in.

Here is a video of a Burnham V73 boiler with a tankless coil – this equipment really eats up the fuel!

The better way to heat potable hot water is with a triple-pass boiler design like the Buderus G-series, and an indirect-fired water heater like a Triangle Tube Smart series. But then your fuel company will hate you if you switch from the American Oil Eaters they love to sell to their customers.

The only American boilers I buy are steam boilers, because the Europeans don’t heat with steam, they heat with predominantly forced hot water, because they know better than to heat with the least efficient of all heating technologies – steam and, therefore, don’t make steam boilers as a rule.

If you don’t see information about that aspect of HVAC that you seek, then simply send me a note an tell me what you would like to know. If I don’t have your answers directly, I bet I can find them out.

Please comment on the Blog posts that you read, even to say you disagree.

Thanks,

John Rocheleau

In the fall of 2010 I was set to rebuild a Sunbeam coal-fired gravity hot air furnace that was installed in 1889, and converted to oil in 1959. Set that is until the 80-year old owner saw the dirt, dust and debris that had accumulated in the single wooden return trunk. Rather than have me clean the trunk, reseal the cast iron sections, replace the oil burner and combustion chamber, primary control, fuel filter, smoke-pipe and draft regulator, she told me to replace the entire furnace with a forced hot air model. While I was looking forward to bringing this otherwise perfectly sound furnace back to top performance and safety, I considered the other positive: I would make much more money on the sale of a new furnace altogether – the thing that motivates most in business to replace the old with the new.

Here’s the old system:

[Show as slideshow]

I know the old Sunbeam and ducts look like they are, well, old. But I assure you, this system was a solid as it was the day it was installed in the late 1800s. A little duct cleaning and some paint and this could have looked new again, and worked like a charm.

Here’s the new system:

[Show as slideshow]

While I think the Thermo-Pride furnace that I installed is the best oil-fired furnace on the market today, the same can’t be said for the new duct and fittings, which repeatedly broke during installation. That’s right, the new duct and fittings were such poor quality I was embarrassed to install them. Were they made in China? I don’t know because there was no name on the product, only a bar code. Not only that, when I returned the unused and broken elbows to the supply house (Air Purchases, Inc – API – Manchester, NH) I was met with the worst customer service I’ve ever experienced in the trade. After having an account with this company since 1988, I closed it when I got no better treatment from the owner of the company when I complained about the awful treatment the day (6 months later) he called me.

But this post is not about one company, nor one product. No, this post is about what is happening in the HVACR industry as a whole. Since I started in the trade (1980) there has been a major paradigm shift with manufacturing of HVACR equipment and materials. This shift can be analogized by the old Sunbeam furnace/soldered tin ducts, that lasted well over a hundred years, with that of new equipment and materials that are made to fail so “the consumer” will have to buy more products – that also don’t last – and the vicious cycle perpetuates.

This new era of excessive consumerism is designed to do one thing: make a few people very rich, at the expense of the often very ignorant consumer and/or tradesman.

I know what some of you are saying, “but that’s what keeps the economy going!” Yes, following WWII our leaders, both government and corporate, decided that continuance of the white hot economy that the war created was something that needed to be continued, so consumerism was created to do just that. My friends, consumerism has taken an ugly turn for the worse.

It’s not bad enough that we are destroying our natural world through excessive human population, therefore, consumption, but now manufacturers are going to Third World countries with the absolute worst environmental and human rights records for cheap (often poisonous) products that don’t last, at the expense of American manufacturing workers, tradesmen and consumers.

Here is a short list of the worst products on the market for HVACR.

1. Imported Valves and Fittings
2. Imported Grilles, Registers and Diffusers
3. Imported Sheet Metal – Pipe & Fittings
4. Imported “High-Efficient” Cast Aluminum and Stainless Steel Boilers and Furnaces
5. Imported Electronic Controls
6. PEX Tubing
7. Press-Type Copper Fittings and Valves
8. Pre-made Copper and Steel Manifolds
9. Anything that is advertised as “Save Time and Money”
10. Many More Than Time Permits Mentioning

Here’s a product that oughta turn heads, like the day it did when it exploded and almost took off a worker’s head, in Exeter, NH. This valve is made in China and is akin to the majority of valves on the market and bought and installed continually by tradesmen who think they are either getting, or giving a deal, presumably, to their customers. This valve is a private label for the largest supply house chain in the Northeast, F.W. Webb, a company that seems more interested in how many skew numbers move through the cash register each business day, than the quality of the products they supply to tradesmen to install, and the proof of this is the low quality private label products they sell under the names PVF Limited and Pure Pro:

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With each passing year I see more cheap Third World products on the shelves of supply  house like Webb and API. It doesn’t matter that I complain that their fittings are high in lead or Zinc, or they fail almost immediately at times. Nope, my complaints and concerns fall on deaf ears, as the boys at the top of these companies are well aware of what I call the Wal-Mart Syndrome – a race-to-the-bottom-of-price. But it’s not the lowest price these financial wizards are so concerned with; it’s obviously profits,no matter the quality. This is the common business MO throughout our suffering capitalist system. As a tradesman of 30-plus years, the thing that distresses me the most is the crap wholesalers peddle to me with few, if any, alternatives. How am I to produce great work with crappy products? (I invent and develop my own products, actually. And they’re all made in America by hard-working, quality-minded craftsmen.)

These guys all know that everybody expects a deal. What they don’t know –  and how would they, they’re not craftsman – is that low price does not necessarily equal value. Low price, in my book, means somebody (or the environment) is paying a hefty price.

So who’s getting the s**t end of the stick?

When tradesmen buy the cheapest parts they can find they are ripping off the consumer or themselves. How? When tradesmen buy a part and mark up the sale of the part to his customer, this is expected and without a mark-up, no business will stay in business for long. This is ordinarily honest business exchange of goods and services – all costs should be considered for mark-up.

Say a tradesman buys a part for $100 and multiplies it by 2 and sells the part for $200. Now what if he gets “a deal” on a cheap import and pays $50 for it. He can either sell it for the same $200 price as the quality made part (gouging the customer), or he can apply the same multiplier (2) and sell it for $100 (he takes profit opportunity from himself – he only made $50). Who got the worst deal with the sale of the cheap Chinese part in this example, the tradesman or the end-user? The tradesman lost out on a much greater mark-up, for a quality part, which keeps him in the game, and his customer was sold a crappy part that won’t last and he’ll soon be in the market again for the same part. Both lose equally, in a strict economic sense.

Then who makes out in this cheap-imports ponzi scheme? The supplier, because his margins are far greater on cheap imports than on high quality, and relatively expensive, domestically made products. This is what The Home Depot, Wal-Mart, Lowes and all the other so-called big box stores have figured out. They also know that the best place to get cheap products is in the developing Third World, as no smart American manufacturer can possibly compete with workers who earn $15 a month and live in thatched roof huts, or chicken coop style low class worker dormitories. High quality parts don’t move as well when a cheap alternative is on the shelf next to it.

Another way tradesmen shoot themselves in the foot is with products that are purported to “save them installation time”.  Take PEX tubing for example: installation of PEX is usually very quick, quicker than copper piping, but the cost is often virtually the same, even more money per foot. But the time to install it is much less. The key word is “less”. Less time means less money the tradesman makes. Afterall, aren’t we in the business of selling our labor, too?

So when tradesmen give up the time it takes to pipe a system in copper by using products such as PEX tubing, pre-made copper or steel manifolds, press-type copper systems, etc., so they can “save time”, they are giving away their profit-making opportunity to the manufacturer of the so-called time-saving products. Meanwhile, they are still selling the job to the customer for about the same amount of money, given PEX and related fittings are generally more expensive than copper. Throw in the cheap valves and other fittings with stickers on them that say Thailand, or Malaysia, or China, and what tradesmen are doing is installing a system that not only looks like crap, is devoid of true craftsmanship and won’t last very long. They are giving their customer low value. But manufacturers love them for it!

The other big scam on the buying public and tradesmen is high-efficiency boilers, furnaces and water heaters. In the next post I will reveal why this is the greatest scam ever pulled on building owners by the industry, and why they are not actually reducing anyone’s carbon footprint like they are purported to do. What’s worse, from a tradesman’s perspective is the messenger is often the one who is shot, for an offense he didn’t commit.

Stay tuned.

Since the paradigm shift called the Internet, I spend a lot of time enumerating the ways of promoting my HVACR business – those that work and those on their way out. Once upon an easier time, all you really had to do was buy yellow page advertising and sales seemed to just happen. Today, that advertising method may not even pay for itself. Whether one tweets their way to sales, broadcasts it across their vehicles, or is a Flat Rate-type company with a full-page yellow page ad, one must accurately define what he/she/the HVAC company really has to offer, and who those are that are most likely to end up on your list of best customers.

I’m reminded of the incessant chatter that I keep hearing about if you’re not on board with social media marketing then you’re business will go the way of the dinosaur. And I keep answering back, “don’t you first need to teach one (the majority of HVACR guys) to type?” I can’t see being very productive at establishing fruitful business relationships on social media without the ability to type cohesive messages to prospects. Plus, I can assure the social media advocates that most HVACR tradesmen/business owners are busy out doing what they do to make a living. HVACR. Who’s got time to invest in a Facebook account and being Internet socially active, in a business sense?

More important than the need to type, is the need for HVACR contractors to target the right kind of customer for his/her business, myself included. My business model is very different than that of a typical Flat Rate business owner’s model. I want to go out and design/build custom, one-of-a-kind systems, and closely analyze defective systems and create reports for plaintiffs and lawyers in civil legal matters. Lots of Flat Rate companies will take any customer with an HVAC problem and a credit card. Then there are the in-betweens.

I just came off a project that took 7 months for me to design, build and complete the final punch list. The total cost was about $170,000 (the job costing hasn’t yet been finalized), and I made a reasonable profit for a great opportunity to build a set of signature HVAC systems. And, my customer will say that he got exceptional value for his money (testimonial coming soon).

But how did I find the opportunity to create cutting edge systems for an exceptional customer only a few miles from my headquarters, and a summer spent on the seaside making good money? It wasn’t on Linkedin. I met this customer at my local breakfast haunt, at the counter, 2 seats away. He had a baseball cap on with a local building contractor’s name embroidered on the side. I asked if he was an employee or a customer. He was a former customer, as I was a former sub for the same company. In an ironic coincidence, the project manager at the company had recommended me to this man when they were working on his house 2 years earlier, but I didn’t realize this then.

I told him I built HVAC systems to the tune of several hundred thousand dollars for the construction company and he fired back, “I have an HVAC project that I need to have done. Are you interested in giving me a bid?” Immediately, I envisioned the colossal waste of my time if my bid was not accepted. As anyone in the business of HVACR contracting knows, there is a lot of preparation that goes into preparing bids, in the hope of actually getting the project. Instead of giving him a direct answer, I had to figure this guy out. I asked him where he lived, and when he told me his address, I became more interested. He then went on to say that he had gotten one bid for systems installations costing $58,000, and another with a price tag of $129,000. “What do I do with that?” he said, frustrated.

I agreed to “take a look at his project” – remodel of a 1900s New England seaside colonial. When I got there I was a bit underwhelmed, until I walked through the front door. What I couldn’t see from the outside front, was obviously impressive once inside – a huge modern addition on the back. The house was 6,000 square feet and had nearly 200 windows. The thought of collecting all of the requisite information for a heat gain/heat loss report was daunting. Plus, the addition on this house was not an easy box to draw on a scratch pad, on site. The thought of doing all the necessary leg work to put together a professional estimate and proposal, then not getting the work seemed even more daunting. This is what happened to the 2 prior bidders. My hesitation was obvious.

“So, are you going to give me a bid?”, he asked again. “Sure.” I said, with a caveat. “Ill give you a bid, but it’s going to cost you $3,600.” “What?” he countered. “I’m going to give you the work. I can tell you know what you are doing!”

While I was flattered, I knew that I don’t necessarily want every job that comes my way. I want profitable outcomes from dealing with honest people that I like, and when I can design and build a system that becomes a literal work of art, from the best components available, including my own product designs/inventions. I told him I didn’t want every job and cited my refusal of a $50,000 job in recent weeks. He agreed to pay my design fee. I guaranteed system designs, bills-of-materials and labor, as well as the opportunity to shop the designs out for apples-to-apples bids, and that if he hired me to create the systems I would give him his money back from the final payment.

I was hired to produce technologically advanced and efficient systems and that’s what I did. Now I have a great portfolio project to use to advance my own cause. I’ll tell you this, 7 months on a project with one assistant, working for a hassle-free customer who is willing to pay me my price (he never even got another bid), sure made me more aware of what I need to focus my sales efforts on. Of course, not every project is this luxurious. These kinds of jobs are the exception, not the rule.

However, my next projects will involve work in several historic mansions, including The Fells, in Sunapee, NH. I think about the work that comes my way, and of how the accounts I’ve lost over the years are so not my type anyway. If I was a sales engineer, as in past positions, for another company I would be expected to keep all customers, regardless of how terrible they are to work for. I pretty much pick and choose the type of customers that I want to keep – the kind who want uncompromising quality, don’t think they are the only ones who deserve to make reasonable money, and who are reasonable people, in general. I especially seek out interesting projects, because that’s what motivates me to go to work in HVACR. I paid my dues as a service technician and installer for other companies, for years. I can now do what I want.

With that said, I know what I want, and I know where to get it. I also know what my best customer wants and I know I can give it to that customer type, consistently, every time. So tell me, how hard can it really be to be an effective salesman? It wouldn’t matter if I worked for someone else, as long as I knew what I was selling would bring me fulfillment and a decent paycheck, I could still be an effective salesman.

The dilemma is not what advertising medium produces the greatest sales results, but is what we are selling had better be something we’re not only talented, skilled and experienced in, but is personally and professionally satisfying. That includes targeting the right kind of customer, who may not be the next viewer of a YouTube video I may have posted, but someone from a favorite corner breakfast restaurant.

“HVAC SOS” is a forum where building-owners can get free answers and advice from professional technicians, installers, consultants and engineers.

While there are many HVAC answer sites on the Web, this site and the HVAC SOS forum is absolutely free to building-owners to post questions, comments and concerns and receive free professional advice and answers to whatever your problem(s) may be.

You read that correctly: Free HVACR answers on the HVAC SOS forum!

1st, you must register as a user on this site.

If you are a manufacturer and desire to enter the global circulator market with the greatest circulator design ever created, then contact John Rocheleau to learn how you can be a part of this exciting development!

If you’d prefer to call: 603-545-1282

When I invented the new breed of circulator flanges and valves in the 1990s, I did so with quality driving the design, not price. My first isolation flange prototype was actually fashioned from a Taco, Inc. 3/4″ threaded bronze flange that was machined to press-fit with a machined 3/4″ Apollo copper ball valve.

I licensed these flange and valve inventions to Taco in 1999. 6 weeks after Taco filed for a “Utility” patent on my behalf, Webstone Valves’ Michael Reck applied for a provisional patent, then 2 weeks later filed another provisional patent application on modifications of my designs and started advertising them for sale in numerous trade journals. Reck failed to provide the United States Patent Office with “all known prior art” (mine) and was successful in getting a patent of very similar valve design.

What became the standard fare in the trade for isolation flanges for circulators, has everything to do with a race-to-the-bottom in price for manufacture of designs that appeal to tradesmen in price range. This desire for lowest manufacturing cost has lead to compromises in construction that result in leaking and downright dangerous valves.

These valves are Watts isolation flanges that leak, yet they were installed on 9/30/05.

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Here is the YouTube video of the valve leaking out the packing o-ring around the valve stem. In the video I mistakenly identified the leaking valves as Webstone. They are in fact Watts’ isolation flanges; not Webstone.

To replace the leaking Watts valves s in this threaded steel and iron supply and return primary/secondary manifold piping will involve a full day of re-piping with copper. There are no quality isolation flanges on the market, but my latest inventions address this issue.

Here is a PVF Limited (FW Webb) low-quality valve that literally exploded out the end of a high pressure pipe. I was allowed to take these pictures by an employee at FW Webb, in Exeter, NH. He told me the valve almost took a female worker’s head off when it let go. He also told me that Webb has redesigned their foreign valves so they won’t explode.

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This is my 1st isolation flange fashioned with a Taco threaded bronze flange and an Apollo copper ball valve.

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Here are my proprietary valve innovations all constructed with Apollo ball valve components – I just designed the valve bodies.

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I know there has been a mass defection by manufacturers and tradesmen alike toward inexpensive valves made in China, but fellow tradesmen, what you are doing is contributing to the demise of the valve industry and you are doing yourselves, your trade and your customers a huge disservice that is costing everyone. Meanwhile, we are shipping U.S. jobs overseas.

Once upon a time this trade and country was about quality and pride was displayed in the products we manufactured and in the moniker: Made in America. That time has returned!

These are my latest isolation flange creations that are simply the best quality you can buy. And they are all proudly Made In America!

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Contact us if you would like a price and availability for GuruStreetFlanges, GuruStreetAccessoryTees and GuruHandles with your brand and valve designation on them.

“Forgot to CC you on the email below, Dennis. Here are the survey and feedback results:

——– Original Message ——–
Subject: Re: SEJES Seminar
Date: Wed, 19 Oct 2011 11:25:57 -0400
From: john <john@thehvacguru.com>
To: Mike O’Shea <Mike.OShea@fwwebb.com>

I think it went very well, Mike. There were 16-20 people. We had (most
of) them fill out a 3-question survey and a presentation feedback form,
as follows:

Survey
1.    What aspect of the HVACR/Plumbing trade are you in?
__________________________
2.    How many years of experience do you have in the trade? ____
3.    What age group are you in?
a.     ⃝   18-30
b.     ⃝   31-40
c.     ⃝   41-50
d.     ⃝   over 50
4.    Briefly state your computer experience including any Excel training.
________________________________________
5.    How do you charge for your services?
a.    ⃝   “time & materials”
b.    ⃝   “flat rate”
c.    ⃝   other (describe) _________________________
6.    Do you have employees? ____ If yes, how many? ____
7.    Do you plan to hire employees in the next year? ____
8.    What interested you in coming to this presentation?

_________________________________

Survey results:
1. All were in various aspects of plumbing/hvacr/sprinkler systems
2. 15, 13, 20, 35, 20+, 10, 20+, 7, 30, 32, 30+, 30, 30+
3. (0) younger than 18-30, (3) 31-40, (5) 41-50, (6)
4. Intermediate, Quickbooks, Basic, Fairly experienced w/Excel, average
ability, formal training with Basic, Limited, basic, none, none,
Office/Quicken/Web Connect, basic, 0, very very little
5. T&M, T&M & Flat Rate, T&M, T&M, T&M & Flat Rate, Flat Rate,
Contract/T&M, Contract/T&M, T&M, T&M, T&M & Flat Rate, T&M & Flat
Rate/Estimate Bid & Contract, T&M, T&M & contract
6. Y-1, N, Y-6, Y-2, N, N, N, Y-2, N, N, Y-1 & 2 subs, Y-1, Y-1
7. Y, N, Y, Don’t Know, N, N, N, Y, N, N, N, Maybe, N
8. Excel in Selling jobs, learn about business end, gain business
knowledge, become more profitable, become better at estimating, cost
estimating, making more $, to better myself and company, learning
estimate costs, always interested, am I making all that I should be?,
supper, to learn more about estimating

Feedback Form

1.    How interested are you in using SEJES?
__ not at all   __ somewhat   __ very

2.    What is the likelihood you will use SEJES?
__ never  __ maybe    __ will definitely use it

3.    Did you find this seminar valuable?
__ no   __ somewhat   __ very

Would you like to be contacted for further training on SEJES and other
TheHVACguru.com downloads when seminars are scheduled? If yes, enter
your contact information below.
Name:
Company Name:
Telephone:
Email:

Feedback results:
1. very, very, very, very, very, very, very, not at all, somewhat,
somewhat, very
2. maybe, definitely, maybe, definitely, definitely, definitely, maybe,
never, maybe, maybe, definitely
3. very, very, very, very, very, very, very, very, somewhat, somewhat, very

So, as you can see…there is definitely interest in this topic!

I’m interested in doing the next presentation at any branch you think is
appropriate. Can you think of a branch and a date? I can do it anytime.
Also, I am doing a presentation at the annual meeting for the PFGFHVAC
Association on 10/29, at the Grappone Center, in Concord.

Thanks, Mike, I enjoyed doing the presentation and look forward to the next.

Take care,
John

On 10/19/2011 10:54 AM, Mike O’Shea wrote:

John

How did it go last night ?

How was the turnout ?

Please advise

Thanks for going up to Madison !

Mike

Mike O’Shea
General Manager
F.W.Webb Co.
10 Sumner Dr.
Dover, NH 03820
603-749-3100
mike.oshea@fwwebb.com

—–Original Message—–
From: john [mailto:john@thehvacguru.com]
Sent: Wednesday, October 19, 2011 10:15 AM
To: dennis wilson
Cc: mos@fwwebb.com
Subject: SEJES Seminar

Hi Dennis,

One thing I forgot to show the attendees of last nights presentation was
the outcome of the estimate for the “low-bid” radiant job. You might
pass on in conversation that the low bid job was done for $72,000 (which
they new) and my SEJES estimate (done accurately) came out to $289,000.
Wendy was reminding me of the time and I rushed through to conclusion
and forgot all about showing the class the final number that we were
building up to. Doh!

Again, it was nice meeting you and learning a little about your
background. Stay in touch and please let me know the verbal feedback
from your customers.

Best,

–
John Rocheleau
The HVAC Guru, LLC
www.thehvacguru.com “