Too often the reply is "Well that's a dumb question, we have a warehouse with 5000 parts at and we sell them all. What do you mean what do we really sell?"
When I first ask this question to business owners they always look at me a little funny, because it seems like an obvious question. I must admit I've gotten many different answers, But this is still a central question that every business must focus it's efforts on to make the business operate smoothly.
Let me explain.
If you run a plumbing shop, and you install a water heater at a customers house, you could say, you sell water heaters. But let's look at what you really did.
You purchased a water heater manufactured by oh say Bradford White, and installed it. That's fair enough to say it that way. You bought Bradford Whites water heater, resold it to you customer and charged them to install it.
You purchased a water heater manufactured by oh say Bradford White, and installed it. That's fair enough to say it that way. You bought Bradford Whites water heater, resold it to you customer and charged them to install it.
Your technician, was a water heater salesman, and he sold labor from your business. You may be saying 'well no kidding about now,' but there's a foundational point here that many businesses miss. Since they are a service business the only thing they really have to sell is their service,or more specifically their installation.
"But we mark-up the water heater and make money from it" While this is a common practice in most service businesses, that doesn't mean that it has been though out completely when it come to identifying income. In fact, it could be hurting your business. Many service business that think this way end up always using the cheapest parts they can find to compete with the pricing at the home centers. Usually the cheaper the part the shorter the warranty and the higher the likely hood of failure. And the greater the expense to the company when they fail and need to be replaced, but that is a topic for another day.
Since the business can not control, material cost, or even use from one job to the next, it become a nightmare to constantly be changing your pricing or your vendors as the cost of material goes up and down.
"But we mark-up the water heater and make money from it" While this is a common practice in most service businesses, that doesn't mean that it has been though out completely when it come to identifying income. In fact, it could be hurting your business. Many service business that think this way end up always using the cheapest parts they can find to compete with the pricing at the home centers. Usually the cheaper the part the shorter the warranty and the higher the likely hood of failure. And the greater the expense to the company when they fail and need to be replaced, but that is a topic for another day.
Since the business can not control, material cost, or even use from one job to the next, it become a nightmare to constantly be changing your pricing or your vendors as the cost of material goes up and down.
This is one of the most important principles for service business owner to never forget, only thing he really has to sell is his service, end of the story and discussion. And I submit that for a business to be successful and profitable that has to become their only product..... Service.
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