The Unemployed Killed the Service Industry Stars

Unemployed skilled tradesmen

I apologize for the not so subtle reference to the famous Buggles hit song/video “Video Killed the Radio Star”. It was the very first video played on the seminal music video channel MTV and an omen signaling a monumental shift in how we listen to music. When I look at the hydronic/piping/plumbing service industry introspectively I cannot listen to the original song and not get an eerie sense of foreboding with regards to our industry.

Unemployed Skilled Tradesmen a Historic Threat

Quit being so dramatic right? I have spent the last 17 years being the eternal optimist but the state of our industry is dire. The historic level of unemployed skilled tradesmen threatens our industry like never before. Everyone knows (I’ll do my best not to over generalize but in this case I refuse to cater to the few who say “we’re busy” I don’t know what anyone is talking about”) an out of work plumber, pipe fitter, etc. let’s just call them “piping tradesmen” and there has never been a bigger influx of unemployed pipe tradesmen attempting to hang their shingle calling themselves contractors.

Unemployed skilled tradesmenOn one hand you may say “well that’s the American Dream at its finest” but all it’s really doing is allowing consumers to get their plumbing/air conditioning etc. below the real cost of doing business and exposing home owners to possible issues with unlicensed and uninsured service providers.

Do we even need to talk about how every water proofing, concrete contractor, window contractor, carpet layer and basement remodeling contractor can suddenly replace sump pumps, install battery back-up systems and water heaters?

Don’t Lower Your Pricing to Meet Demand?

That brings us to another delusion, some of our so called experts are having. They have all become extremely good at telling people to “differentiate yourself from the competition”, good and responsible contractors won’t get caught up in lowering their prices to compete with the “newly” minted contractors. While there are a few ways to differentiate yourself from others in this historic downturn most have a very high barrier to entry. Are you going to buy new snazzy trucks? You need cash. Are you going to send all your service people to learn the latest in Green Plumbing or high efficiency heating and cooling? You’ve got to pay them to go and in most cases pay the company that is doing the training. Let’s buy space age, I mean cutting edge diagnostic tools (I just wanted to write space age) you’ll spend a pretty penny. By the way I use the word “contractor” loosely in the description above.

I’ve read that ignorance, self esteem and fear are the reasons for contractors failing by the bushel basket. I agree wholeheartedly with the concept of service contractors keeping their pricing and service high so they can continue to train employees, keep service quality high and actually make a profit. However it is completely irresponsible to broad brush the current depression and work situation and attribute it to ignorance, self esteem and fear.

Survival Will Have Two Faces

Most plumbing contractors that survive this (and it will go on for at least two years) will have two common traits #1 Have enough money saved to lower their pricing enough to compete in a market that can only afford white box service and hopefully staunch the blood flow long enough to return to profitability before the money runs out or #2 Do whatever it takes to lower their labor costs to continue to make a profit during these white van times. Read into “do whatever it takes” however you want, make it as nefarious and suggestive as you feel necessary.

Flat Rate Pricing is Dying

I will fight the flat rate philosophy all day long on this, in good times there are enough people to go around. You don’t like my pricing, move on to the next. This concept has no answers for times like this, at least not in our market and there are only a few markets throughout the country that are holding their own. Skilled labor is approaching 70% percent unemployment in municipalities around the US. Some of the best flat rate pricing contractors in our area are dying and it’s not because they provide bad service, their pricing is off the charts.

Here is a passage from Gary Vaynerchuk’s book “Crush It” that relates to many businesses and certainly translates well to the plumbing business “……these new models demean the training and insight and education it takes to be a great journalist (plumber, HVAC tech, electrician, etc.), and perhaps that’s true, but crying about how things should be instead of embracing how things are doesn’t do anyone any good. The changes affecting the news business (insert plumbing, HVAC, whatever) are permanent. Fundamental supply and demand is shifting.” Here is the knockout punch, “Quantity is up, price is down, which means the cost structure has to shrink dramatically. And like it or not, many people’s respect for quality reporting (insert plumbing, HVAC, whatever) has eroded. This upsets me as much as the next guy, but the fact is that it’s the trend that is having a huge impact on business and needs to be noticed and accepted. I couldn’t verbalize this concept any better and it’s scary but real. Another huge concern of mine is when work does start turn how long will it take for the consumer or commercial building owner to be willing to pay what it actually costs to do the work at a reasonable profit?

Unemployed skilled tradesmenYou can’t blame the contractor’s stupidity, self esteem and fear for the service industry’s woes. There are some really fine service businesses that refuse to lower their prices and continue to provide a high level of service that will go out of business because they don’t have enough people willing to pay for their services. No one wants to address this issue it’s like a dirty secret. I’m going to give you an example and this is one of 50 I’ve had in the last two months, we have a residential customer that we have served for two years or so. He called on a Saturday and needed a new water heater. He said he’d wait till Monday. I gave him a price of $1,150.00 for a 50-gallon heater. He said “I’ll see you on Monday”, Monday rolls around and he calls me up and asks me if “that’s the best I can do?” I was a little taken aback because he’s never haggled with me in the past and quite frankly we’re pretty competitive. I told him I could drop it by 50.00 to which he replied “that’s all huh?” He went on to tell me that a friend of a friend was an out of work plumber and would do it for 200.00 plus the cost of the heater. I tell you this story because it’s happening everyday of the week.

Pricing so Low Consumers Have to Try it

The consumers don’t care about the service, the numbers are so low that it overrides their desire for excellent service. They are willing to take a chance on having a non licensed, non insured service person do the work. Are there no customers willing to pay for great service? Of course not, but there are not enough of them to sustain our industry as it has been sustained in the past. Please see above regarding having enough money to ride it out.

I know, I shouldn’t have given my former customer a price on the phone. I should have built urgency and value, gotten into his house on Saturday, made him tell me no 7 times and sold him a tankless water heater for 5K. Batten down the hatches because our industry will never be the same, never look the same, never feel the same.


  1. The unemployed killed the service industry?

    Your article highlights problems in our industry but falls short what it means. For brevity, I’ll simply cite a few statements and include corrections, summarizing with a solution of sorts.

    “never been a bigger influx of unemployed pipe tradesmen . . . calling themselves contractors.”

    I don’t know whether or not that’s true, and I doubt you do either since our industry doesn’t even bother to track the “start ups.” What I do know is that this is nothing new. Remember, I’m getting calls from these start ups. Based upon talking with contractors from coast to coast, I find that gobs of them are reluctant business people. It seems that the majority of contractors fail to think about career ladders in their business system. As such, their service shop maxes out at about 5 trucks and nobody can rise into management because the owner is in the way. The only way left to rise up is to hang out one’s shingle, spawning another contractor who doesn’t know how to do business.

    Re: Survival

    Business cycles purge the poor performers, always have and always will. Small business people (such as most service contractors) can’t afford to live off of savings for long. Cash on hand can buffer blips in the cash flow but aren’t a good plan for long term survival. Beyond that, any contractor who has enough cash on hand to survive a couple of years till things get better is going to be a contractor who has more business savvy than those who are running on maxed out credit cards. In most cases, the savvy contractor will also be the one that the dying contractors refer to as the “rip off” shop because he charges more – two or three times as much in some cases. Is it reasonable to ask a contractor to kill themselves in order to save a customer a few bucks? After the contractor goes out of business, the customer will still end up with the “highway robber” unless he finds another uneducated start up.

    Re: Flat rate pricing is dying

    I’m unable to grasp your point. In tough economic times are you going to sign a check and hand it to a service person with the instruction to “fill in the amount when you’re finished.” That’s what a time and materials contractor is asking. I want to make sound decisions based upon hard numbers. Here’s how much to repair, here’s how much it is to replace. The customer gets to choose. How many services can you list who expect customers to blindly wait till the job is done before finding out what it will cost?

    The bottom line: Yes, our industry is changing but nothing is new about that. How many actual “plumbers” do you know who are still active in the trades? (meaning: craftsmen who can actually wipe a lead joint). There will be a few in the big, old cities but the number is dwindling because the piping systems continue to get simpler to tinker with. Remember when radio dispatching was a big deal? Yes, things change.

    By the way. . . your point about the news industry dying because people won’t pay doesn’t hold water either. The news industry, like the plumbing industry, grew lazy because of the economies of scale necessary to print and broadcast news protected their markets. That wall has been demolished so they’re simply having to figure out a different way to deliver the news. The news consumer used to pay for the news through the advertising expenses added into the goods they bought. Now, they’ll have to pay for it directly. In other words, the price of news is going up, not down. Certain media will struggle – TV and print being casualties – but the industry is not going to die until consumers lose their curiosity.

    But one thing that hasn’t changed is the need for a business to earn a profit. If the market won’t pay enough for contractors to earn profits then contractors will go out of business until the only ones left are the ones who are savvy enough to charge enough to make a profit. The market will pay the price simply because it won’t have any other choice. The quickest way to go out of business is to succumb to the siren song of lowering your price to the point that you can’t earn a profit. There’s no way out of the trap once it has sprung on you so choose not to go there. If you want to stay in business, count your costs, and learn how to deliver at a profit.

    1. Ah Randall thanks for responding I appreciate it very much however though your points are well taken I must respectfully disagree on several. First I should contest your use of “brevity” in your response. ;).

      I suppose a clarification is necessary to understand what I meant by the statement “……never been a bigger influx of unemployed pipe tradesmen . . . calling themselves contractors.” That was a broad statement made from knowledge I have of our market. It is an absolutely true statement and because most of the country is in a similar situation it shouldn’t be that big of a stretch to assume it is also true elsewhere. Let me point out, just because you don’t track it doesn’t mean you know it isn’t true. As to your comments about “reluctant business owners” or “service shops maxing out at 5 trucks” I’m not quite certain how those relate to the fact that there are more contractors hanging their shingle. I’m not debating whether they’re good or not, just that they are there diluting the customer base. BTW I loved e-Myth, the references are unmistakable.

      On Survival : That’s not a point worth debating, of course the business cycle purges itself, however I’m of the mind set that thinks this time around there will be casualties to companies run by pretty good businessmen and women. Let me give you an example and maybe it will shed some light on a few of these ideas. I’ll try to stay on point but anyway here it goes. A union plumbers gets laid off of work, he or she was getting paid $40.00 p/hr on the check plus another $15.00 p/hr in benefits. After much deliberation and discussion he or she thinks the only way to put food on the table is to go it alone. So he or she starts his or her word of mouth campaign, they go buy a nice used van (there are plenty of them out there), and they have it vinyl wrapped with a catchy color pattern and logo. They begin thinking about how much the contractor they worked for charged for sump pumps and battery back-ups and water heaters. Huh? Joe’s Plumbing charged $1,125.00 for a 50 gallon water heater….let’s see $450.00 for the heater and a little material $40.00 bucks an hour for me…4 hours (but I can do it in 3 hours) at $650.00 or $700.00 bucks I can make $250.00 per heater. And so it goes for the rest of his work, toilets, shower valves, disposals, dishwashers etc. Randall I know people doing this making $5,000.00 $6,000.00 per week. No shop, maybe health insurance, no workman’s comp, no general liability insurance. Multiply that situation times by…well a lot and you have one very serious problem.

      The “start-up” company’s customers aren’t getting bad service, this service company owner cares about what he or she does. But what they are really doing it driving down the cost of what consumers are willing to pay. Why call the company with the full page full color ad? Because they roll out a blue carpet and send you a fruit basket and have Ferguson stocking their warehouse? The consumer is revaluing what service we provide. You can fight it all you want that doesn’t mean you’ll win the fight.

      I think you are mistaking me for someone who disagrees with upfront pricing, that is not the case. But there is a distinct difference between upfront pricing and flat rate pricing as pioneered by Frank Blau. We don’t have to go into it’s intricacies right now but at least you know that I know what they are. I never said people should let service contractors charge T&M or whatever they want, after the job is complete. However right now and in the foreseeable future consumers are so cost conscience that they are willing to listen to how much you want to charge “up-front” and let you walk right out the door if they think it’s too expensive, and if it’s double the price of their neighborhood guy they will escort you to the door. I happen to agree with the concept behind flat rate pricing however it is my opinion that in these times you don’t dictate what the market will bare the market will dictate the cost it is willing to pay. That brings us to another truth, eight (8) fairly large flat rate plumbing contractors have willingly left the local plumbing union. Choosing to go non union. If flat rate pricing was working correctly here they wouldn’t need to leave the local union. These business owners made a business decision to lower their overhead so they could lower their prices so they could remain fairly competitive.

      You seem to be defending flat right pricing rather than addressing this unprecedented downturn in construction. You present yourself in a way that suggests you think this is just the normal ebb and flow of a business cycle and I’m saying if you think that you may turn into one of the aforementioned casualties.

      Every new construction related unemployment figure in our area is a new benchmark, there are no books to read that advise you how to make the next move. Simply put a plumbing contractor in our area has to make it work on 30% of the work that was available just two short years ago. O.K. so you manage to stay busy with a 70% dip in construction now you have to be profitable. You can just scroll up to find out how that is happening. We are approaching three times the unemployment numbers seen during the Great Depression.

      One last point I’d like to make and I’m not sure why we disagree here is the correlation between the news industry and ours. There are far more outlets to get news now that there were ten year ago just as there are more plumbing service providers due to the downturn. The supply of news sources is up and has eroded the price, the amount of people providing service is up therefore it is driving the price down. Couple that with the fact that consumers have very little to spend and once again you have a real problem. Yes businesses have to make a profit but those businesses are going to have to find how to make those profits charging far less than they have in the past.

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