The Producer Price Index went up 10% in 2021, which was last seen during the Great Recession of 2008, and the Consumer Price Index is at its highest rate since the 1980s.

These two factors are essential to the plumbing and septic services industry for many reasons. In a nutshell, it means that your cost of services (or cost of goods sold) has gone up, the cost to your end consumer will therefore go up when you hike up your prices, and the cost of living has gone up for your employees. Add this to the current supply shortage for most goods, and you have significant market pressures and a big challenge ahead.

In our industry, this will mean three things: First, the assertive business owners will make more adjustments and weather the storm. Second, many companies will close shop and go out of business. Third, there will be an explosion of startup businesses, out of which less than 2% will make it long term. By the way, this isn't the first time this scenario has played out in our industry.

How do you weather the oncoming storm? Here are some tips.

Be more fiscally responsible

Turning your wrench faster won't make up for inflationary woes. You must be a businessperson and think about things from a big picture perspective. The words in your head should be lean, efficient, systematic, logical, organized and control.

There are three tracks to being fiscally responsible while sensitive to inflation: controlling costs, increasing prices and maximizing efficiencies. 

Controlling costs

Boosting productivity means getting your costs under control. Put a controlling measure in your business, even if that means you are spending a few extra hours a day combing through expenses.

Pay close attention to techs overbuying material, a salesperson overordering material, returning unused material, processing warranties, etc. We all have returnable material and warranty items that need to be returned daily; make sure this stuff goes back. Because of the pandemic, some suppliers are not taking returns, which is their “cost control mechanism.” I suggest not buying from them unless they are willing to change their stance on returns. The point is to pay close attention to spending habits, returns, warranties, and cost differences between suppliers. Every dollar counts now.

The other major factor during the inflationary period is controlling capital expenses. Look at everything from a yield perspective before spending money on a capital expense. Most firms that closed their doors during high inflation spent a ton of money on a long-term strategy and jeopardized the business’ cash flow. It might not be time to spend a couple hundred thousand dollars on office and building upgrades. Every capital expense must be a highly strategic spend with a short-term yield to your organization.

Price increases

The second prong is increasing your prices. Again, you must be extremely careful with this one. It can seem easy to hike up prices, but by how much and how fast?

Keep the customer in mind. Think more strategically instead of slathering on significant percentage increases on material and large swaths of labor hikes across the board. You still need to be able to attract customers and provide value. Instead, look at your business as a series of buckets to fill. For example, one bucket might be “septic pumping.” Another could be “water heaters.” Focus on each of those market segments and raise prices based on ways that you can make additional revenue while still remaining attractive to customers.

For example, instead of adding a fuel surcharge of $25 per call to a $100 service call as a separate line item on a water heater replacement callout, make it a $90 service fee and add the additional $35 to the cost of the water heater. The market is clouded with fear and the reality that prices are high and there is low availability. Therefore, customers are less price-sensitive to more significant necessities like a water heating system. At the same time, the customer is still trying to cut costs, and when they start seeing lengthy itemized breakdown lists of fuel surcharges, service fees, parts delivery fees, removal fees, etc., they won't want to spend their money with you.

It would be best if you also considered adding additional revenue streams. The key here is to add something that can increase revenues without a significant infusion of capital. Can you add water quality products? Waterproofing services? Maybe also consider getting rid of some market segments that struggle with the return on investment. Get lean.

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About the author: Anthony Pacilla is a registered master plumber for McVehil Plumbing in Washington, Pennsylvania. He has over two decades of experience in the plumbing and HVAC trades, and has a bachelor’s in business and economics from Thiel College.