You're probably familiar with the concept of a loss leader. A store advertises a popular product at below cost. You go. You buy. Hopefully for the store's sake you buy other items while you're there. If you happen to buy nothing but the loss leader, that’s your choice. The loss leader is a form of advertising. The store plans for it like any other expense.

But what if that store had the power to force you into buying more? And what if “more” meant hundreds of dollars more? That loss leader wouldn’t be such a great deal after all. In fact, the only one losing would be you.

That is practically the situation that many homeowners face when it comes to getting their heater or air conditioner fixed. Contractors routinely advertise a $55 fee for coming out to your house. Or instead they might charge a higher fee but waive it if you have them perform a repair. It all sounds quite reasonable. But in my experience cheap or free service calls are rarely what they appear to be on the surface.

What does the cheap service call really buy you?
You may get more than you bargained for.

$55 may sound like enough to cover the expenses of a service call, but it most certainly is not. Overhead can easily cost a contractor 50% of his revenue. So right away at least $25 of that $55 is gone. A reasonably experienced technician might get paid $25 an hour in these parts. To put it another way, you really don't want a technician who isn't worth at least that much. Add in benefits and workman's comp and that technician will cost his employer $45 per hour. Since most shops pay their guys for travel, a half hour at your home really does cost the boss an hour of pay. Add those costs together and you realize that a $55 trip to your home means a loss of at least $15 to contractor. Should your job take a little longer to drive to and diagnose, the contractor's loss can be double or triple that amount.

What $55 actually buys is the extraordinarily high probability that the technician will be doing a substantial repair whether you need one or not. Everyone except the customer is keenly aware that $55 will not pay the bills. The technician especially is under pressure to bring the average ticket price up. His bonus, regular income and future raises may all be tied to how much money he brings in. Since $55 is woefully inadequate the pressure is on to fix something whether it's truly needed or not. And once the technician is comfortable telling half-truths to bring the ticket price up at little, he'll soon graduate to full blown manipulation in order to bring his income up a lot.

The "Free With Repair" Gimmick
Free works in marketing, not in real life.

Let's say that unbeknownst to the customer a recent storm caused the furnace fuse to blow. Under a more traditional scheme a contractor might charge $100 just for coming out and troubleshooting. By virtue of having to pay for the service call the customer associates a cost with the act of showing up and troubleshooting. It's a very fair association that should be made. Once diagnosed the repairman changes out the fuse, inspects the furnace and performs some minor adjustments. In all the customer might pay another $50 for the repair work for a total of $150.

But what if that $100 service call is supposed to be free with repair? The contractor still needs to make $150 in order to be profitable. So inevitably he'd have to tell you that the service call is $100 but that if you pay him $150 to replace the fuse then he'll waive that $100 fee. See the absurdity? Most people do. And most realize that things cost what they cost. So they just pay the bill. However, some customers will get very angry at the thought of paying $150 for replacing a fuse. If the service call is truly supposed to be free with repair, who in their right mind would pay $150 just to have a fuse replaced? In my mind the contractor is at fault for such conflicts. By using the free service call with repair gimmick the contractor is the one who has removed the association of cost with the act of showing up and troubleshooting.

So how can a technician make both the customer and his boss happy when he's faced with the dilemma in the paragraph above? For those willing to lie, the answer is simple:
"You see Mr. & Mrs. Customer, the fuse blew because your blower motor's stem bolt is out of alignment with its kiper spring. That's not a field serviceable item so we'll have to put in a new blower motor at a cost of $550."
In other words, he makes up something that sounds plausible and makes the boss and himself some real money.

You may wonder how a customer could be happier with a $550 motor than a $150 fuse. But in many cases that will be the case. It all has to do with perception. Changing a fuse is both familiar and seemingly cheap, so many customers devalue such a service. But changing out a motor is unfamiliar and its actual cost unknown to most customers. As a result many customers will think less harshly about their contractor if they pay $550 for a motor than if they pay $150 for a fuse. And if the technician happens to be paid on commission then he's feeling pretty good too.

Behavior Is Thematic
Crooks don't limit themselves to just one form of deception.

I once told a former boss that when I was at a customer's house I was the face of the company. Therefore if the company was ripping them off, I was ripping them off. I also told him that my customers look to me as the expert. Therefore I could not in good conscience recommend a bogus service. Makes sense, right? Apparently not. He told me flatly that I bore no responsibility for company actions. And he informed me that I was not that expert but that in fact he was the expert and I was not to question him.

The human capacity for rationalization and moral equivocation knows no bounds. My former employer believed what he said to me that day. Just like he strongly believes that you need to have your ducts cleaned; that you need UV lights to sterilize the air; that any furnace over ten years old is a good candidate for replacement; and that black helicopters from the Trilateral Commission have been stealing bails of hay from his goat farm (OK... So he doesn't believe the thing about the helicopters.).

How does this relate to the cheap and free service call? It does so in that the $55 service call is sometimes part of the same twisted mentality. Human behavior is thematic. Credit reports are important because those who've defaulted on loans in the past stand a better than average chance of doing so again. Similarly, those contractors willing to engage in one form of marketing bunkum are likely to engage in another. Take advantage of a cheap or free service call and you'll substantially increase your chances of getting exposed to indoor air quality shysters, new equipment hustlers and energy savings racketeers.

Could a $100 service call be a "deal"?
Or is the contractor getting rich at your expense?

Hopefully by now you can see the potential folly of the cheap or free service call. It's certainly not always the case. Some contractors run cheap service calls as a legitimate loss leader and compel their techs only to do what's right - or so I assume. But such contractors are an extreme minority.

But even amongst those who agree with what I've said thus far, there are some that still consider $100 just to troubleshoot a problem to be a bit much. Some go as far as to think a contractor must be getting rich at that price. I suppose if you could get that much in rural and inexpensive areas and do it often, it wouldn't be so bad. But in the S.F. Bay that's hardly the case. Let's quickly run some numbers on a hypothetical one man operation that only does service calls.

A technician may have only 5.5 productive hours per day. The rest is spent driving, picking up parts, etc. In the case of a one man operation that easily drops to 4 hours per day because of all the added paperwork and other duties associated with running a business. Working 50 weeks per year would give us 1000 productive hours. An average call runs about an hour. At $100 per call we'd make $100,000 in revenues. So far that looks pretty good. But a very low $35K in fixed overhead leaves us with $65K. Take another $5K off in self-employment taxes. Then consider benefits. A complete package with medical, dental, IRA, etc. can cost the self-employed another $10K per year or more. Now we're down $50K. After the state and feds get their share, you're left with $35K take home per year. In the S.F. Bay Area a take home pay of $35,000 is nothing to write home about.

Yes, that is all a hypothetical. In many cases an HVAC technicians take home pay is worse than that. In some cases it's more. The point I'm conveying is that a $100 service call is not only reasonable, it's sometimes smart. It's smart in that as I've spelled out above, when you patronize the cheap or free service call you're practically guaranteeing that it will be neither.

Is paying more a guarantee?
Or will you simply get taken at a higher price?

There are few real guarantees in life. There are a couple of well known contractors in the area that charge around $100 to come out that I personally could not recommend. So the question is: How can you separate the craftsmen from the shysters? How can you fight all the manipulation I've described above? I have no revelations for you, just the tried and true: Use common sense and stop being so cheap! :^) You get what you pay for... sometimes. $55 or even that which is ostensibly free usually pays for nothing but a bigger bill down the road. The answer is not to blindly pay more than that, but to do so intelligently. Paying more for a correct diagnosis and proper repair is ultimately going to be your least costly option.

Get educated about what makes for a good contractor and then go find that contractor. If the words I've written here ring true, then perhaps High Performance Heating & Air will be that contractor.

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