Part of the reason is that too often programs are designed and implemented without enough attention to the numbers, in dollars and cents, that drive a successful contracting business. If the numbers don’t work, the business doesn’t work. If the program risks making the numbers not work, the contractors won’t work in the program!
If you’re going to talk about “fair” prices, do you understand all the costs that a contractor has to cover in those prices?
And thus, it makes sense for policy markers and those who design and run efficiency programs to gain a better understanding of what those numbers look like.
If you’re going to talk about “fair” prices, do you understand all the costs that a contractor has to cover in those prices? If a contractor markets to attract customers–including customers to participate in the program, have you considered those costs? And the cost of selling? For the risk of running a business, what is a fair net profit?
What does is cost to retool a business to participate in the program? (Hint: this isn’t limited to the “free” technical training, but the wages, the soft skills training, the new process development, tools and equipment investment, and much more.)
What about the cost of money, especially in floating incentives to customers, between the cost of installation and getting paid at the end? A contracting business can’t survive without adequate cash flow. Payroll comes every Friday. Vendors need payments, sometimes even before projects are completed. Contractors need cash.
If you want to entice contractors to participate, understanding and addressing the factors that may their businesses sink or swim is critical.
I’ll be diving into this topic more at the National Home Performance Conference in Nashville in a session “Some Contractor Business Math for Program & Policy Folks“. If you run a program, come learn about some of the basic business drivers. Contractors, come and make sure that we cover the concerns of your business!
(And for more on the contractor/program interface, see this program design series.)