Monday, November 30, 2009

Neil Rackham on Selling in a Recession

Many sales professionals have read Neil Rackham's book SPIN Selling. Rackham advocates a consultative sales approach with lots of questions. His approach is well suited to process sales and high ticket items.

Rackham was interviewed by Gerhard Gschwandtner, the publisher of Selling Power Magazine about selling in a recession. Rackham noted that the instinctive reaction of salespeople is to sell price during a recession. This is a mistake.

More than they want a good price during a recession, people want to avoid risk. In fact, people will spend more for a safer solution. Successful salespeople should show people how their solutions minimize risk.

This reminds me of a research study on air conditioning purchases in a Midwestern market that I read conducted 20 years ago. The conventional wisdom was that high efficiency was more likely to be purchased by affluent homeowners. After all, the affluent consumers had the money. Yet the study revealed that middle class and lower middle class homeowners were more likely to buy high efficiency. At the time, it was a head scratcher for me. It didn't make sense. My boss, Garry Upton, instantly knew the reason high efficiency sold better to people with less money.

"They can't afford a mistake," Garry said.

In other words, they didn't have enough money to risk losing it by making a bad decision. They would spend a little more to buy what was perceived was a better product. It was an inherent form of insurance.

In the interview, Rackham noted that salespeople feel pressured to close and communicate their nervousness to the prospect. In risk-avoidance mode, the prospects shy away from the nervous salesperson. Rackham advises sales managers to relieve some of the pressure on salespeople so that they feel safe in their jobs and communicate confidence, which is interpreted by the prospect that the company is a safe bet.

I agree with Rackham to a point. The absence of sales incentives usually results in lazy salespeople. By nature salespeople are usually money motivated and competitive. Keep them incented.

Rackham also notes that companies go into panic mode during recessions and flail around, mistaking activity for results. They chase every opportunity, but fail to devote the time needed to win more. Rackham suggests focusing on the sales you can win, not winning more opportunities.

But how can you identify winnable sales opportunities in advance? Personally, I advocate the pursuit of every possible opportunity to the point where you can determine the potential for a payoff. Always pursue those you have a good shot at winning. Drop the long shots unless pursuing them doesn't interfere with higher payoff activities. This works in good times and bad.

In summary, Rackham's advice is sound...

  • Minimize buyer risk

  • Be confident, not nervous

  • Focus and optimize your effort.

By the way, if you're in sales and haven't read SPIN Selling, you owe it to yourself to pick up a copy.

Wednesday, November 25, 2009

33 Approaches to Overcoming the Price Objection

The most feared objection for most salespeople is the price objection. The salesperson might hear a prospect state outright that it’s too expensive, that someone else offers similar products or services for less, or simply demand a better number.

The price objection never goes away. I’ve encountered it when selling HVAC products in the high rise plan & spec market (about as competitive as it gets), when selling pure intangible products like consulting services, and when selling a product (i.e., the Service Roundtable) that costs 1/20th of some competitive products. People complain about price at every price level. The absence of any price objections is taken as a sign by most business people that the price is too low.

Price objections are normal, expected, and even welcomed by top sales professionals. Stated objections can always be addressed and overcome. It’s the unstated ones that concern most professionals.

Price objections are really buying signals. The prospect is telling you he’s ready to buy if you’ll give him a little help. According to research studies, price is the most important factor in roughly one out of seven purchases. In six out of seven, it’s secondary! Nevertheless, the price objection remains the most feared of all objections.

Here are 33 approaches to overcoming the price objection for in-home sales. Some are very similar and simply represent different ways of saying the same thing. Others are formulistic, like “feel, felt, found.” They come from different sources, such as Ziglar, Hopkins, Tracy, Novak, McCart, Greer, McCormick, Cunningham, Howard, Piscitelli, Cameron, and dozens of other sales professionals who have influenced me through the years. Each should be used situationally, based on your read of the prospect, your comfort level with the response, and your internalization of the response.

Pick a few that you like and practice. Make them yours. Adjust them for your company and industry. When appropriate weave stories around them. Ziglar tells a great story about buying a cheap bike for his daughter that broke after a few months and had to be replaced. He describes how he figured he better spend more for a bike that would last. He notes how his daughter rode the more expensive bike for years. He then drives the point home by breaking down the monthly cost of ownership for each bike.

Here are the responses…

  1. Really? My price is too high? [Then, shut up.]

  2. What do you mean by “too high?”

  3. If I may ask, what is your budget?

  4. Compared to…?

  5. Is price the only factor in your decision? Is it the most important factor?

  6. Okay, let me recap. We sat down and built this system together, taking into account utility costs / health concerns / comfort / safety / home value. We didn’t account for price. Is it more important that one of your other factors? What should we remove?

  7. This is a beautiful home. Since others in the area cost less, price must not have been the only factor or even the most important factor when you bought this home. Now, you’re faced with one of the most important decisions you’ll make for your home. You don’t want to make this decision based on price alone do you?

  8. It’s a fair price and I can’t lower it without taking something out of the job. Do we need to see what we can cut to meet your budget?

  9. I know this sounds trite, but it really is better to spend a little more than you planned to get what you want than to spend too little and risk losing everything [or being miserable for the next 15 years].

  10. If we can arrange for financing, would that make it more affordable / attractive / comfortable?

  11. Of course it is. Let me explain why.

  12. It’s true that the initial cost or first cost is higher, but when you factor in operating and maintenance costs over the life of the product, you’ll find a different story. First cost may be a little higher, but the total cost of ownership is far less.

  13. Why do you think it’s higher?

  14. That’s interesting. How do the price, products, and other companies you’re considering compare?

  15. Most companies in our industry have comparable net profit margins so price shouldn’t vary much from one company to the next. If it does, there’s a reason. Did you ever see the movie, The Towering Inferno? The movie is about a fire in a skyscraper. The fire started when project costs were running over budget and the electrical contractor cut costs by using lower quality wiring. It’s the type of thing few people would notice. Unfortunately, the wiring didn’t handle the load and short circuited, resulting in a devastating fire. I’m not saying that other companies are using substandard materials, but there’s got to be something different.

  16. You’re right. We do charge a little more. Do you know why? We’re worth it.

  17. If you can show me a cheaper proposal, I would be happy to match it item for item with identical warranties and guarantees.

  18. Years ago, quality expert Phil Crosby wrote a book entitled, “Quality is Free.” Crosby noted how higher quality pays for itself, the savings are hidden. Here the savings are breakdowns you’ll avoid, emergency service calls you won’t have to pay, and hassles you’ll miss. The point is that it’s worth spending more for better quality.

  19. I understand that my price may be a little higher. A long time ago when I started my company I made a decision. I decided I’d rather explain a higher price every now and then, than apologize for poor quality forever.

  20. Hmm. I suppose I could lower my price. What would you like me to take out to get the price down?

  21. You’re right to be concerned about the price you pay. It’s a big decision and most people can’t afford to make a poor choice. Do you think there’s a difference between our company and the others you’ve talked with?

  22. Do you want me to show you something cheaper?

  23. Yes, our price is higher but you won’t have any regrets with us. It’s why we offer such a strong guarantee. Isn’t it better to invest a little more than to invest too little and risk your entire investment?

  24. I understand how you feel. Mr. Jones, one of your neighbors felt the same way a year ago, but after buying he found that the added performance we delivered, the quality of our work, and the support we provided after the sale was worth far more than any money he might have saved with someone else.

  25. Yes, it is a little more expensive. It’s the best on the market. Don’t you and your family deserve the best?

  26. How much is the difference? You say that we’re $500 high? Well, this product carries an average life of 15 years. That works out to $33 a year or 64 cents a week. Isn’t it worth an extra 64 cents a week to get exactly what you want and do business with an established, reputable company like ours? After all, that’s what… a cup of Starbucks every month?

  27. Am I offering more than you want?

  28. It is a significant investment and not the type most homeowners make very often. But, you’re going to have to live with this decision for years. Isn’t it worth a little more to be sure?

  29. I bet you hear the same thing in your business. You know, I can probably get [high school kid / offshore programmer / Legalzoom or other website / etc.] for less than it costs to hire you. [Then, shut up.]

  30. I’m sure it’s tempting to select a company desperate for business and willing to work for less. However, may I suggest that anyone who charges more than a couple of hundred dollars less is probably either cutting corners or cutting profits? You don’t want the first and may not care about the second. You should. It’s a sad fact that a lot of companies in our industry close every year. A year from now you probably won’t remember what you paid but five years from now you may take great comfort from the fact we’re still around to honor our warranty.

  31. My price may be higher, but I offer you something no one else can match. Me. You get my personal service and attention now and in the future.

  32. If you don’t mind, let me ask, have you ever paid a premium for a product or service? Why did you pay it?

  33. I’m sure they believe they match up with us. When I was in junior high I loved baseball and looked up to one of the high school pitchers. This kid could do it all. I was sure he would go pro and pitch in the World Series. After practice he used to talk with us, telling stories about the home runs he hit and the batters he struck out. One day he bragged that he could strike out anyone. “What about Hank Aaron,” asked one of my friends.

    “Sure, I could strike him out,” he said casually. “I’d take him down with three pitches.”

    Wow, I thought. This kid was so good he could strike out Hank Aaron. A few years later, I was watching a home run derby on television when I remembered the comment about striking out Aaron and laughed out loud. There was no way he could’ve managed to get one strike. The greatest home run hitter of that day would have shelled him. The competition is a lot like this high school kid. I liked the kid and know he believed his boast when he made it. Likewise, I’m sure the other company believes they can match us. That doesn’t mean they can.

Do you have any you would like to add? Email me!

© 2009 Matt Michel

Tuesday, November 24, 2009

Philip Kotler on Marketing

Philip Kotler is the top academic marketer in the world. He's marketing's counterpart to Peter Drucker. In this six minute video delivered at the London Business Forum, Kotler explains the difference between product management, brand management, and customer management.

Monday, November 23, 2009

Inside Contracting: How Top Contractors Win In HVAC

Inside Contracting, a new book from Service Nation Press, is a must for any HVAC contractor's library.

Why Go It Alone?

Building a successful HVAC service company is not without its challenges. Inside Contracting provides you with the collective wisdom of dozens of the country’s most successful contractors and consultants to help you meet those challenges head-on. This includes top HVAC professionals like Drew Cameron, Roger Costner, Ken Goodrich, Charlie Greer, Bob Haak, Dave Holt, Martin Hoover, Jeff Lee, Jeff Marl, Steve Miles, Tom Piscitelli, Matt Prazenka, Bob Ring, Ben Stark, Stan Stupor, Larry Taylor, Aaron York, and dozens of others.

The tips, tricks and traps within provide real-life examples—not unproven theories—of how to profitably grow, manage and one day, exit your business.

Inside Contracting presents the best practices of leading contractors including...

  • Internet Advertising: SEO vs. SEM

  • Private Use of Company Vehicles

  • Private Labeling - Selling Your Brand

  • Advice for the Desperate Contractor

  • Buying a Company: Valuing The Customer List & Phone Number

  • Buying Service Vehicles

  • Hiring Salespeople

  • Manufacturer Co-op

  • Reducing Yellow Page Advertising

  • Woman in HVAC Sales and Service

Build a Bridge From Your Island

One of the most challenging aspects of running a business is the isolation. Sometimes it feels like you are alone on an island with all of your employees. They’re looking to you for all of the answers, but there’s nowhere and no one for you to turn to. Inside Contracting is like a bridge from your island to top HVAC contractors and consultants from across the country.

Inside Contracting plugs you into the real world experience of other contractors representing hundreds of years of contractor experience. Learn from their best moves and biggest mistakes.

Inside Contracting is an essential reference in every HVAC contractor’s library. Topics include:

  • Advertising

  • Angry Customers

  • Branding

  • Callbacks

  • Co-op

  • Financing

  • Green Marketing

  • Hiring

  • Internet Marketing

  • Lead Generation

  • Management

  • Marketing

  • Mergers & Acquisitions

  • Motivating

  • Networking

  • Pricing

  • Referrals

  • Sales

  • Scheduling

  • Service Agreements

  • Succession Planning

  • Technician Selling

  • Women in HVAC

  • Yellow Pages

Inside Contracting is only $32.95 (contractors enrolled in Roundtable Rewards receive a $5 rebate) plus shipping & handling. Texas residents, unfortunately, get zapped for sales tax.

Click Here To Order Your Copy Today! Order several. It makes a great Christmas or Hanukkah present.

Inside Contracting was built from the Service Roundtable’s 85,000 record knowledge-base management archive.

About The Service Roundtable

Formed by leading contractors, the Service Roundtable® offers an incredible array of HVAC and Plumbing best practice tools and diverse communication outlets to help you generate leads, close more sales, market your company, recruit technicians and plumbers, price for profit, manage your service agreements, and create an exit strategy.

Every week contractors receive new tools to supplement the Service Roundtable's vast library of existing brochures, letters, post cards, pricing calculators, consumer newsletters, sales sheets, marketing guides, training tools, and more. They tap into the company's 24/7/365 Industry Roundtables with leading contractors and consultants. They save with the company's Roundtable Rewards buying program. And they get it all for just $50 a month! Learn more about the site HERE. Call toll free 877.262.3341 and request a FREE private tour.

The Service Roundtable is the one contractor business alliance without a long-term contract. CLICK HERE to try it for a month. If you don't like it, quit. It's that simple. Of course, you won't quit. Once you see all of the value, you'll wonder how the Service Roundtable is able to do it. Then, you'll wonder how you ever survived without it. Go ahead. Give the Service Roundtable a one-month trial.

Toilet Rebate Clearinghouse

Contractors should be aware of local government and utility rebate programs. They should be aware. In reality, many contractors are not aware of the programs. The reasons are numerous, including poor promotion on the part of the rebate authority, contractors who are so busy chasing work they fail to stay informed, and so on.

Plumbing contractors, at least, can stay up with the flow on low flow toilet rebates at The site lists toilet rebates in the U.S. and Canada by state and province. Rebate programs are also highlighted through a Google map. Low flow showerhead rebates and other water conservation rebates are often listed with the toilet rebates.

Some of the rebates are substantial. And some, according to a New York Times article, are flush out of cash.

Check it out at

Saturday, November 21, 2009

Ellen From New York Wants to Start a Consulting Company

The public seems convinced there's some kind of glamour in consulting. Hardly. Anyone who thinks it's glamorous has never done it.

It's a little like business travel. I was scheduling an upcoming trip to San Diego and a friend made a comment about how nice it was to visit San Diego in December.

"Yeah," I responded. "I fly in, check into the hotel, go to a dinner meeting, speak after dinner, go back to the hotel, and get up and fly home. It might as well be Cleveland."

Nothing against Cleveland. Actually, I kind of like Cleveland. In fact, I'd rather go to Cleveland than San Diego for business because it's easier to get around. The streets are straight.

Well, it's Saturday and I'm channel surfing during college football time-outs when I run across a call-in business show on the Fox Business Channel. The subject appears to be financing start-ups and the show is struggling to attract calls, so they send a camera and mic outside to find someone to ask a question. The camera crew finds Ellen, a student at Columbia.

Ellen wants to start a consulting company after she graduates. The show's experts correctly advise her that she doesn't need much in the way of financing to start a consulting company. In fact, all she really needs is a client. Another tells her to bootstrap.

The "experts" then proceeded to tell her a few ways to attract clients, but none of them addressed the most fundamental question. How in the heck is a university student qualified to consult with anyone about anything? What has she done? What does she know? Who would hire someone who hasn't done anything and doesn't know anything?

Sorry Ellen, but you aren't ready to be a consultant. You are, however, perfectly qualified for a life of politics.

Friday, November 20, 2009

The Continuing Relevance of Direct Mail

I ran across a good article by Herb Torgersen, president of Direct Innovations, about direct mail in the magazine, Direct. For small business, direct mail remains a great way to market, even as other forms of traditional marketing are losing their punch. Here's part of what Torgersen had to say...

It's an understatement to say the ability to reach consumers with a targeted message through mass media has become fragmented. Audience share on the big three networks has diminished considerably, cable options are endless, magazine and newspaper circ is down, and audience shares for radio have also taken a dip.

Through it all direct mail—if done properly—has continued to consistently produce return on investment on a consistent basis. The sheer amount of databases available enables any marketer to precisely pinpoint their audience. If marketers continue to apply the tried and true "principle of affinity"—a common denominator between product, offer and audience—they will no doubt be able to acquire new customers.

Read the rest of Torgersen's article.

Emerson CEO Speaks Out On The Economy

As a believer in free markets, I've been curious why Fortune 500 CEOs have largely been silent about some of the destructive economic policies currently being pursued. Finally, a CEO speaks out. Even better, he's an HVAC and plumbing CEO.

As reported in Supply House Times, Emerson Electric's CEO, David Farr, made some blunt statements at the Baird Industrial Outlook conference about the impact of cap & trade, socialized medicine, and anti-business labor laws...

  • Companies are creating jobs in China and India because they are "places where people want the products and where the governments welcome you to actually do something."

  • "My job is to grow that top line, grow my earnings, grow my cash flow and grow my returns to the shareholders. My job is not to shrink and roll over for the U.S. government."

  • "I’m not going to hire anybody in the United States. I’m moving."

This type of candor from the Fortune 500 is good news. I'm sure it's being said in private, but not so much in public. By speaking out, Farr is helping to highlight the consequences of foolish policies while there's an opportunity to prevent them.

Kudos to David Farr! We need more business leaders with Farr's gumption.

Read the article in Supply House Times.

Effective Communication

This is a well-done slide presentation on effective communication IF you are already well versed in the subject matter. It would make a good presentation to download and use in a company training meeting.

Download as a PDF.

KC CO Poisoning

Source: KMBC TV, Kansas City

Thanks to Rick Allgeier for finding this:

A faulty furnace emitted the dangerous fumes and two people were rushed to a hospital...

"We've had incidents where people haven't been able to walk out of their house because they've been in it too long," Overland Park Fire Lt. Chris Palmer told KMBC's Peggy Breit.

Link to the Story

Share this with your customers.

Thursday, November 19, 2009

News That Doesn't Depress You: The U.S.A. Leads World In Undeveloped Fossil Fuel Resources

I bet you didn't know the United States leads the world in undeveloped fossil fuel resources. I didn't. I knew we had a lot of coal. I knew we had new oil and gas finds. I knew our shale oil reserves were huge. I didn't know we lead the world, but that's what a report by the Congressional Research Service stated.

Check out these charts from Human Events...

So how come we import 60% of our energy, with much of it from unfriendly and/or unstable regimes? Part of the answer is economics. Some of our reserves, like the shale oil, is expensive to extract and the technology is not quite in place. However, the technology is rapidly advancing. A few years ago the technology didn't exist to extract a lot of the current natural gas fields.

Part of answer is regulations. The bulk of domestic energy reserves is untouchable due to regulations and restrictions.

While it seems foolish (even suicidal) to me to artificially restrict domestic energy production, I take some comfort from the fact that the reserves aren't evaporating. We'll wake up and utilize them some day, though we will have to endure some self-inflicted pain first. It takes years to ramp up production. It's better to start now, before we need it.

30 Things Every Technician Should Know

Field service personnel know a lot about making repairs. Yup. They can fix stuff. But service is more than turning a wrench and all of the technical knowledge in the world isn't enough. Here are 30 things every technician, plumber, electrician, and mechanic should know...

1. Payroll is the starting cost of a technician to a company. Other direct costs include everything from payroll taxes, uniforms, trucks, vehicle insurance, and worker’s comp to benefits. When all is said and done, the non-payroll costs of employing a technician range from as little as 30% to as much as 100% of payroll.

2. Education is a professional’s lifetime proposition. Only the ignorant think they know it all.

3. Technicians must fix more than the problem. On every service call, there is broken equipment and a broken customer. Both must be fixed for a complete repair.

4. The technician is an ambassador for the company when in uniform or behind the wheel. A technician’s driving habits on the road and personal courtesy everywhere reflect on the company. Since no one knows when someone is watching, a technician should act as though someone is always watching, unlike the technician who was caught on camera by Dateline when he relieved himself in the customer’s bushes.

5. Every technician is a supplier. Technicians are suppliers to some poor soul in the office who depends on the legibility and completeness of the paperwork to do their jobs.

Read more at Contracting Business.

Read Part 2 at Contracting Business.

The Pool Contractor Was Too Busy For Service

During boom times many contractors avoid service work. It's small dollar. It's a pain. It involves too much management of those pesky employees. The big bucks lie in the big projects and equipment sales.

Yet service work is profitable and steady. When times are tough, installation and project work slacks up while service continues. By the time most contractors realize the value of service, it's too late. Let me give you an example.

After we built our pool, my wife and I were a little intimidated about maintenance. Neither one of us had ever maintained a pool and had no idea what was involved. We were ripe for a pool service pitch.

Instead, our pool contractor informed us, "You don't have to use a service. You can do this yourself easily. I'll show you how."

And he did. He showed us how to test the pool. He showed us how to maintain the right pressures, when to clean the filters, and how to clean the filters, pump, and skimmers. He explained about shocking the pool, how to do it, when to do it, and why to do it. He told us the best place to buy chemicals and recommended taking pool water to this store for analysis if we ever had problems. He explained everything we needed to know.

Not once did he remotely hint that he was interested in providing pool maintenance for us. In fact, he wasn't remotely interested. He was too busy selling and installing pools. The big bucks were in installation, not service.

But what if he took a different approach? What if he built the cost of the first year's maintenance into the price of the pool? He could say something like, "Matt, I want you to enjoy your new pool. Don't worry about anything. For the first year, I'll maintain it free of charge."

How could I refuse? Even if I was charged extra for chemicals, how could I refuse? I couldn't. And when the year was up, what then?

Panickville! "We can't maintain the pool," my wife and I would say to each other. "We don't know anything about it. How much will it cost to have the pool contractor keep doing it?"

If the contractor built 50 pools a year and captured the service on half, over the course of the ten years since our pool was built, he would have a maintenance base of 250 pools. Using some back of the envelope calculations, that would likely result in six figures of gross profit. Plus, when it was time for resurfacing (costing thousands) and equipment replacement (thousands more), he would have a lock on the work. Through the years, he could suggest additions to the pool and backyard, ranging from fountains and waterfalls to built-in backyard grills. Some customers wouldn't be interested, but others would.

Alas, the contractor who built our pool was too busy. He was too busy then. Today, he wants us to pay him to maintain our pool. Is he crazy?

Wednesday, November 18, 2009

Selecting a Specialist

Rigid SeeSnake: Gastroenterologists Use Devices Like These

Recently, I've had to select two specialists: a gastroenterologist and a podiatrist. The way I picked each was wholly different, but entirely similar to the way people select any specialist, including plumbers, air conditioning contractors, electricians, etc.

The Gastroenterologist

During a check up, my primary care physician recommended a colonoscopy. If you aren't familiar with the procedure, it's a little like a plumber performing a video inspection on a pipe... only you're the pipe. Yikes!

If the mere imagery makes you shift uncomfortably, imagine hearing that you're going to get to go through it. Guess what? Sooner or later everyone gets to go through it (or the other way around).

Colonoscopies are performed by gastroenterologists, the sewer & drain cleaners of the medical profession. Since a gastroenterologist isn't the type of professional one sees for fun, I had no idea who to choose. No problem, my doctor provided me with a handy list of local gastroenterologists, complete with phone numbers and addresses. "They're all pretty good," he offered unhelpfully.

How was I to choose? How would you choose? Probably like me. I picked the first one on the list and called. I got a recording, telling me the office was closed, informing me of the hours, and asking me to call back. It was 11:00 a.m.!

So I called the next one. I got another message.

I called the third. Eureka! A human answered.

How did I select this specialist? I picked the first one who answered the phone.

The Podiatrist

I've also been diagnosed with achilles tendonitis, which means I'm not supposed to run. I like running. My alternative is the elliptical, which isn't as good a workout and confines me to the gym. My primary care physician, who is into sports medicine said the next step is for me to see a podiatrist. I wasn't too enthusiastic.

On one of my wife's neurological appointments, I asked her doctor if he knew of anything that could help with achilles tendonitis. This neurologist is also a pharmacologist. This guy knows drugs.

He suggested some pain medications, then recommended a podiatrist. He was enthusiastic about his podiatrist, claiming that the podiatrist really helped him. He wrote down his name and office location on his prescription pad and handed me the sheet.

I'm going to see this specialist. I'm not even considering anyone else. Why? Because he was enthusiastically recommended.

Consumers often have no basis for prejudging specialists. Who's good? Who knows? So the smallest difference can be the difference between getting a call and getting passed. Review your telephone procedures. Call your company from time to time. Use an answering service after hours (and use a good one). Review your external image, your advertising, your trucks, your website, your uniforms. Are you doing anything that could turn off customers?

Of course, the small mistakes won't matter if the consumer is referred. Referred consumers generally don't compare or shop for health care or home services specialists. So do all you can to encourage your customers to refer others. Bland referrals generally result in calls. Enthusiastic ones almost always do.

Now, if I could just read the neurologist's writing...

Tuesday, November 17, 2009

Keep customers out of the Yellow Pages

From my latest Contractor column...

Whatever your opinion is on the Yellow Pages as a way to get new customers, you probably want to keep existing customers away from the Yellow Pages and all of your competitors' ads. Here's eight simple ways to keep them out of the Yellow Pages.

Read more at Contractor Magazine.

Personally, I'm kinda proud I got called a marketing "authority." Someone needs to tell my wife and kids I'm an "authority." They don't know.

Contractors, Ed O’Connell and Alex Walter Honored

Matt Michel, Ed O'Connell, David Heimer

Matt Michel, Alex Walter, David Heimer

Somebody turn out the brights... Wait, that's just David Heimer's tie.

Ed O’Connell and Alex Walter were voted “Contributors of the Year” by the members of the Service Roundtable® and honored at the company’s Las Vegas Roundtable national meeting.

Read more at Contractor Magazine.

The Social Media Leap of Faith

My new "Rant" is out...

Social media is sweeping the business community. Ford Motors, for example, is spending 25% of its marketing budget on digital/social media. Yet most contractors are slow to adopt it. Stunningly, there's apparently no shortage of industry skeptics willing to speak out and shout down digital technologies, proclaiming everything this side of email to be a fad.


Friday, November 13, 2009

The Return of Earl King

Earl King is leading a seminar on commercial service sales!

The first time I heard about Earl King was during my days at Lennox. It seemed that Earl was writing in every trade magazine and speaking at every conference. When he wasn't writing or speaking, others were writing or speaking about Earl's approach to commercial service sales or the United Service Alliance that Earl started. The guy is a sales legend.

Earl won his first national sales contest at the age of 17. He was the national sales champion at Honeywell for four years, back to back. In two years as a branch manager Earl was #1 in sales and #1 pre-tax profit growth. As a regional director and later, a national sales manager for Honeywell, Earl wrote and/or contributed in the development of the selling techniques for the commercial division.

Earl then joined MCC Powers and realigned the national service agenda. He set out on his own, founding the United Service Alliance (USA), the largest network of independent, commercial contractors.

Earl has consulted with companies like Carrier, Trane International, York, TAC, Schneider Electric, Otis Elevator, Johnson Controls and McQuay. He's spoken at ACCA, MCA, MSCA, SMACNA, BOMA, and IFMA meetings. Earl has written more than 75 feature articles for the trade press. He's trained sales professionals from 32 countries and all 50 states. The guy is good.

For the past few years, he's been completely tied up in consulting work. A few months ago, he began writing once again for Contracting Business. On December 6-9, Earl will teach his first public commercial service seminar in years in Dallas.

Click for more information about the seminar.

Why Adding a Blog Makes Sense for Local Contractors

I spoke recently at the Las Vegas Roundtable where I mentioned how much I like blogs–especially for a local company trying to gain some Internet market share. I didn’t get a chance to discuss it in detail however. I’d like to do so now. Surely you’d be interested in knowing how to save thousands each month on advertising expenses? Yes?

One of the first things I tell contractors who want to generate more business online is to start creating content. The new customers who find you online will typically do so as the result of a search on Google, Yahoo, Bing or some other search engine. The more content you have online–either on your site or on unrelated sites that may link back to your site–the better your chances of being discovered by that potential customer.

For example, a video on about “plumbing repair in Macon” could lead someone right to your website. An article titled “Shopping for Air Conditioning in Tempe” and submitted to could likewise bring a new customer right to your door. And fresh content added directly to your domain every day will make the search engines positively giddy. Those are proven methods for attracting shoppers and increasing your search engine placement results. A blog can do the same thing, and often do it much better.

"Your blog posts are like targeted strikes for the area or service you want to promote!"

A blog is really nothing more than a really easy way for one or more people to add content to your website, without having to mess with navigation issues or sitemaps or any of the regular things that come into play when you add a page to a website. It also enables your readers to comment on your post and, in essence, create content for you.

Adding a blog to your existing website shouldn’t be difficult. If you’re unable to add one for technical reasons, or don’t want to take a chance on installing something that may not get used, you can install it on a new domain. That’s even easier and can sometimes be better. Putting your blog on a new domain, for example “” or something similar will allow you a little more freedom than you might have otherwise (I'll elaborate on that in a future post). If it’s hosted someplace other than your main website, it can also provide a link back to your site. That’s not a big deal but every little bit helps.

So where do you get content for this blog? I often hear people say they don’t know what to write about or they don’t have the time to write or they’re not good with a computer. All those things can be overcome, and should be, especially if you understand the power of the blog.

Earlier this year I created an air conditioning blog for a client that targeted an affluent suburb outside of a major city. After putting up a home page, about us, contact us and about 5 blog posts, he started getting traffic to the site (Wordpress rocks for search engine optimization if you use the right plugins!). Since then, he’s averaged about 70 visitors a month (for the last 9 months). That may not sound like much,  but consider this. Using pay-per-click, he can spend over $15 per click for major keywords in that area. If each of those 70 visitors had clicked on his ad instead of finding him organically, it would have cost him almost $10,000 over the last 9 months. Not bad for a 10 page blog. If he was more diligent about posting to the site, those figures would increase dramatically.

This particular contractor is one of those guys who can’t type and is very uncomfortable on the computer. Because of that, I developed a hands-free blogging system. It allowed him to call a voice mail box and leave a message from wherever he was. That message was then transcribed and uploaded to his blog. Simple and effective.

So what should you blog about? Everything! Every day there are interesting stories taking place in your company. Think about the things you tell your husband or wife when you get home. Think about the funny things that customers do or say, or that technicians see on the job. Have your techs email photos from the job site that can be posted online. Have them email videos. Still stumped? Try making a list of frequently asked questions and then post them with your answers online, one post at a time. Just write something, but when you do, try to include your targeted keywords in your title and throughout your text. These targeted keywords will be the search terms that you’d most like people to find you under. Your blog posts are like targeted strikes for the area or service you want to promote!

One of the most useful features of a blog is that you can set it up so multiple users can post to it. If you can’t update it yourself, assign a few people to take turns. Have your dispatcher post some quick thoughts once a day – maybe tips for making the service call more convenient. Have the install manager highlight some great jobs you’ve done. Run a poll. Do a survey. Ask a simple question. You can add pictures, videos, links, podcasts and whatever else you can think of. It’s not hard, and it can pay off big time.

Think of your blog as a social media tool. Use it as a way to touch base with your customers in a less formal way. Once they get used to seeing new info on a regular basis, they’ll start coming back more often and they’ll share it with others. Of course it’s now a 2-way tool for you. Be sure to engage your customers and don’t forget to acknowledge them if they leave a comment.

12 Ways To Build Memorability

Thursday, November 12, 2009

Can You Hear Me Now?

Over the years my cell phone has evolved with technology from a bag phone that was strictly limited to 30 minutes a month to a I-Phone that has more computing power in it than the entire defense system of the US in the 60's. With that evolution has sadly came a change in phone etiquette that has not been an improvement like technology but a slide.

At a recent trade show I was aghast to hear a contractor talking with a customer while standing at a urinal and frequently calling contractors who now receive calls on cell phones I hear dining conversations, check out chatter, wind noise from an open window in a truck zooming to it's next destination, or a blaring background radio, and yes the ultimate breach of phone etiquette was talking to a contractor while at a customers home who was obviously irate with the contractor and some type of service performed. My call might have been a welcomed break to the contractor but it certainly did nothing to soothe an already tense situation.

In our haste to see that a customer does not get a voice mail we feel the urge to answer the phone when ever and where ever, but we need to keep in mind that our pursuit of professionalism by answering the phone maybe self destructive if the customer perceives they are an interruption to another task we are involved in, and believe me they are less than impressed with the sound of a flushing toilet in the background!

So the next time the cell phone rings and it may be a customer remember our image starts with what the customer hears. Perhaps there are times it may be best to let that call go to voice mail and return it as soon as possible but in a more conducive place to carrying on a business call. Cell phones have evolved for the better, let's make sure our etiquette keeps pace!

Wednesday, November 11, 2009

Veterans Day Tribute

It's not marketing or sales or business or economics or customer service any of the topics this blog is about, but so what? It's Veterans Day...

Churchillian Proverbs

Winston Churchill overcame a childhood speech impediment to become one of the world’s great orators and writers. He was also a visionary, standing nearly alone in warnings about the rise of national socialism (i.e., Nazis). The combination of keen insight, the ability to turn a phrase, and a lengthy career as a writer and speaker resulted in lots of quotable material. Here are some of my favorite quotes from Churchill. Enjoy them. These are gems!

  1. Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon.

  2. Success consists of going from failure to failure without loss of enthusiasm.

  3. We shape our buildings; thereafter they shape us.

  4. Success is not final, failure is not fatal: it is the courage to continue that counts.

  5. Sure I am of this, that you have only to endure to conquer.

  6. The empires of the future are the empires of the mind.

  7. You have enemies? Good. That means you've stood up for something, sometime in your life.

  8. We contend that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.

  9. Every day you may make progress. Every step may be fruitful. Yet there will stretch out before you an ever-lengthening, ever-ascending, ever-improving path. You know you will never get to the end of the journey. But this, so far from discouraging, only adds to the joy and glory of the climb.

  10. It's not enough that we do our best; sometimes we have to do what's required.

  11. The farther backward you can look, the farther forward you can see.

  12. The first quality that is needed is audacity.

  13. The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

  14. The power of man has grown in every sphere, except over himself.

  15. The price of greatness is responsibility.

  16. The truth is incontrovertible, malice may attack it, ignorance may deride it, but in the end; there it is.

  17. There is no such thing as a good tax.

  18. A fanatic is one who can't change his mind and won't change the subject.

  19. A joke is a very serious thing.

  20. A lie gets halfway around the world before the truth has a chance to get its pants on.

  21. A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.

  22. All the great things are simple, and many can be expressed in a single word: freedom, justice, honor, duty, mercy, hope.

  23. An appeaser is one who feeds a crocodile, hoping it will eat him last.

  24. Attitude is a little thing that makes a big difference.

  25. Continuous effort - not strength or intelligence - is the key to unlocking our potential.

  26. Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen.

  27. Criticism may not be agreeable, but it is necessary. It fulfils the same function as pain in the human body. It calls attention to an unhealthy state of things.

  28. Difficulties mastered are opportunities won.

  29. Eating words has never given me indigestion.

  30. However beautiful the strategy, you should occasionally look at the results.

  31. We occasionally stumble over the truth but most of us pick ourselves up and hurry off as if nothing had happened.

  32. I am always ready to learn although I do not always like being taught.

  33. I am an optimist. It does not seem too much use being anything else.

  34. There is no such thing as public opinion. There is only published opinion.

  35. These are not dark days: these are great days - the greatest days our country has ever lived.

  36. If you are going through hell, keep going.

  37. Kites rise highest against the wind - not with it.

  38. No crime is so great as daring to excel.

  39. No idea is so outlandish that it should not be considered with a searching but at the same time a steady eye.

  40. One ought never to turn one's back on a threatened danger and try to run away from it. If you do that, you will double the danger. But if you meet it promptly and without flinching, you will reduce the danger by half. Never run away from anything. Never!

  41. Play the game for more than you can afford to lose... only then will you learn the game.

  42. Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.

  43. This is no time for ease and comfort. It is time to dare and endure.

  44. To build may have to be the slow and laborious task of years. To destroy can be the thoughtless act of a single day.

  45. True genius resides in the capacity for evaluation of uncertain, hazardous, and conflicting information.

  46. We are masters of the unsaid words, but slaves of those we let slip out.

  47. We make a living by what we get, but we make a life by what we give.

Friday, November 6, 2009

Economic Fundamentals: The Forgotten Depression

Have you ever heard of the other Depression of the 1920s? Sure, you've heard of the Great Depression that started under Hoover in 1929. But have you heard about the one that started under Wilson in 1921?

The Depression of 1920/21

The 1929 depression was characterized by double digit unemployment. The 1920/21 depression was also characterized by double digit unemployment. According to historian Burt Folsom, the 1920/21 meltdown "had economists excited over what was shaping up to be one of the worst crises in American history."

Come again?

Folsom says the end of the Wilson administration was characterized by massive unemployment as troops returned from the Great War (World War I). In 1918, the armed forces employed 2.9 million. By 1920, 320 thousand were in the armed forces. Unemployment reached 12% and was a huge issue in the presidential election.

Mismanagement at the Federal Reserve compounded problems. The Fed raised interest rates from 4% at the end of 1919 to 7% six months later. This choked off credit needed by businesses and consumers at a time when the labor force was swelling with returning veterans.

The economy contracted 6.9%, technically making the contraction a sharp recession and not a depression (a 10% contraction is necessary for a depression). Prices fell by 18% in a single year. Wholesale prices feel by 37%. Automobile production dropped 60%. Overall industrial production fell by 30%.

Technically, 1920/21 may not have been a depression, but it felt like one. Between the end of 1919 and the middle of 1921, the Dow fell 47%. The rate of business failures tripled and solvent businesses experienced a 75% decline in profitability.

Promising a "return to normalcy," Warren G. Harding was swept into office by a 60% to 34% landslide with Calvin Coolidge as his vice president. Half way through his term, Harding died from a heart attack and Coolidge was sworn in as president. Coolidge, one of the country's greatest and most overlooked presidents, continued Harding's economic policies seamlessly.

Harding's Secretary of Commerce was Herbert Hoover. Hoover pushed Harding to "do something." So Harding held a President's Conference on Unemployment. All of the brightest minds of industry, academia, and government were involved. Collectively, they urged Harding to engage in a massive stimulus program, putting unemployed vets to work on infrastructure projects, such as roads and bridges.

Warren Harding Cut Taxes and Spending

Harding's response? He said the spending would require massive tax increases that would cripple the economy. Instead, Harding did the opposite. He cut taxes and spending, which Coolidge continued after Harding's death.

Harding cut the top income tax rate from 73% to 25%. With better after tax returns, entrepreneurs were willing to risk their capital. If an entrepreneur risked and lost, he lost it all. If he risked and won with a 73% marginal rate, he could only keep 27% of his profit. When the rate lowered to 25%, he could keep 75%. Suddenly, more people were willing to take a chance.

Someone who wasn't taking much of a chance was Harding. As Treasury Secretary, Andrew Mellon said, "Seventy-three percent of nothing is nothing. Twenty-five percent of something is something."

Was Andrew Mellon The Original Supply Sider?

Harding coupled the tax rate reductions with cuts in federal spending. Folsom reports that Harding wanted to keep the U.S. competitive globally and attract investment.

If you think that cutting government spending and tax rates is a recipe for massive deficits, guess again. The economy boomed as entrepreneurial activity was released. Overall tax receipts went from $700 million in 20/21 to over $1 billion by 28/29. The government ran surpluses, cutting 1/3rd of the national debt.

The Best Economic Performance of Any President Was Calvin Coolidge's

During Coolidge's term as president, unemployment averaged 3.3%. According to Folsom, at the end of his presidency, unemployment was 1%. Since inflation was 1%, Coolidge averaged a misery index (inflation + unemployment) of 4.3%, which half any other 20th century president.

The Great Depression

The 1920s depression you've probably heard about is the one that commenced under Hoover and was continued under Roosevelt. Hoover, if you recall, was one of the people who wanted to enact a stimulus program during the earlier depression. In private, Coolidge called Hoover, "wonder boy" and once remarked that, "He's been giving me advice for six years, all of it bad."

In school I learned that the Great Depression was started by the 1929 market crash, which was a failure of capitalism and free markets. The mythology is that Hoover did nothing. He sat back in callous disregard for the plight of the public. If only.

Herbert Hoover Was NOT an Advocate of the Free Market

In reality, the Depression didn't start with the stock market crash. In fact, the markets had started to recover. From mid November, 1929 to April, the Dow recouped half the decline from the peak and was nearly level with the prior year.

The Markets Were Rebounding From The Crash

Milton Friedman, the greatest economist of the 20th century, advanced the belief that the Fed's contraction of the money supply (and increase in rates) kick started the Great Depression. Others blame the Smoot-Hawley tariff. Still others, credit a combination.

Smoot & Hawley May Have Drafted The Most
Economically Damaging Piece of Legislation In History
(Though Congress Keeps Trying To Get One Worse)

Smoot-Hawley was the largest tariff increase in U.S. history. The merits of free trade is one area with almost no disagreement among economists. Over 1,000 economists sent Hoover a petition urging a veto. Industrialist pleaded with him personally to veto the bill.

Hoover didn't listen. He signed Smoot-Hawley into law, raising tariffs on over 20,000 products, launching retaliatory tariffs around the world. The bill artificially raised prices on products made more competitively overseas. This led other countries to artificially raise the price of products we produced more competitively, killing our exports. Exports fell 27% in 1930, 36% in 1931, and 34% in 1932 (Source).

Next, Hoover launched his infrastructure stimulus program. To pay for it, he raised top marginal income tax rates from 25% to 63%. Unemployment soared to 25% in 1932.

Roosevelt Campaigned On Tax & Spending Cuts... Then, Reneged

Roosevelt entered the picture promising tax cuts and federal spending cuts. The party platform called for spending cuts of 25%. If Roosevelt would have kept his promises, the depression might have soon ended. He didn't and it didn't.

Roosevelt didn't like or trust entrepreneurs (the feeling was mutual). Rather than turn to business people for solutions to the economic problems Roosevelt assembled a "brain trust" of college professors. Yikes!

Folsom described the academic solutions. Farm exports were down, resulting in surplus production, and falling prices. The brain trust's solution? Pay farmers not to produce.

The farmers thought getting paid not to produce was a fine idea, but actually idling good farmland seemed kind of silly. So they cheated.

To stop the cheating, the government hired inspectors to physically check on the farms. So the farmers bribed the inspectors and kept on cheating.

In response, the government hired inspectors to check on the inspectors. When this didn't work because the inspectors split the bribes, aerial photography was deployed with auditors studying aerial photographs.

The Feds were determined and eventually, the U.S. did develop farm shortages. By 1935 we were importing cotton, corn, and wheat because farmers weren't producing enough. Some of the shortfall was due to the 1930's era global warming and the Dust Bowl. Still, it was absolutely ludicrous that we were paying farmers not to farm, importing farm products at a premium, and paying a legion of bureaucrats to oversee the entire mess. As Folsom says, this was only one government program and not even the worst.

The Dust Bowl: 1930s Era Global Warming

We had government sponsored price fixing. Business owners were told what they should charge and literally tossed in jail if they didn't charge enough.

Roosevelt started massive government programs left and right. New regulations and taxes arose in a kind of government schizophrenia that froze business investment out of uncertainty. We saw the creation of gas taxes, tire taxes, telephone taxes, telegram taxes, movie ticket taxes, and on and on.

Roosevelt boosted income tax rates to 79%. Later he even tried to hike the top marginal rate to 99.5%. When Congress resisted, he issued an executive order instituting a 100% income tax on all income over $25,000. Congress repealed this to 90%, which stayed in place until the Kennedy tax cuts in the early 1960s.

Henry Morenthau Admits The New Deal Failed

The tax and spend stimulus worked so well that U.S. unemployment was still at 19% in 1938, compared to 11% for the rest of the world. The Secretary of the Treasury, Henry Morgenthau, declared privately, "We have tried spending. We are spending more than we ever spent before and it does not work. We have never made good on our promises. I say that after eight years of this administration we have just as much unemployment as when we started and an enormous debt to boot."

The 1920s had two depressions. Harding and Coolidge fought one with low taxes and reduced spending to create an environment ripe for entrpreneurial stimulus. The result was a rapid end to the depression and one of the most prosperous decades in history. Harding and Coolidge were so successful that we don't even remember the depression they confronted.

The second depression was addressed by higher taxes across the board, massive government stimulus, tremendous government debt, and increased regulation that created an environment of uncertainty and froze entrepreneurial activity. Hoover and Roosevelt deepened and expanded the 1929 depression, turning it into the Great Depression.

Listen to the following address to a group of college students by Burt Folsom, where he compares and contrasts the economic policies and outcomes of Harding/Coolidge with Hoover/Roosevelt.

Why We Won't Repeat the Hoover/Roosevelt Experience

The comparisons between today and the Great Depression are eerie. The increased taxes, increased regulations, and protectionist trade measures are especially concerning. The business climate is clouded with uncertainty about government policies. However, it is unlikely that we will repeat the dismal performance of the 1930s for the following reasons...

1. Experience
In the 1930s, we had not experienced full blown Keynesian economics. Today, we have. Moreover, we've had the counter experience of the Kennedy Tax Cuts and Reagan Tax Cuts (not to mention, Harding's). We've felt the impact of Keynesian policies during the Nixon and Carter administrations. We've seen the impact on Japan with their "Lost Decade." While there are still committed Keynesians, they can no longer tout theory without opposition and without ignoring facts and history (though most will try).

2. Entrepreneurial Velocity
The world moves faster today than the 1930s. Businesses and entrepeneurs are simply faster than the slow, heavy hand of government. Think of a river, flowing in its channel. While it's possible to stop the flow by erecting a dam, the river will eventually overflow the dam unless released through a spillway.

The economic dams of government are eventually breached as the Soviet and Chinese experiences revealed. And in the U.S., the government isn't damming up the entrepreneurial river. It's merely tossing large boulders in the path of the river, which flows around or over the obstructions.

3. Information
During the Great Depression, information flow was centralized and limited to newspaper and radio. Roosevelt had an easy time using the bully pulpit of the presidency to dominate the information flow of the airwaves and used the power of the IRS to intimidate the press. Today, traditional media has become curiously incurious and monolithic. It's also rapidly becoming irrelevant as information is decentralized.

4. Taxes
It's simply impossible to imagine any politician advocating and the public accepting the confiscatory tax policies of the Roosevelt era. People forget that the top marginal rate was 90% in 1963! Kennedy brought it down to 70%, where it largely remained until Reagan. While Congress and the administration will foolishly allow the Bush tax cuts to expire next year, there's no returning to the high taxes of the past.

Top Marginal Rates

One area of concern is corporate taxes. Only stagnant Japan has higher corporate tax rates. Add state taxes and the U.S. has the world's least competitive corporate tax rates. High rates drive business and investment to countries offering higher after tax returns. As a nation, we need to get corporate taxes in line with the rest of the world.

Another concern is the recent discussion about a Value-Added Tax (VAT), unless it replaces the income tax. VATs are consumption taxes like the sales tax, only built into pricing and hidden from view. Based on the European experience, VATs tend to ratchet up whenever politicians are forced to prioritize. Carbon taxes, by the way, are also consumption taxes that are hidden from view.

5. The American Public
The populace is better educated and informed today. It is unlikely the public would allow government officials to tinker with their lives over a protracted period like the 1930s. Patience is thin and the voters are likely to return the country to divided government if the economy stagnates.

6. American Entrepeneurs
Personally, I have too much faith in American entrepreneurial ability and all levels. Despite attacks on business and the denigration of profitability by the media, government, and academia, the U.S. remains an entrepreneurial bastion. People are too creative, too resiliant, and too self-reliant to be suppressed. We will succeed in spite of government interference.

Still, imagine what would have happened if the TARP and stimulus funds had been passed along to the public in the form of reduced income, capital gains, and corporate taxes. I have to believe the recession would have ended in a heartbeat and we would be approaching full employment instead of cresting double digit unemployment.

As individuals, we can't control the government and should not let it control us. While it's up to each of us to be vigilant and to influence the governing class the best we can, we cannot forget that we control our own destinies. It is up to each of us to take all necessary steps to chart our own courses. History proves that we can succeed.

During the Great Depression, many companies prospered. They were the companies who acted as though there was no contraction. They aggressively sought new business and took it from their more timid competitors. Advertising executive, Dave Chase, describes what happened:

Generally speaking, those companies that not only survived but also thrived during the Great Depression were those that continued to act as though there were nothing wrong and that the public had money to spend. In other words, they advertised. These are industries that didn't wait for public demand for their products to rise. They created that demand even during the most difficult of times.

Because so many companies cut spending during the Great Depression era, advertising budgets were largely eliminated in many industries. Not only did spending decline, but some companies actually dropped out of public sight because of short-sighted decisions made about spending money to keep a high profile. Advertising cutbacks caused many customers to feel abandoned. They associated the brands that cut back on advertising with a lack of staying power. This not only drove customers to more aggressive competitors, but it also caused financial mistrust when it came to making additional investments in the no-longer-visible companies.

Both anecdotal and empirical evidence support the case that advertising was the main factor in the growth or downfall of companies during the Great Depression. To put it bluntly, the companies that demonstrated the most growth and that rang up the most sales were those that advertised heavily.

During every recessions many prosperous new businesses are created as well. Hyatt, Burger King, IHOP, the Jim Henson Company, LexisNexis, FedEx, Microsoft, CNN, MTV, Trader Joe's, Wikipedia, Sports Illustrated, and GE were all started during recessions (source). These companies started with no revenue during bad times and still prospered.

History has much to teach us if we'll study it. It shows that the American entreprenurial spirit is overwhelmingly powerful when supported and remains impossible to suppress when not supported. Don't let anyone suppress your spirit. Get out there and make something happen!

Monday, November 2, 2009

Some year-end tax planning information for businesses

As the year end approaches, now is a great time to review the tax situation for 2009 for both your company and your personal tax returns. There are some opportunities out there that may help you save money on your taxes but some of them expire on December 31, 2009. Today’s post will discuss some of the business tax provisions.


Section 179 Deduction – Typically, an asset purchased must be depreciated (written off) over a number of years. This deduction allows a business to immediately expense qualified property in the year it is bought. The limits for 2008 were extended through 2009. The maximum Section 179 deduction is $250,000 and the maximum investment limit is $800,000. Amounts invested in excess of $800,000 will reduce the allowable deduction dollar for dollar from the $250,000 limit. Qualifying property includes items used in a trade or business. Some examples include machinery, equipment, vehicles (see note below), furniture and off-the-shelf computer software. The Section 179 deduction is limited to the taxable income of the trade or business. Amounts not deductible in the current year because of the business income limitation are eligible to be carried forward to the next year. The $250,000 and $800,000 limits expire on December 31, 2009. The limits for 2010 are currently scheduled to drop to $133,000 and $530,000 respectively. NOTE: Luxury Auto Limits – The Section 179 deduction is limited to $25,000 for SUVs. The remaining purchase price is depreciated over 5 years.

“Bonus” Depreciation – The 50% bonus depreciation provision was also extended by the Stimulus Bill. This provision allows a taxpayer to write off an additional 50% of the adjusted basis of property placed in service in 2009. The property purchased cannot be used. It must be new.

Sample 2009 Depreciation calculation: Contractor purchases $325,000 worth of equipment during 2009.

Purchase Price $325,000


Section 179 Deduction $250,000

Remaining Basis $ 75,000


50% Bonus Depreciation $ 37,500

Remaining Basis $ 37,500


Regular Depreciation

(5-yr. MACRS - 20%) $ 7,500

Net Remaining Basis after all

1st yr. depreciation taken $30,000

The sample calculation shows that the contractor was able to immediately expense $295,000 of the $325,000 purchased during the year on the tax return.

Section 199 Domestic Production Activities Deduction – This is a manufacturer’s deduction that was created to encourage companies to keep production of their products in the United States. The definition of “domestic production” under this section is so broad that it includes “construction of real property performed in the U.S.” Contractors installing comfort systems or plumbing systems in a home may be eligible for a deduction under this section. There is one change to this deduction. The deduction was to increase to 9% for 2010. However, that increase has been revoked so the deduction will stay at 6%. This is a very complex section of the tax code so I encourage you to talk to your CPA about its’ applicability to your situation.

Work Opportunity Tax Credit – This credit allows a business to claim a credit equal to 40% of the first $6,000 of wages paid to employees in a targeted group. The employee must work over 400 hours during the year. Otherwise, the credit is reduced to 25% for those who work at least 120 hours during the year. The 9 targeted groups include qualified veterans of service in the U.S. Armed Forces and disconnected youth. A disconnected youth is someone who is between 16 and 25 years old and hasn’t been regularly employed or attended school in the past 6 months. For the complete list of targeted groups, go to the U.S. Department of Labor website. This program is administered at the state level.

“S” Corporation Built-In Gains (BIG) Tax – The BIG tax was enacted to keep “C” corporations from converting to “S” corporations solely to avoid taxes on appreciated property that would result in taxable gains if sold. It closed a “loophole” in the tax code. The BIG tax rate is the maximum corporate tax rate (currently 35%) at the time of the transaction (sale of property.) For 2009 and 2010, an “S” corporation is not subject to the BIG tax if the “C” corporation elected “S” status prior to 2002 for 2009 (prior to 2003 for 2010). The Stimulus Bill reduced the holding period from 10 to 7 years. So, if your company is an “S” corporation who converted from a “C” corporation prior to 2002, you can sell appreciated property without the fear of having to pay the BIG tax.

U.S. Treasury Department Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This article is not intended to be comprehensive in nature and competent professional tax advice should be sought in determining the issues that impact your specific situation.