Rich Contractor

Sample Demand For Payment Letter

I recently wrote a post about how to handle deadbeat customers, and I thought it might be useful for some of you to have a sample demand for payment letter.  Okay, it's not exactly a "demanding" letter because it is friendly and respectful in tone, but just the fact that you've sent it to the offending customer will really get their attention and in most cases you'll get paid immediately.  In the rare case that they still don't pay, you'll need to make a phone call and ask them what the deal is. 

Just download this document and open it with Word to customize it for your company and situation:

Download customer_hasnt_paid.doc

Choose A Simple Service To Maximize Profit

My last post was about how you've got to expand your business in order to achieve wealth, but I also need to make the important point that replication in your business is made much, much easier when the service you provide can be easily performed by unskilled laborers.

Many services require special training, education, and certifications.  For example, I have a good friend who is a personal trainer in Cleveland, and he is highly skilled at what he does.  He earns a good living, but if he ever desired to expand his business by moving into a managerial role and bringing in other trainers to work for him he could find it more difficult than it would be for, say, a lawn-mowing business owner. 

Why?  Personal trainers are certified and have devoted long hours to get where they're at, which means that they are somewhat of a scarcity and expect to earn a good living.  In other words, they expect to be paid well and are difficult to replace.  One or two trainers quit and it could really effect the business in an immediate and negative way.  Lawn mowing techs, on the other hand, are pretty much a dime a dozen.  They don't need any previous training or skills and so they are in greater supply.  Therefore they can be hired for relatively low pay and if one quits they are easily and quickly replaced.  This scenario sets you, the business owner, up for higher profit margins, less chance of a breakdown in the system, and therefore a quicker rate of company expansion.

As evidence of this phenomenon just take a look at McDonald's or Subway, which have thousands upon thousands of franchises.  Do you think they achieved that kind of growth by hiring highly skilled hamburger flippers and sandwich makers who expect to make a lot of money?  Of course not.  They'll hire just about anybody with a pulse because the work is easy to learn and perform, and the pay is therefore pretty low.  That means more money in the franchise owner's pocket, and more money in the corporation's pocket.

Replication Is The Key To Getting Rich

In my previous entry about targeting a specific service niche, I touched on the subject of replication in your business.  It's time to revisit and elaborate on this notion. 

First, let me be perfectly clear that you will never get rich with your service or contracting business unless you are willing to grow the business and bring on employees to perform the labor.  If you started that painting business because you simply love painting and get satisfaction out of performing the labor, then more power to you.  Just understand that in order for the business to expand you have no choice but to take on a managerial role and pass off the brushes and rollers to worker bees.

In a simplified example, look at these two scenarios:

1. You, the business owner, insist on performing most of the work on every single painting job, though you do have a helper that earns $10 an hour.  Since most of your time is spent painting, there is little time left to devote to advertising and marketing efforts, which limits your annual gross revenue to $100,000.  After expenses and paying your helper, you're earning around $50,000 before personal income taxes.  Not bad, but you're not getting rich either.
2. You have decided to step away from performing the actual labor so that you can focus more time and energy on marketing, sales, and administrative tasks.  The resulting increase in business exposure for your company pushes your annual gross revenue to $200,000.  You now have two two-man teams that do all of the actual painting.  Each team has a "lead painter" that earns $12 an hour and a helper that earns $10 an hour.  After paying all your workers and all other business expenses, you're earning $70,000 before taxes.

Clearly, scenario number two is a more desirable outcome.  You'd make $20,000 more per year by taking on more work, all without so much as touching a paintbrush!  To make it even more interesting, let's take things a step further:

• Emboldened by your increase in income, you decide to launch an even more aggressive      marketing campaign that raises your advertising budget but results in annual gross revenue of $500,000.  You now have five two-man teams that perform the labor, one salesman that gives  estimates, and a secretary to answer the phone and perform basic office duties.  Obviously with expansion has come higher costs, but after all is said and done you're earning about $125,000 a year before taxes.  Not too shabby considering that your duties amount to making executive decisions, handling the marketing, and watching a good deal of ESPN in your office.

Hopefully you can see where I'm going with this.  Pull out a pen, paper, and calculator and extrapolate these numbers out even further (million-dollar service businesses are fairly common in many big cities) to see for yourself that the income you've always dreamed about is achievable, but it simply cannot happen if you're doing all the work yourself.  You've got to pull yourself away from the labor if you ever hope to truly make a lot of money.  To get rich you must grow and learn to delegate.  There is no other way.  If you can't stand the thought of parting ways with a brush in your hand and paint on your face then so be it.  Just be aware that you'll probably never earn six figures and you'll be busting your butt for the next 30 years just to pay the bills like everybody else.