What's the Real Cost of Free?
What is the Real Cost of Free?
“There’s no such thing as a free lunch.”
...my Father, 1965, 1966, 1967 … 1995
My Dad said that to me when I was about 15 years old, while driving down the road in his 1965 Chrysler Imperial. I silently repeated it to my self twice, trying to digest the meaning and thought, “What the hell is that suppose to mean?” He went on to tell me that during the depression (most of his stories came from either the depression or the war), that “blue collar” taverns would advertise free lunches, including plenty of salty pretzels, salty potato chips and salty dill pickles as well as sandwiches. His point was that the sandwiches weren’t free, the cost was just buried in the price of the beer, and with all the salty sides, the bar tender planned on selling plenty of beer.
The Free Inspection Gambit
Today we are besieged by “free lunch” offers, especially the “free inspections” variety. Free furnace inspections. Free brake inspections. Free roofing inspections. The “free inspection” is a business model that works and works well, but in fact it’s really just another form of “bait and switch.”
Customers are lured in with an offer of a free inspection, usually involving the analysis of a complex piece of equipment, and more often than not, are left with a sizable repair bill. A bill that involved no price shopping on the part of the buyer. In other words, a sellers dream sale.
Why it works…
Over and Over and Over Again
So why is this sales gambit so popular. Very simply, because it works. What are the components to that make this business model work?
1. Asymmetrical Knowledge
2. Asymmetrical Resources
3. Complex Issue
4. Big Owner Risk
5. Fear of Consequences
Asymmetry is the unequal power between two parties. In almost every “free inspection” situation, the service person has both knowledge and tools that the buyer just doesn’t have. This disparity gives great advantage to the service provider. The service provider's only problem is finding people in need of his services. This problem is unwittingly solved by the buyer because he has responded to the “free inspection” offer. In effect the buyers have “tipped their hand” that they’re already worried about the issue.
Next, these are almost always complex pieces of equipment. Too complex for the owner to self evaluate the potential problem. After all, if they were not so complex, would you have to seek the assistance of an expert for a free evaluation?
The last two components are closely tied together. The buyer is concerned about a complex and expensive issue. In other words, a big risk for the owner. Coupled with big risk is a “fear of the consequences” in the event of failure.
In other words, if your brakes fail, your family is in danger. If your roof leaks, your house will incur damages, and if your furnace fails, you could have a gas explosion. Big risks and big consequences.
Inspections as a Profit Center
In the early 1990’s I started selling a crane inspection program to my past crane customers. My motivation was two fold, first I wanted to keep my skilled crane techs busy. I needed a way to even out the ebb and flow of the work schedule and inspections seemed like the perfect tool. Secondly, it would be a zero marketing cost way to stay in front of past customers. We would regularly be at the past customer's plant with our service vans, keeping our name in front of both the maintenance and engineering departments.
What we soon learned was that following the inspection, the customer rarely asked “how much” regarding the needed repairs, but rather “how fast.” Unfortunately, we were not the only crane company to learn this. Once it became known that this could be a significant new “profit center” for crane companies, it marked a “race to the bottom.” In other words, inspection pricing continued to decline in an effort to get the lucrative repair work.
The Race to the Bottom
As inspection revenues declined, the conscientious inspection firms were driven out of the inspection business. The aggressive inspection devised more and more disturbing levels of “bait and switch,” until they hit bottom. Todays crane inspection programs incentivize the crane techs by paying commissions on their hours and parts sold. Those that refuse to aggressively sell are subject to dismissal for not meeting sales quotas.
The Hidden Cost of Free
As soon as the seller introduces the “free” angle, the rules of the game change. The seller must make a profit to exist so the questions become, how to recoup the costs of the free inspections. At first glance, the owner of the broken furnace may think that she paid for the service repair as well as the inspection in the repair bill. No harm, no foul. But upon closer examination, that’s not the whole picture.
Let’s say a furnace company has to perform say five inspections to find one furnace that merits service. Further, it takes about ½ hour drive time each way and about one hour for the inspection, report generation and presentation to the customer. In other words, each “free” inspection costs the company two man hours. With a one in five hit ratio, the poor sap with the broken furnace is going to have to absorb all ten man hours (factored into the billing rate) in addition to the real costs of fixing their furnace.
The Real Cost of Free
The real cost of a free inspection is not the repair, but the inherent requirements of this business model. The inspector has been drilled on the fact that his paycheck ultimately depends on his billable hours and repair parts sales. In the old days, our inspectors would replace a capacity sticker or top off a lube reservoir and not even make a note on his report. Today, the tech can’t even replace a 39 cent cotter pin because it’s potentially a $25 repair when done on a work order after the inspection.
Worst of all, the inspector is not only incentivized to write up every “nit-picky” detail, but this report is now public documentation of every issue related to your overhead lifting equipment. In other words, the inspector has created a well documented paper trail that leads directly to your bank account in the event of a possible accident someday. In other words a plaintiff lawyer’s treasure trove.
The solution is really quite simple. Create a wall between the inspection function and the repairs. Bear the real costs of inspection and then go out for competitive bids on the repairs. The total costs will be lower in the long run. It’s really that simple!
By paying for the inspection, you assure yourself of paying for what you get and getting only what you paid for.
At the risk of mixing metaphors, never let the fox guard the henhouse. Or, like my Dad told me over fifty years ago,
THERES NO SUCH THING AS A FREE LUNCH!
…by the way, could you please pass those potato chips and pickles to go with my sandwich, and bartender, another beer please. For some reason, I’m really thirsty today!