Creating conditions that will grow your HVAC company

Originally Published In Snips Magazine October 2017

First Aid

A common theme with HVAC sales professionals is their profitability or, more precisely,
the lack thereof.

It’s not that they’re sitting around. Most have a steady workflow, but profits are elusive. In those cases, the first place to look is their pricing model. Commonly, many don’t have a formal model or template, yet have managed to stay somewhat competitive in a highly competitive environment.

So assuming their pricing is reasonable and expenses are in line, what could be the problem?  Digging into the operational side of the organization often uncovers what can be called “profit killers.” When you consider how competitive the HVAC business can be, minimizing waste — whether in manpower, materials or service region — is tantamount to increasing profitability.

What is meant by critical mass? Critical mass, in this context, is nothing more than concentrating your service area in a tight geographic zone. Why? When you consider the operating costs of your service vehicles can range between 75 cents and $1 a mile, it doesn’t take long to appreciate the potential savings. These rates exclude labor, so every mile driven can get very expensive when you add everything up.

What’s the problem?

The genesis of the problem usually harkens back to the start of the business. When a business first opens, owners take every piece of business they can and try to generate revenue. The attitude is that every order is a good order. Owners have bills to pay, and they don’t have the luxury of being too selective.

However, as the business matures and stabilizes, too many don’t change their thinking and continue to take every piece of business that comes their way — no matter where it is. Why mess with what works, right? Unfortunately, maintaining this attitude can become quite expensive when left unchecked.

Another catalyst that compounds the problem is that countless owners often get convinced by a marketing company that for just a few dollars more they can blanket a whole city or region with their promotional message instead of focusing on a tighter geographic area. It’s a good pitch. Who wouldn’t want more exposure? But it comes at a cost.

Consider that you probably pay your technicians for seven to eight hours of work per day. How many of those hours are actually billable to customers? Probably closer to five and many times less. A disproportionate amount of the difference is lost to travel time between calls, but it doesn’t have to always be this way. What if you could increase your billable hours by just one more hour a day? This could generate upwards of $20,000 in additional revenue per technician (200 days times $100 per hour). This is where the concept of critical mass comes in.

How and why

So how do you apply the idea of creating critical mass? Start by identifying where most of your business is coming from. A simple exercise of mapping out the postal codes of your customers will show where your customers are concentrated. You’ll most likely see clusters of customers in specific areas — a critical mass. The opportunity is to further enhance your presence in these key areas. If you are spending money on promotions, now is the time to target these key areas with increased frequency. This targeted approach can result in a much higher awareness than a citywide initiative.

Here’s another simple example of how creating critical mass can help your business development. Many HVAC companies use lawn signs to advertise during installs or upgrades. Having multiple signs throughout a neighborhood creates a powerful awareness for your company. Prospective customers regularly seeing your service vehicles on their streets also sends the message that you must be good because everyone uses them. Lastly, generating critical mass in specific areas helps word-of-mouth. (For more information on word-of-mouth, check out “8 statistics you should know about word-of-mouth,” July 2016 Snips).

To be sure, every city and every business is different. Rural-based operators have different challenges than those in large metropolitan areas. However, driving long distances between calls or sitting in traffic still costs you money.

Where focusing on only one area is not feasible, an alternative way to create critical mass is to consider limiting your service to certain areas on specific days of the week. For example, service the northern suburbs Mondays, the western communities Tuesdays and so on. Of course, this excludes emergency calls.

In such a competitive environment, you need every advantage you can get. Tightening up your service area and creating critical mass will go a long way to increasing your efficiency and putting more money in your pocket at the end of the day.

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