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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SBM #54 – Are you a Hunter or Gatherer?

Are you a Hunter or Gatherer?

I like to define entrepreneurs into one of two categories, they are either a hunter or gatherer.

A hunter is someone who’s business requires them to go out every day and find new customers. Whereas a gatherer is much like a farmer who continuously harvests business from an established base of existing customers. The best businesses do both.

Of course, all entrepreneurs start out as hunters. They must, because they don’t have an existing customer base from which to harvest. Survival in the early days requires hunting every day, otherwise they won’t be in business very long.

Neglected Opportunities

Unfortunately, far too many entrepreneurs neglect the opportunities that exist to become a gatherer. They are so accustomed to the thrill of getting a new customer, they completely miss out on or don’t realize the potential that exist from generating incremental business from their previous customer base.

Long vs Short Purchase Cycles

To be fair, some businesses have incredibly long customer purchase cycles. An example of this is roofing sales as most people only replace their roofs every 15-20 years. Another example is new car sales, whereby people are keeping their vehicles an average of 7+ years. So, trying sell these people any sooner is very difficult.

In these situations, there still exists the opportunity to harvest from these relationships through referrals to friends and families. Easy to do, but seldom tried and wastes all the goodwill generated. Even hunter type businesses can become gatherers, if they stay in business long enough.

Many other businesses with shorter purchase cycles, think months not years, still don’t try to increase the purchase frequency. They are in such a habit of hunting that they overlook or fail to identify the many opportunities to promote complimentary or supplementary purchases. They just wait and hope that the customers return or calls them.

Look for Opportunities

Entrepreneurs that act as gatherers look for opportunities to be constantly in front of their customers, reminding them of the products and services they have to offer. With the all tools available today, such as, social media or email, staying visible is far easier than ever before.

Hunting everyday is far more difficult than gathering. Finding a balance between hunting and gathering can reduce the pressure to find a new customer every single day. Understanding whether you’re a hunter or gatherer business allows you to design the most effective strategy that will allow you to maximize your potential from all the goodwill you’ve already generated.

I’m Greg Weatherdon and this has been your Small Business Minute.

You may also enjoy No New Customers

Copyright © Greg Weatherdon 2017

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SBM #53 – Focus

Focus

 

 

 

 

 

 

 

 

 

Many entrepreneurs’ struggles can be traced to their inability to bring focus to their business. It is said that if you try to be great at everything, you’ll end up being good at nothing. I like to use the example of sunlight to explain the power of focus.

The Power of Focus

Most day our world is full of sunlight and even on the hottest of days there’s little risk of it setting anything on fire. But take that same sunlight and let it pass through a magnifying glass held at just the right angle and within seconds you can create a flame. Then, if properly stoked, it can become a raging inferno. That’s the power of focus and by applying the principles of focus to your business can take a mediocre enterprise and turn it into one that is highly profitable and sustainable.

Not That Popular

Bringing focus is easier than most realize and can applied to many areas of your business but none are more important than sales and marketing. The first step is to identify your most profitable products and services and then rank them. You’ll most likely discover that upwards of 80% of your revenue is coming from approximately 20% of your services or products. This is key. Far too often we waste time and energy on our slow moving products. One of the reasons we do this is that they offer higher margins but also because we hate admitting we made a mistake. However, in many instances these more profitable products are just not that popular.

Now, do the same with your customers. You need to determine, their purchase frequency and order size. Chances are that you’ll find an interesting overlap of your most profitable products and type of customers.

Now here comes the hard part. Ideally you should look to lose or reduce your activity opposite these low volume or unprofitable products. Next, stop chasing those non-profitable customers and focus all your attention on those products, services and customers that are making you money.

For example, if you discover that the most profitable customers are those with 10-20 employees, then that size of company becomes your focus. Clearly, you have something they want, otherwise they wouldn’t be your biggest market. Can you have a secondary target market? Of course, but in most cases, you’ll never exhaust the primary list.

Outliers

Meanwhile, if non-targeted customers want to avail themselves of your business, that’s okay and you should gladly accept their business. But point is you shouldn’t be chasing them, let them come to you, they are outliers. Focus on those individuals or companies where you’ve already experienced a higher level of success and spend all your sales and marketing efforts accordingly.

Narrowing your focus helps you to become an industry specialist or even an expert. The deeper you go in your target market the higher your reputation will soar and the more in demand you become.

Light a fire under your business by narrowing your focus.

I’m Greg Weatherdon and this has been your Small Business Minute.

You may also enjoy The 80/20 Rule

Copyright © Greg Weatherdon 2017

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