Planning for Growth and Improved Profitability
Originally published: 01.01.07 by Jackie Rainwater
Let’s begin with the assumption that your business resources (including cash!) are “finite” and not “infinite.” If you agree with this assumption, then you’ll also agree that in order to achieve worthwhile hvac and Indoor Air Quality (IAQ) business growth and profitability goals, you must take the steps necessary to properly analyze your current business mix, establish realistic future business mix, growth, and profit goals, and then develop and implement a realistic business plan to help you achieve your goals. Sounds pretty basic, doesn’t it? However, based on the large numbers of hvac contractors I have been acquainted with during my 46 years in our industry (21 years in manufacturing and distribution, 20 years as a contractor, and five years in consulting), I would estimate that less than 10% of them actually have done this in even a cursory way. Probably less than 5% actually have done this properly and then ran their businesses based on their determinations and future goals. It is certainly not a coincidence that the 5% to 10% who have “done their homework” and then proceeded to operate their businesses accordingly (with course corrections as the marketplace and opportunities change) continually are in
The chart below is an example of what a realistic analysis and forecast might look like based on a typical $1 million residential hvac and IAQ business.
At first glance, the example may seem far too conservative. However, the planning, implementation, and focus necessary to change the business segment mix, improve the profitability of each segment, increase the maintenance customer base (the “fuel” for the replacement and IAQ “machine”) and drive the increased revenues (and not run out of cash in the process!) should not be underestimated. Goals should be ambitious but at the same time, they should be realistic and achievable.
In my opinion, the time-honored “plan your work and then work your plan” expression is more viable in today’s dynamic hvac business world than ever!
|New construction||35% /3%||28% / 5%||21% /6%||15% /8%|
|IAQ (including accessories)||5% /10%||7%/12%||9%/14%||11%/16%|
|Maintenance Agreements||5% /3%||8%/5%||11%/5%||13%/5%|
|Pre-Tax Net Profits||$65,000||$104,907||$152,121||$217,371|
|% Net Profit||6.5%||8.7%||10.4%||12.3%|
(1) 10% (compounded) annual revenue growth
(2) Company has 335 maintenance agreements in force at the end of 2006 at an average price of $150/each and adds an average of 150 new maintenance agreement customers (net of attrition) each year. Company has 1,235 maintenance agreement customers at end of 2012
(3) Maintenance agreement average price increases 3% per year (compounded)
Jackie Rainwater is a 46-year veteran and former owner of Peachtree Heating and Air-Conditioning in Atlanta. He built his businesses on service agreements.
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