Do your homework to reach the top tier in this industry.
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 top tier of the most successful businesses in our industry.
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!
Year-Ending Projections (% Total Business/% Net Profit)
Business Segment
2006
2008
2010
2012
New construction
35% /3%
28% / 5%
21% /6%
15% /8%
Replacement
45% /8%
46%/10%
47%/12%
49%/14%
IAQ (including accessories)
5% /10%
7%/12%
9%/14%
11%/16%
Service
10% /12%
11%/13%
12%/14%
12%/15%
Maintenance Agreements
5% /3%
8%/5%
11%/5%
13%/5%
Revenues
$1,000,000
$1,210,000
$1,464,100
$1,771,561
Pre-Tax Net Profits
$65,000
$104,907
$152,121
$217,371
% Net Profit
6.5%
8.7%
10.4%
12.3%
Assumptions: (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)
