Increase Maintenance Profitability
Originally published: 07.01.16 by Ruth King
If you want to sell your business, or have a strong company to pass along to the next generation, you must have a growing, thriving maintenance base. This base can be residential, commercial or both.
Here are seven ways to increase the profitability of your maintenance base.
1. Must break even on maintenance.
HVACR contractors are not supermarkets. You can't afford to have milk as a loss leader, enticing people to buy more as they go to the back of the store to pick up that milk on sale.
If you lose $10 per maintenance agreement after you calculate overheadinto the cost, and you have 1,000 agreements, you've lost $10,000. If your net operating profit is 8 percent, you have to generate 1,000/8 percent or $125,000 in sales just to make up for the losses.
2. Retail price for non-maintenance customers is your maintenance price divided by 1, minus your discount.
When you calculate your retail prices, include one hour of direct cost, overhead cost and the dollar value of profit you want to earn. Then, divide by the percentage of billable hours. This is your maintenance customer price.
Then, if you give a 10 percent discount on maintenance, divide this number by .90 to arrive at your retail price for non-maintenance customers. Use the direct cost of the highest paid technician.
For example, if your technicians earn $20 per hour, your overhead cost (including benefits) is $35 per hour. You want to earn $75 net profit per hour, and you can bill 60 percent of your time:
Maintenance rate: $130 ÷ .6 = $216.67
Retail rate: $216.67 ÷ .9 = $240.74
3. The only maintenance discount for multiple systems is for travel.
Too many contractors have the first system, for example, at $180 and the second system at $100. Are you doing half the work on the second system? No. Then why would you cut the price of the second system in half? You wouldn't.
The only discount to give is for travel since you don't have to travel twice. The first system at $180 and the second system at $160 is acceptable.
4. In most areas, maintenance can be performed throughout the year.
It's like going to the dentist. You go twice per year but it doesn't matter when. You can do a cooling inspection in September and a heating inspection in March or April.
All cooling maintenance does not have to be performed before the cooling season hits and all heating maintenance does not have to be performed before the heating system hits.
5. Magic number is 3,000.
Once you reach the 3,000 agreements or hours mark, you will see much less seasonality and much more steady work. Between 8 and 10 percent of your residential agreement customers usually replace a system every year.
For every dollar of commercial maintenance agreement work you could estimate $2 to $3 (or more) of commercial service or project work.
Once you reach these milestones, you will be doing maintenance year round with technicians who are "maintenance techs." Most "seasoned" technicians think that maintenance is beneath them and many don't do a good maintenance job on customers' systems.
6. Schedule maintenance in the same area for one technician on same day.
This decreases travel time and increases the number of maintenances a technician can do in one day. If you can schedule maintenance for every customer in the same industrial park or zip code, this is the most efficient and profitable way to perform the maintenance procedures.
7. Handle emergency calls only for your maintenance agreement clients.
One of my clients has done this for years. They have over 4,000 agreements and this is a great selling tool. It's even better for the technicians, however, since they don't get burned out during busy times of the year. Since they do the maintenance properly, equipment doesn't break down as frequently so they don't get many phone calls from maintenance clients — even when it is hot or cold.
Implementing these seven actions will increase the profitability of your maintenance base and your overall service department.
Ruth King is president of HVAC Channel TV and holds a Class II (unrestricted) contractors license in Georgia. She has more than 25 years of experience in the HVACR industry, working with contractors, distributors and manufacturers to help grow their companies and make them profitable. Contact her at firstname.lastname@example.org or call 770-729-0258.