Three Essential Business Functions, Part 1 — Maintenance Profitability
Originally published: 10.01.18 by Ruth King
The three major functions of HVACR businesses are maintenance, service and replacement. Where does new construction fit in? It feeds maintenance, which then impacts the other major business functions.
The foundation of every HVACR company is a strong, thriving maintenance program — whether it’s residential, commercial or both. Over the next three months I’ll cover maintenance, service and replacement/job profitability.
Your maintenance plans must break even. This means breaking even after overhead is taken into consideration. Ovehead cost per hour is total overhead divided by total billable hours.
Take at least a six month — or, preferably one year — total overhead and total hours, since overhead can fluctuate from month to month. If your company produces departmentalized financial statements, use the overhead for your service department assuming that maintenance revenues and expenses are included in the service department.
Let’s look at maintenance pricing from a residential and commercial perspective.
Residential: Calculate the total time that it takes per system per year, including travel time.
Commercial: Calculate the total time for cleaning visits and filter change visits, including travel time and the time it takes to get started working. You might have to get a roof hatch key, pull a water hose onto a roof, etc. Include this time in the calculations.
Determine the materials you need and any SPIFFs paid:
Assume: 3 total hours
Overhead cost per hour: $35 per hour
Technician cost: $20 per hour
Break even cost of this maintenance plan:
Materials and SPIFF: $15
Breakeven price: $180
If you’re selling your maintenance plans at $160, then you’re losing $20 for each plan per year. If you have 1,000 maintenance agreements, you’re losing $20,000 per year.
Revenues needed to cover this loss, assuming a 10 percent net profit, are $200,000 per year.
Here are five ways to help your maintenance plans break even.
- For residential maintenance: Do not have a $30 technician performing maintenance. Maintenance is usually the first or second step in a career path. Hourly wages should be lower. Of course, there will be times that a $30 technician has to perform maintenance. Make it as infrequent as possible.
- For commercial maintenance: Have a lower wage technician change filters. You might need that $30 technician (or a higher wage) performing maintenance on chillers.
- For residential maintenance: If the first system maintenance is $180, then the second and subsequent systems are $160 or higher. Then only thing that is different is there is no travel time for the second and subsequent systems. Your technicians perform the same procedures for both systems.
- For both: Route as efficiently as possible. If you can stay in the same neighborhood or industrial park, then travel time is minimized and you earn more per maintenance plan.
- For both: If the system is dirty, charge regular rates (less the discount) to clean the units. Your maintenance price is for maintenance, not to bring the equipment up to standards.
A thriving maintenance program can help increase service and replacement/job revenues. Next month, I’ll cover service profitability.