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HVAC Success: Navigating the Summer Surge

Originally published
Originally published: 3/30/2024

Summer is coming, and you are in the business of selling a perishable product.  That's right, just like fruits and vegetables at the grocery store, you sell a product that is perishable.  Your perishable produce is labor instead of bananas.  Like bananas, labor hours have a shelf life.  Each hour lost is irretrievable, just like spoiling fruit.  Summer can either be the time to maximize those precious hours or squander them as pig feed.

Here is a checklist to help you maximize the opportunity for a profitable summer and rewarding year.  

Pricing Precision

My dad was an HVAC contractor in Arizona in the 1970s.  He sold his contracting business to open his first Johnstone location in 1984.  After he and my mom had grown the company into a flourishing business, he finished up his career and retired.  It was then that I asked him, "What do you wish you knew when you first went into business (as a contractor) that you know now?"  His answer floored me: "I wish I understood my own value and charged accordingly.”  He provided a remarkable service and great value to his customers.  If he had charged what he was worth, he would have been able to provide his employees with better benefits and better trucks and probably would never have felt the need to sell his contracting business.  

The crucial question this raises is, are you pricing according to your value?  This is probably the No. 1 mistake I see contractors making.  It is crucial to get the pricing right before peak season.  The HVAC industry saw tremendous inflation from 2020 to 2023: 40% plus or minus on many of the products we sell, especially on equipment.  Have you adjusted your prices to account for this inflation AND labor inflation?  In addition, we typically see that service labor rates are too low – driving profits down.  As a rule of thumb, if less than 5% of your service calls are diagnostic only, you have room to raise your service prices.  Don't fumble your opportunity to have a profitable summer and a rewarding year. If you are losing money now, it will be like fueling a bonfire with dollar bills come summer.

In the back of your mind, you are probably worried about being perceived as a price gouger and damaging your reputation.  Yet, if you're here, it's likely because you value your customers and have exceptional quality in service and installation. Remember, fairness isn't just about the price tag; it's also about value. Charge what reflects your true worth.

Maintenance Agreements

High-performing contractors get 50% of their leads from existing customers.  This makes maintenance agreements their best source of leads.  The KPI is 1,000 agreements per $1 Million in residential revenue.  With summer's peak demand, it is prime time to add more maintenance agreement customers.  Are maintenance agreements integrated into your business model? Do your Techs and CSRs know how to sell them?  Is your team incentivized to sell them?

Referral Programs

Top-tier contractors gain 23% of their leads from referrals.  The increase in seasonal volume makes summer prime time for building a referral network.  Are you happy with your referral program and process? Does everyone in your company know how to ask for referrals?  

Efficient Material Management

First-call completion is crucial for maximizing profitability.  Streamline your service operations by maintaining a standardized inventory list for service trucks, and replenishing items after each use.  We train our partners to utilize our app to scan items as they use them.  We also upload a custom truck stock inventory list that makes selecting used items a breeze.  We organize these replenishments by technician to make it seamless. Remember, there's room for customization in this process, so don't hesitate to consult with your distributor partner to tailor it to your specific needs.

Similarly,  we offer an “install bin” service where all the small materials needed to complete a job are in a reusable tote that installers use and return after the job.  This cuts down on time overages, aids in job costing, and simplifies the material handling process for the install crews.

Distributor Forecasting

2024 may prove to be another challenging year from a supply chain perspective.  The transition to A2L beginning this year will undoubtedly cause some supply chain hiccups.  In addition, the current shipping disruption in the Red Sea will most likely create potential impacts that we have yet to realize fully. 

A best practice is to sit down with your supplier partner and share your sales strategy for the summer.  What is your sales lineup?  What do you forecast your sales to be by product?  What are their plans to handle the A2L transition?  This is a key part of a supplier partnership.  By understanding your sales projections, your supplier can ensure they have the right products in stock to meet your needs, avoiding lost sales and making operations smoother for both parties.

Labor Forecasting

Let’s be honest. The truth is, without a skilled workforce, growth and profitability are just not possible. Ensuring you have the skilled workers to meet your goals is essential. Typically, around this time of year, customers ask me if I know about any available techs or installers.  Frankly, by the time this article goes to press, it is TOO LATE.  If you don't already have the people you need for your summer forecast,  I can't offer any tricks here.  

With that said, there is a way to get ahead of your constant labor crisis.  It’s a long play and deserves its own article - stay tuned in an upcoming issue.  

Summer's arrival doesn't just bring heat waves – it brings a surge in demand for HVAC services. By fine-tuning your pricing, capitalizing on maintenance agreements, boosting referrals, optimizing truck stock management, and engaging with distributors, you can turn the summer rush into a season of success. Special thanks to experts Gary Elekes, Ruth King, Kevin Dier, Mark Schulert, Hector Jimenez and William Efird, for their valuable insights and contributions. Stay cool, and make this summer your most profitable one yet.

Checklist

✓ Adjust install prices (In the last 30 days)
✓ Raise service prices if your service diagnostic only rates less than 5%
✓ Integrate maintenance agreements into your business model
✓ Train or retrain your techs and CSRs on how to sell maintenance agreements
✓ Create and implement an incentive program to sell maintenance agreements
✓ Create a referral program
✓ Train or retrain your team on how to offer referrals
✓ Standardize service truck stock
✓ Document, train and implement a service replenishment process
✓ Standardize install truck stock
✓ Document, train and implement an install material handling process
✓ Discuss with your supplier partner(s) your replenishment processes and needs
✓ Meet with your supplier partner(s) to have a forecasting conversation

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Ryan Kalmbach is the CEO of Johnstone Orion Distribution with 12 locations and 125 employees located in California. He has over 20 years of experience in operating a family distribution business. The core passion at The Orion Group is to partner with its customers and employees to help them to grow. Ryan can be reached at ryan.kalmbach@johnstonesupply.com

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