Contractors Stand Up to Recession
January 21, 2008
KING OF PRUSSIA, Pa. - To many business owners across the United States, the mere mention of recession creates worry lines across their foreheads. With a weakening economy triggered by a downturn in new construction and a slowdown in retail spending, it is only natural for business owners to put their wagons in a circle and do what they can to keep their doors open.
The HVAC industry is not immune to the woes of the current economic situation. Being dependent on the climate has always been a top concern, but now the money and credit crunch is causing sleepless nights for contractors. Is there any comforting news out there? There is if you believe some HVAC contractors who recently convened for a mini-roundtable meeting in King of Prussia, about 30 miles north of Philadelphia.
The group included Vince DiFilippo of DiFilippo’s Service Co., Rocco Pace of J.M. Oliver’s Heating & Cooling, Bill Ronayne of Brandywine Valley Heating & Air Conditioning Inc., and Bruce Harris of Harris Comfort.
The main topic of the meeting was to discuss how the R word - recession - was affecting their business. But these contractors quickly turned the table on the topic.
HIGHER PRICES NOT KILLING BUSINESSRonayne stated the obvious - that people need to have heating and cooling. He added, “The higher prices of fuel make it easier for us to sell high-efficiency equipment.”
DiFilippo, whose company relies heavily on residential service and replacement, feels that he is in a good position. “Our service sales go up a lot during a recession,” he said. “People would rather repair than replace. What scares me most is the weather, not a recession.”
All of the contractors conceded that any business that relies on new construction is going to be taking a hit right now. “Residential new construction contractors are getting killed by higher prices,” said Pace.
“Fortunately for us, we have over 12,000 service agreements that keep us busy. And we know that some of these customers are going to need to replace their equipment very soon.
“Even 9/11 didn’t affect our business. We didn’t skip a beat.”
Harris said his company will only work on an occasional new custom home and generally stays away from a market that has caused grief to so many right now. “We have been in business for 60 years and have never been negatively affected by a recession,” he added.
In fact, to some people, there is no recession - at least according to Ronayne. “The news media to playing up the recession, but I don’t see it,” he said. “Look at the restaurants. People are still going out to dinner.”
But he noted, “Nothing is really recession-proof. We all realize how important it is to build up a service base.”
BECOMING RECESSION-PROOFGas prices are not just taking a big bite out of customer’s budgets; they are having a big impact on contractor’s budgets, too. Consequently, some contractors have chosen to add a fuel surcharge to their invoice or simply increase their hourly rates to compensate for skyrocketing gas prices. Pace said his company has increased its diagnostic charges between $5 and $10. Ronayne tacked on a fuel surcharge but that only lasted for a little while.
“Our customers argued with us over it so we eliminated the surcharge after a couple of months,” he said.
Harris noted his company saw a better way to cover the rising costs. “We increased the price of our service agreements,” he said. “The increase is added on when the service agreement is up for renewal.”
DiFillippo uses yet another tactic to compensate for rising costs. “Every year we recalculate our service numbers so we are covered,” he said.
“We anticipate higher prices so we add a couple of bucks to the flat-rate charges on our service calls. We rarely get complaints from our customers.”
Some contractors offer financing to customers who need more than just service - those people who have waited long enough to replace their tired, old equipment.
“We offer financing but would prefer to use the banks,” said Harris. “But we may carry the loan for six months.”
Pace said, “Sixty-five to seventy percent of our retail customers are financed. A lot of people like six months the same as cash.”
But in DiFilippo’s service area, the story is quite different. “Only about 3 percent of my customers use financing,” he said. “I have a lot of cash customers.”
Speaking of customers, DiFilippo noted there is a growing battle for customers coming from contractors who are getting away from new construction and turning more to service, including the fly-by-night contractors. Harris agreed.
“My customers are paying a lot more for us to come and fix the mess that fly-by-nighters installed,” he said. “And now these same people are getting into service.”
Pace said it isn’t a smart move to totally abandon the new construction market, but added, “Start marketing service to your customers. Think about the people whose system you installed 10-15 years ago and market to them.”
Ronayne said, “Diversify a bit. For example, you may want to add hydronic heat equipment service and replacement. You need other markets to fall back on.”
Harris said his company went so far as to change its logo to show how diverse it is. “We used to have our logo in the shape of an oil truck, but now we just use our name because it reflects everything we do,” he said.
Pace said his company would continue to do what it can to keep busy and keep the workers employed. “We have 165 employees and trying to keep them busy is a hard job,” he said. “We have to keep moving them around to different areas to keep them busy.”
DiFillippo said his goal is to keep his current customer base happy and strengthen his business from within through his loyal, local customers. “We are territorial,” he said. “We want to stay within our geographic boundaries. It’s also our way of saving on driving time, which affects customer service and offsets the price of gas.”
Publication date: 01/21/2008