Contractors Adapt to Economy
September 29, 2008
When it comes to evaluating the current economic climate, it all depends on who you ask - and the opinions are as diverse as America itself. Ask the general media, and the sky has already fallen and post-apocalyptic consequences are headed to a retailer near you this Christmas. Ask one of the current presidential nominees, and depending on what day it is, they will concede that things are tough, but quickly reassure you that America is strong, and when elected they promise to fix it in the next four years. Ask a host of HVACR contractors across the nation what they are experiencing and how they are handling the current economic climate, and some of the answers will be pretty interesting.
CONTRACTORS' SAYIn response to a hodgepodge of economical situations and forecasts, commercial and residential contractors are tightening their belts, just as the rest of America is doing the same. One of the largest issues they are facing is the increase in materials costs. Many are successfully passing the additional costs on to the customer. The lag time between bidding a job and starting a job, however, can make it next to impossible to compensate for the price increases that occur in the interim.
“It is difficult because when you get a project, sometimes it takes 30-45 days before all the paperwork is done and you have a contract,” said Hank Bloom, president of Environmental Conditioning Systems in Mentor, Ohio. “At that time, we are stuck eating the increase.”
According to Scott Getzschman, president of Getzschman Heating LLC in Fremont, Neb., material price changes have affected margins on existing projects as well. James Herndon, president of Controlled Conditions Corp. in Chesapeake, Va., has developed a new strategy to deal with this rising issue.
“We have shortened the time our quotes are good for,” he explained. “Fortunately, a large percentage of our work is contract maintenance and most are limited to the material included in the contract price.”
“The materials pricing increases requires us to be on top of our pricing from the distributors and in passing along those increases to our clients,” said Bob Zahm, president of Huntington Heating & Cooling Inc., Huntington, Ind. “Since we job cost every project, it is easy to adjust our pricing.”
Another issue testing contractor ingenuity is the attitude that some customers are developing towards the price of higher-efficiency units. Although they seem to see the value in high-efficiency units, especially with energy rates increasing, the initial cost concerns those watching every penny coming in and going out, no matter if they are residential or commercial customers.
“Certainly more people are deciding to repair rather than replace,” said Butch Welsch, president of Welsch Heating and Cooling Co. in St. Louis. “In light of this, we have taken a strong policy on replacements in that we will not install a unit using R-22 unless the customer signs a waiver saying we have explained and offered an R-410A system to them.”
Once a customer decides to replace rather than repair the system, it is time to choose what model and efficiency rating will best fit the needs of the structure and the needs of the customer’s pocketbook.
“The attitude of some people who have to replace a system seems to indicate that they want the absolute lowest price,” said Ken Field, president of Field’s Service Inc., Easton, Pa. “The quality of workmanship or equipment is not as important to people as it should be.”
Bloom, on the other hand, has found that his company is doing a lot of energy upgrades. “As long as the installations have a two- to three-year payback, customer attitudes have been OK,” he said.
Aaron York Sr., president of Aaron York’s Quality AC in Indianapolis, offered advice to contractors working to overcome tight-fisted customer attitudes.
“Customers simply want to feel assured that they truly need what is recommended and that it is a real value and not some pitch ‘to get in my pocket,’ ” he explained.
“When so convinced, they spend. The positive attitude of the sales person is absolutely essential. With a solid, positive attitude, the customer catches the enthusiasm and buys.”
BUSINESS STRATEGYAs contractors deal with product pricing and customer attitudes externally, they also deal with the day-to-day internal challenges of meeting demand and protecting the bottom line. To do this, many are installing GPS in their service vehicle fleets to more efficiently dispatch service calls and to monitor gas expenditure. Others are reviewing each and every line item closely.
“The economy is making us pay more attention to the business basics,” said Russ Donnici, president of Mechanical Air Service Inc. in San Jose, Calif.
“Recognizing needs versus wants is a big part of it. Before we spend any significant amount of money we go through the process of questioning how it will improve our business, how long is the ROI, etc.?”
In the midst of cost cutting, contractors are warned to maintain customer service as a priority and not to neglect the future of the business.
“We run a pretty lean machine and don’t spend anything we don’t have to,” said Martin Hoover, president of Empire Heating and Air Conditioning in Decatur, Ga. “However, we are still training, advertising, and keeping our trucks in good order, etc.” According to Hoover, one of the biggest challenges to business right now is keeping people on point.
“When it is slow and the board is not full of jobs, it is easy to say ‘oh well, we are slow let’s go home,’ or instead of completing a job today just come back tomorrow,” he explained. “We have to create our own sense of urgency when the demand isn’t requiring it.”
As to the future of the economy and the industry - in a nutshell - no one knows what 2009 will hold. Several contractors, like Bloom, think that things have already hit bottom and are starting to turn around. Some think that the industry hasn’t seen the last of hard times and that the turn around will not come until sometime in 2010. Despite all the economic guesses and speculation, however, it is important for contractors to remain actively involved in managing and growing their daily business.
“We must all do what we can in our power to not participate in a down economy, think positive,” encouraged Thomas Spall, owner of T E Spall & Sons Inc. in Carbondale, Pa. “We have been here before and survived, keep a positive attitude and keep marching.”
York echoed this idea when he said, “Our volume is up, our profits are better this year than last year and thank God the elections are almost over. Once we get these behind us with all the negativity projected by so-called leaders, Americans will once again get down to working, producing, and spending more money. Remember, a positive attitude wins.”
Publication date: 09/29/2008