Growth Via New Profit Centers
June 6, 2011
The tough economy has led many contractors to hunker down, reserving resources and eliminating expenses until times improve. Other contractors are taking the opposite approach, investing in their companies and expanding operations to include additional profit centers that will hopefully improve the bottom line.
While there are many different directions an HVAC contractor can choose to go - offering everything from security services to pest control - most look to plumbing or electrical as natural extensions of the services they already provide.
ECONOMY AND OPPORTUNITYAt Brothers Heating, Cooling, Plumbing, Rock Hill, S.C., the economic downturn provided the perfect opportunity to expand the business. According to CFO Jamie Robinson, the company had considered adding a plumbing department for several years prior to the downturn but did not move ahead until a slowdown in business forced them to rethink their strategy.
“The economy tanked in 2008, and we had to let some of our HVAC guys go as a result. We had customers who were asking if we offered plumbing, and we had empty trucks sitting out back that were already set up for service, so we decided the time was right to start a plumbing department,” said Robinson. “People thought we were crazy.”
The plumbing department officially opened for business in April 2009, spurred on in part by information Robinson and his colleagues had been gathering over the years at Nexstar meetings. “We would be sitting in a room full of plumbers, and they would be talking about their operational procedures, and there wasn’t anything different than what we were doing from an HVAC standpoint. We started running numbers to see if we could make this work and asking, is the opportunity out there for us? We decided there was.”
Before getting started, Robinson sought the guidance of the plumbers at Nexstar, relying on their expertise to advise him on what kind of equipment to buy, as well as how much everything would cost. To his surprise, Robinson discovered that the company already had most of the equipment needed and only a small investment in drain machines was required. In addition, about $3,000 worth of inventory was required for the one-and-only truck that would initially provide service.
Finding qualified plumbers was the next step, and fortunately, the company already had someone on staff that could help out. An existing HVAC technician was trained in his family’s plumbing business, so he became the first official employee in the plumbing department. Another existing employee previously worked for the municipal water company, so he became the go-to guy for jobs that involved water mains. The company added a master plumber when it bought out a local one-man shop.
With the equipment and plumbers in place, marketing the new plumbing department became the next challenge, and it was handled in two phases. In the first phase, a direct mail piece was sent to existing customers, and the technicians also began to cross-market during service calls. “It’s really easy during a service call for an HVAC tech to tell the customer, ‘We’re doing plumbing now, here are the services we offer, and we’d appreciate it if you’d give us a call if you need any plumbing help.’ Or he can say, ‘I see this faucet is leaking, would you like me to schedule a plumber to come out and take care of it?’”
The second phase involved re-branding the company, and that took a little more time and money. “We were already heavily branded as an HVAC company, so we had to rebrand ourselves as a plumbing company as well. We did that by putting starbursts on our trucks that said “Brothers Does Plumbing.” That way we wouldn’t have to change the whole truck wrap. After that, we did some TV and newspaper ads, e-blasts, and direct mail for new customers.”
The marketing piece has definitely been the most challenging part of adding the plumbing department, said Robinson. “Plumbing is totally different from HVAC, in terms of marketing. You have to really think of plumbing as being more level. It is harder to make the phone ring from day-to-day, because weather does not influence plumbing the same way it does with HVAC. It took us a little while to get our arms around that.”
After about a year in business, the plumbing department at Brothers became profitable, and today it makes up about 21 percent of the company’s gross revenue. The department has also grown, with 13 plumbers utilizing 12 trucks to run residential service calls. To accommodate the growing department, Brothers built a 9,300-square-foot addition that houses the plumbing and HVAC departments, as well as inventory. Robinson noted that the poor economy also resulted in a great time to build the addition, as it came in at $100,000 less than the original estimate that was given prior to the downturn.
All in all, Robinson is very happy with the decision to add a plumbing department, and his only regret is that they didn’t do it sooner. “It was a great move. I would recommend it to any HVAC company that is looking for an opportunity to not only attract new customers but to add money to the bottom line.”
GIVING BUSINESS A JOLTAppleton Campbell Inc., Warrenton, Va., specializes in residential service for plumbing, heating, and air conditioning and will celebrate two milestones this year: 35 years in business and the addition of an electrical service department. According to marketing director Heather Appleton, the decision to add electrical service was a result of popular demand.
“In addition to receiving calls asking for the service, we have a customer base of over 9,700, and we wanted to add this service to further assist those homeowners. We have had our electric license for some time, but we did not start the department until April of this year because we were waiting until we found the right person to lead the field in that area.”
That right person was finally found this year, and he will be the sole electrician to start. Appleton noted that since the company takes a lot of pride in its employees, its work, its commitment to customer service, and its community involvement, they took their time to find the right person who had the necessary knowledge, as well as an appreciation for how the company operates. Several other employees on staff have limited electric service backgrounds as well, so they will be able to help out in the new department.
The electrician will be able to utilize an existing vehicle, and the current administrative staff will handle the new department, as well as field staff the company plans to add in plumbing, heating, and air conditioning service. The company’s largest upfront expenses will be stocking the electrician’s vehicle and paying his salary while waiting for the marketing plan to kick in and make the phone ring.
Appleton credits Quality Service Contractors (QSC) with helping the company make this bold step into electrical service. “QSC has really helped us grow our service department over the last few years. They have helped us with policies and procedures, marketing, and industry partners that help with inventory. In addition, they have an email list that all business owners and managers can utilize to post questions and/or comments about the industry and its happenings.”
With everything now in place, Appleton believes their current customers will embrace this new service. “We are adding electrical service into our current marketing such as newspaper, direct mail, magazines, and website. Hopefully this will result in the department being profitable fairly quickly.”
WHEN OPPORTUNITY KNOCKSFor over 50 years, Stan’s Heating and Air Conditioning Inc., Austin, Texas, has specialized in residential and light commercial new construction, replacement, and service, and last year the company added plumbing service to the mix. Plumbing was deemed a necessary addition in order to make the company’s geothermal business run more smoothly, as a plumber would be readily available to make the water heater connections. In addition, homeowners kept asking why Stan’s couldn’t replace their water heaters, given they were already the vendor of choice for their other mechanical systems.
While adding a plumbing department made terrific business sense, it did not come about as a result of extensive planning and research. “As HVACR contractors, we are in the opportunity business, but we tend to think of that as the opportunity to sell,” said Stan Johnson, president. “Opportunities come along in other forms as well. In this case, a person applied for a job having worked in residential HVAC and plumbing. He had a state-required master’s license, and after he worked for us awhile, I asked him to consider moving into plumbing service. We discussed a compensation plan that would reward him for his efforts, and the plumbing department was born. As contractors we need to be prepared to evaluate all opportunities.”
Before making the move into plumbing, Johnson spent time observing the candidate who would eventually become the company’s plumber, and he also asked advice of wholesalers, many of whom specialized in both HVAC and plumbing. Stan’s invested about $1,000 in infrastructure to get the new department up and running, and the plumber was able to utilize an extra truck that the company already owned.
Stan’s plumbing service department currently works within the confines of the existing service staff. If the plumber works in conjunction with add-on/replacement, the time is transferred between departments until growth will eventually support a stand-alone department. Even though the plumbing department has not reached the status of an independent department, Johnson noted that the work is definitely profitable. “Planned growth done in a methodical way can make growth not so expensive.”
Given that the company’s plumbing service is designed for a specific clientele, there has not been much need for marketing. In fact, Stan’s just recently started advertising the new department, and a local DJ provided some help by giving testimonials about the company during his radio show. “We just renewed ads in the phone book and included plumbing ads for the very first time,” said Johnson. “In addition, during routine maintenance checks or demand service, our service techs are to inform customers of observable plumbing problems and refer them to our plumbing department.”
As of today, the company still has just one plumber, although with business increasing, another plumber may be added soon. “Planning in this case was opportunity. Keep your eyes and ears open to and for opportunity, as it may show up in unexpected ways,” said Johnson. “Once opportunity is identified, look at the pluses and minuses to make sure this is the opportunity for you.”
Publication date: 06/06/2011