Ruth King Counsels News’ Contest Winners on Growth, Profitability
Last week, The News introduced readers to Don and Jennifer Bowen, the owners of Bowen Refrigeration, Heating and Cooling. As the winners of The News’ “So You Want to Grow Your Business?” contest, the Muskegon, MI, business was chosen to receive six months of free consultation by Ruth King, president of American Contractor’s Exchange.
After reviewing the company’s business infrastructure and meeting with the owners and employees, King noticed one area for immediate improvement: The company needed more residential and commercial service agreements.
Her premise? If the Bowens wanted to grow their business, they needed to increase their customer base — and service agreements were the logical first step.
A detailed summary of King’s recommendations to the Bowens appears on page 38. In the weeks to come, The News will follow the company’s progress to see what impact King’s advice has made to the company’s bottom line.
Ruth King’s Advice to The News’ Contest Winners[EDITOR’S NOTE: The following is a summary of Ruth King’s advice to Don and Jennifer Bowen, the co-owners of Bowen Refrigeration, Heating and Cooling, the winners of The News’ first-ever “Do You Want to Grow Your Business?” contest. After meeting with the owners, the service technicians, the installers, and the office staff, as detailed in last week’s article, “It’s More Than a Simple Game,” King made the following recommendations to help Bowen Refrigeration expand its business and increase its profitability.]
The way to grow your business is through service agreements. What we need to do is to build your base from a standpoint of service agreements and make sure that you concentrate both on residential and commercial agreements.
We agreed to a goal of 300 to 350 agreements by the end of 2001 for residential and another 50 agreements by the end of 2001 for commercial agreements. For every job you sell, give the customer a service agreement. [That way] the customer gets used to seeing you out there twice a year and is likely to renew his agreement at the end of the year.
For customers that you already have, when they call in for service or a checkup, Rose [Matteson, who handles incoming calls] starts the process. Since most of your customers are not agreement customers, she’ll be asking the question, “Do you get a discount on this call or do you have to pay full price?” Most customers are going to ask, “Well, how do I get a discount on this call?” The answer to that is, “We have energy saving agreements that will help you save money on your utility bills and give you discounts on service calls. The technician will explain it to you when he gets out there.”
That’s all Rose has to say. If the technician does not bring up service agreements when he is out at the customer’s home, you can be sure the customer will, because he or she wants to get a discount on that call. It’s really critical that Rose starts the process by asking this question.
If she knows the customer does have a service agreement, then she says to the customer “Oh, Mr. Jones, you get a discount on this call because you are a service agreement customer.” This resells the agreement and reminds the customer that there is value in the agreement for him or her. So, these are the things that Rose has to start.
For every three customers you talk to who have the potential to purchase a service agreement, you should get one customer to purchase the agreement. It’s about a 30% purchase rate. So, the service technicians should not feel bad when they get more no’s than they get yes’s.
Customer SurveysFrom a commercial standpoint, you’ve got to be out doing surveys. The goal is to send out 25 letters per week and do two surveys per week. Once you do two surveys per week, you should be closing on average one new commercial service agreement per week.
Each dollar in service agreement money from a commercial perspective should bring you two to three dollars in either service or replacement work. This will take a little bit of time to sort out. However, within a year to 18 months this is the ratio that you should expect.
One of the keys to commercial service agreements is that you are happy to maintain the equipment for the price that you give them. However, to bring the equipment up to a maintainable condition, you do that work on a time-and-materials basis. So, for example, if the coils are filthy, they need to be replaced, blower wheels are out of alignment, etc., those service items are fixed on a time-and-materials basis. Then you will maintain the system at the price that you give the customer. This is critical to understand for commercial because it is very different from residential.
Obviously, to get the service agreements done, you have to choose a service agreement form. The commercial ones you do individually and the residential ones are printed. The reason being is that commercials are generally individualized with different equipment and different needs than the “cookie cutter” residential.
Pricing and InventoryYour pricing is OK both from a service agreement standpoint and service rate standpoint. I would suggest that you use the parts multipliers. Also, please add a $5 shop materials charge to each service ticket. Once you get the service tickets reprinted, put that on the service tickets themselves. The inventory issue will be totally resolved when you look into and purchase a new accounting package. Look into KRS [software] and see whether you like it. I think it would be appropriate for your size business. However, the final decision is always up to you. Make sure that you open up an interest-bearing account so that Jennifer can put all the service agreement money in it. This will become your “rainy day” account to be used for purchasing additional trucks, payroll if the need should arise, or any other thing that you might need cash for. [Encourage the office staff to] set up bona fide survey appointments; at that point you have the opportunity to look at the equipment, find out its condition, and give the customer a proposal on what you’ll be doing from a service agreement standpoint. Please make sure that Rose is calling to let the customers know that a technician or installer is on his way and that the customer should expect them. I realize that this hasn’t been done in the past; however, it was an issue with the technicians and installers. I look forward to helping you grow and watching you succeed.
The News will include updates on the Bowens’ progress in upcoming issues.
Publication date: 05/18/2001