Profiting From Residential Forced-Air Zoning
In a two-story home, for example, there are two options for providing zoned heating and cooling: Install two HVAC systems to heat and cool each zone, or install one system with zoning using dampers.
There are three different ways to win a job and ensure a good profit using zoning (versus someone who's bidding two systems):
1. Pricing the job normally.
2. Pricing the job to be close to the price of the two-system bid.
3. Pricing the job to be close to the price of the two-system bid, but including indoor air quality (IAQ) accessories/add-ons in the bid to lock out the competition.
Figure 1 gives a comparison of the standard equipment costs for two systems in a home, versus those for one system in a home with zoning. The cost to the contractor for all the standard equipment includes the price of condensing units, fan coils, furnace placement slabs, furnaces, electrical circuits, condensate pumps, refrigerant line sets, programmable thermostats, and man-hours. Also, the price of the zone panel, transformer, and zone dampers is included in pricing for the one system with zoning.
In Option 1, the cost to Contractor A (two systems) totals $5,820. The cost to Contractor B (one system with zoning) is $4,501, for a difference of $1,319.
When the contractor's gross profit margin is added in - in this case 35 percent for both contractors - the customer would have to pay $8,954 for two systems, versus $6,925 for the one system with zoning and a higher-efficiency system, which is a difference of $2,029. Contractor B would win the job by having a lower price than Contractor A - but Contractor B would be leaving a lot of potential profit on the table, according to Gordon Holmes, Indoor Air Quality product manager, White-Rodgers, part of Emerson Climate Technologies.
BEST OF ALL WORLDSIn Option 2, Holmes said, there's another way Contractor B can win the bid and raise the profit made on the job: by raising the price that the customer pays to a few hundred dollars below what Contractor A is charging for the job. Suddenly, Contractor B is making a gross profit margin of 50 percent; 15 percent more than he would have made in Option 1.
Not only is Contractor B making a higher gross profit, he is also offering a higher-efficiency system, which will also help in closing the deal.
At this point, said Holmes, because the bids are close together, it'll become a bidding war between the two contractors. "You don't want to have that happen. That's the last thing you want to have happen."
Instead, he indicated the best strategy for Contractor B: In Option 3 he raises his price so that the bid is still lower than Contractor A, but include IAQ accessories and add-ons.
"There's enough margin in there for them [contractors putting in one system with zoning] to put an electronic air cleaner and a UV lamp for microorganism control. They could even put in a humidifier and still make more profit than their competition. The contractor makes 10 percent more gross profit than putting in two systems, and he wins a customer for life through maintenance agreements.
"But the beauty that we look at is, if the cost is $8,954 with zoning and they have added those accessories - electronic air cleaner, humidifier, UV lamp - and the competitor wants to try and get that job, he can't drop his price to $8,954 because he still has to add two electronic air cleaners, two UV lamps, two humidifiers to the package. There is no way the two-system guy can compete because his cost will double for everything," said Holmes.
"When the customer needs new UVC lamps, filters, or humidifier pads, where do they go? Back to you, the contractor who supplied the IAQ accessories and with whom they have a service agreement. It's a win-win for both the contractor and customer."
While these may not be the exact figures that apply to your business, you can take the worksheet, plug in your numbers, and do the math for yourself to see how much profit you could earn using Option 3.
IN PRACTICEGary Parr, president/owner of HVAC Direct To You, said that while the profits are good for him when installing zoning, they are even better when the third option is utilized. HVAC Direct To You performs mostly new construction work, but because the company works with customers building their own homes, Parr is able to talk to them about equipment selection and maintenance agreements.
The gross profit percentage can be considerable, he said. "If you've got them under a maintenance agreement, and you've got a UV light in there and you've got a media filter or an electronic filter in there, UV light bulbs need to be changed on a yearly basis, the filtration also. I think that when you start looking at that, if you can keep that customer for life, that's where your money's really made."
In addition, he can offer some of his customers yet another benefit that the two-system contractor can't offer at a competitive price: a third zone.
"If the capacity allows for you to put a single unit in as opposed to zoning with dual systems, or a complete separate unit, then I can, in some cases, give him [the homeowner] three zones there for not much more than what two zones would cost because of the configuration of the control board and the actual dampers themselves.
"I've given him now three zones, as opposed to two zones with dual units, and I've given him a total IAQ package," said Parr.
GIVING CHOICESWhile gaining customers for the long term is a goal for contractors, it all comes back to making the customer happy by making him comfortable in his home. Toward that end, Parr not only offers different IAQ accessories, but also different choices of each accessory.
"I give them the benefits of each one of those options. I let them ask me questions and I'll explain to them why they should do that. What I find in my new construction business, a lot of times, is they'll say, â€˜What would you do in your house?'
"I offer the media filter, then would offer the electronic air filtration system too. You've got two levels of choices there."
Parr also talks with the homeowners to find out what their IAQ needs are, to determine what accessories are best for them.
"I really talk to them and ask them questions. â€˜What type of environment are you living in now? What are the things you're experiencing now? Do you or your wife or your children have any allergies that you experience having to maintain the indoor air quality and keep those allergens from causing a problem?'
"So we do that stair-step approach to get to whatever filtration system is the best for them." By doing what's best for your customers, you can do what's best for your bottom line.
Sidebar: Speaking of IAQGary Parr, president/owner of HVAC Direct To You, talks not only to customers about HVAC, he talks to anyone who cares to listen to him - literally. He does this via his radio program, "On the Air," which is broadcast 4 p.m. to 5 p.m. Central time on Saturdays from Houston station AM 700 KSEV.
"We talk about indoor air quality, we talk about sizing a system. We talk about everything about air conditioning."
The show gives Parr the opportunity to educate the public. "There's so many myths and misnomers in this industry. We're doing our job and our part to try to set the record straight in a lot of cases."
To listen to the show on the Internet, go to www.ksevradio.com. To download an MP3 file of the previous show, go to www.garyontheair.com
Publication date: 05/15/2006