Building the Perfect Contracting Firm

January 24, 2001
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Perfect: The dictionary defines it as “lacking nothing essential to the whole, complete of its nature or kind; flawless, without defect.” If hvacr contractors could achieve perfection, they’d have no peers and no worries.

OK, you can wake up now. The creation of the perfect contracting firm may be beyond the reach of mere mortals, but The News’<.i> editorial team is going to help you try by gathering the thoughts of contractors and industry consultants. Some assembly is required, but you get an intriguing look at what the perfect contractor might look like.

By using these ideas to change or simply tweak some of your current business practices, you may not achieve perfection, but you will streamline your business and hopefully make it more profitable. The topics we’ll explore include:

  • Applying best management practices;
  • Finding your market niche;
  • Developing a corporate culture;
  • Making yourself extraordinary;
  • Instilling business ethics;
  • Becoming a marketing machine;
  • Fine-tuning your pricing structure;
  • Finding the best business location;
  • Qualifying customers;
  • Assembling an outstanding technician/installer team;
  • Hiring successful salespeople;
  • Implementing a training program;
  • Establishing a service agreement program;
  • Selling through referrals;
  • Following up the sale; and
  • Using trade association memberships to your best advantage.


  • Best Management Practices

    Contractor consultants Harry Friedman and Steve Miles agreed that having a business plan is essential for success.

    “As a senior manager or owner you must have a clear-cut vision of where you want to go and a plan of how to get there,” said Friedman. “Most of us would not take a trip to a foreign destination without planning, studying maps, and having a fair idea of what we wish to accomplish while traveling.”

    “There is a saying, ‘People don’t plan to fail, they fail to plan,’” added Miles. “You should have a guidebook that gives directions to your efforts, with step-by-step instructions on how to run your business and reach your goals.”

    Their ideal business plan would include:

  • Sales and revenue goals, which encompass profit level, the cost of keeping a truck on the road, prices to charge, value of the average sale, lead generation, a marketing plan, etc.;
  • Review and analysis of the plan to ensure its success and to make adjustments on a monthly basis; and
  • Use of the plan to forecast future income and expenses, and adjusting it to compensate for unexpected changes.
  • Miles said that a company’s annual operating budget gives “a barometer of how things are expected to progress on a month-to-month basis. A portion of your annual operating budget should be dedicated to marketing — anywhere from 3% to 7% of sales.”

    He also talked about the importance of having a fundamentally strong staff. “Once your foundation is in place, you must develop a sound structure of a technically qualified, friendly staff who are motivated to represent the best interest of your company. Make sure you hire the best and pay them what they are worth.

    “Also make sure your procedure manuals are simple to follow outlines of how every job is completed. They should be simple, concise, and dynamic.”

    “Your plan should include how you will manage your expenses to ensure that your hard work is not eroded by unmanaged costs,” said Friedman. In addition, your management team and front-line employees should share the same vision and the same goals.

    “Your top people must not only be able to manage, but be effective leaders,” he said. “They must be able to change their leadership styles depending on the situation and be able to recognize the situational change.

    “Managers must be constantly aware of the boundaries that they manage and know when it is time to ask for your help.”

    One way of ensuring the success of managers and staffers is to perform regularly scheduled performance evaluations for team members, said Friedman. He also said that exit interviews for people who are leaving the company are essential, as well as “skip-level” meetings between staff and the next higher level of management.

    “These meetings are an extremely effective tool to help all managers improve their skills and head off potential problems,” Friedman said.



    Market Niche

    Contractor consultants Jeff Stewart and Hank Bloom agree that finding a market niche is the foundation of a successful hvacr company.

    Stewart asked, “How can you find the best marketing tips without knowing your customers? How can you price your services without knowing your customers? How can you hire personnel without knowing your specific niche? How can you find a location without knowing your niche?

    “Pick your market niche first and the rest will follow.”

    He continued, “Why try to be the best installation company when you are already the best service company? I am convinced that most failed companies are those that don’t do what they do best and think they have to do it all.”

    Bloom set his sights on one niche. “We have decided to specialize in the design-build arena. When we can get to the owner or decision makers and show them the value-added lifecycle paybacks, they are amazed.

    “Our special niche is a complete hvac system supplied and installed by one company: us. This includes the automation and controls package to eliminate finger-pointing that typically happens on many jobs when there are multiple players. By single sourcing with us, we take full responsibility for the entire project.”

    Stewart, however, pointed out that having a niche and enjoying it are two different things. “Don’t get into a business niche you don’t enjoy or understand.

    “Find the successful contractors and you will always find a niche they have mastered.”



    Corporate Culture

    In the eyes of consultant Dave Dombrowski, all successful companies in any trade are based upon an identifiable corporate culture. He believes that successful companies have a culture that promotes honesty, ethics, and respect for coworkers and customers.

    “The perfect hvacr company is not just measured in profits and efficiency, but rather in what it contributes to both the industry and its community,” Dombrowski said. “Typically, an organization based in a solid moral and ethical base will be successful because it attracts honest workers and honest, loyal customers.

    “Allow your corporate culture to be based from the heart and not a balance sheet.”



    Extraordinary You

    Ellen Rohr, whose books and lectures help hvac contractors with the basics of accounting and pricing, said that making your company extraordinary takes a little imagination.

    “How do you create the perfect company? Lead people out of the ordinary to the extraordinary, she said. “Create a bigger game, a game worth playing.

    “People love to play games. Often these games are small and petty, like the who’s-to-blame game, the cover-your-butt game, or the I’m-right-and-you’re-wrong game. Create a bigger game and you can create the perfect company.”

    Rohr laid down the bigger game rules.

    “In your game, people win by telling the truth, for learning and applying new skills, for solving problems, for making money, and for fixing things. In your game, there are extra points for establishing trust, improving communications, and developing healthy relationships. The players know that things are done right or not done at all. Your customers, vendors, employees, and owners all end up better off than before the game began.

    “The game begins with your intent to create something extraordinary.”



    Business Ethics

    Consultant Scott Getzschman is a strong believer in good business ethics as the foundation of a perfect hvacr company. He uses his own company as an example.

    “Our company has been built on honesty and integrity,” he said. “As a business you must be able to follow through on every marketing piece. Your service technicians must represent your business with the highest integrity.

    “They must be able to diagnose problems, and be able to repair if necessary or present the homeowner with equipment options. You must warranty all repairs for one year and have a 100% satisfaction guarantee which you should adhere to under any circumstance.

    “You must realize that in order to build your business, you need your customers; they are the ones who write the checks.”

    Getzschman said it is one thing to stand behind your company and another to represent it well, too — another keystone to proper business ethics.



    Become a Marketing Machine

    Hvacr marketing-advertising consultant Adams Hudson advises a blended marketing platform for contractors, which includes specific dollar amounts and messages spread among the following media:

  • Newspaper — 33% of the total ad budget with 67% of that for response. The remainder is used for image or retention ads. “Get heavier just prior to peak seasons,” he said. “Forget Sundays and pay more for the right placement.”
  • Yellow Pages — 31% of total ad budget. Get the ad redesigned for lead generation. “Institutional ads do not work in the Yellow Pages.”
  • Direct mail — 16% of the total ad budget. Hudson recommended starting with a good list and dedicating 84% of the budget to direct response. “Save every lead you ever get,” he said. “Follow up to unclosed proposals and sell 7% of those for the cost of two stamps.”
  • Radio — 6% spent to “hammer” your name and to echo print offers. “Use drive times and don’t waste money on big coverage if it doesn’t fit you,” Hudson said.
  • TV — 4% on image with a response tag in the final eight seconds.
  • Newsletters — The most profitable 8% of the entire budget. “In-house creations are a lot of work and usually look amateurish,” he said. “Get a good syndicated newsletter with the hard work already done.”
  • On-hold messages — 1% or so, with well-written messages to use every second of sales time. “This is a fabulous image builder for not much money,” Hudson said.
  • Other — 1% on community papers, ad packs, partnered ads, or other alternative media.
  • “Now drop this over a marketing plan with well-crafted ads and watch your sales soar,” Hudson said.



    Pricing Structure

    Consultant Tom Lawson said that for his money, the best pricing structure is flat rate. Period.

    “I believe in flat rate, not only in service but also in installations,” said Lawson. “This enables both consistency and credibility with your customers. With flat rate you give high value to customers, and it helps stop the clock watching that they are inevitably going to be doing.

    “It also helps the technician to have less pressure on the job. Flat rate enables you to make a good profit margin on sales and installations.”



    Business Location

    Lawson added his opinion about the importance of a business’ location.

    “I believe in high visibility,” he said. “Retail locations are the best traffic areas. Being in a retail area makes it possible to add a showroom, where customers can stop by and kick the tires of a new unit. Contractors need to consider themselves as retailers and make their companies as visible as possible, even with a big sign outside that advertises on both sides.

    “Make the customer feel welcome to stop by anytime and look at the systems — to see how they and you operate.”



    Qualifying Customers

    Consultant Roger Grochmal said he believes it is impossible to serve all of the one million single-family detached homes in his marketplace. He wouldn’t want to anyway. He said that it was obvious to him, early in his business development, that he would only be able to service a small segment of his market.

    “We had two choices. We could do business with whoever happened to find us, or we could establish a set of criteria for our staff to follow that would ensure we obtained the subset of the public that we wished to do business with.”

    Here are Grochmal’s criteria for “Class A” customers:

  • The customer values service and is prepared to pay a fair price for that service.
  • The customer has a need for the work his company does. (“We don’t do everything.”)
  • The customer understands that his company makes a profit “so that we will continue to be in the business to deliver the service that he values.
  • “I present two introductory sessions for all new hires where we discuss this criteria,” he said. “The result is that over the years, we have attracted a very high percentage of Class A customers while ensuring that our competitors get the ones we don’t want.”

    Outstanding Tech Team

    Ed Dooley, vice president of communications for the Air-Conditioning and Refrigeration Institute (ARI), said that in order to have a perfect hvacr business, there must be an outstanding technician-installer team. Finding these types of workers today is a “special challenge.”

    “Employing NATE-certified workers is one approach,” he said. “Another is to use local training resources such as votech schools, ACCA, and RSES training programs as a sort of local farm team, to supply a steady stream of competent, eager, dedicated workers.

    “An hvacr company that forms a mentor relationship right on down to the high school level and even middle school will reap the benefits over time. Companies can use resources from the Internet and videotapes available to help educate young people about an hvacr career.”



    Successful Salespeople

    Consultant Jeff Somers said that 20 years of industry experience have taught him that more than 50% of new salespeople in the hvacr trade don’t succeed. He believes this is the result of a very competitive industry, which rushes to hire individuals who may not have the right personality characteristics to succeed in sales.

    “Several years ago, I was introduced to the concept of personality profiling,” Somers said. “There are several software packages available that quickly determine the core components of an individual’s personality and compare them to benchmark profiles of successful performers.

    “They break personality traits down to four characteristics: dominance, extroversion, patience, and structure. The optimal sales candidate would be high in dominance, high in extroversion, low in patience, and low in structure.”

    Somers broke down the characteristics of each trait:

  • Highly dominant people are confident, assertive, competitive, and results-oriented.
  • Highly extroverted people are persuasive, strong communicators, outgoing, engaging, and strong relationship builders.
  • Low-patience individuals are fast-paced, open to rejection, and eager for results.
  • Low-structure individuals are flexible, extemporaneous, quick thinking, and instinctive.
  • “Finding an individual with these personality characteristics doesn’t guarantee success, but it certainly increases your odds,” Somers said.



    Training Program

    The newest member of The News’ contractor consultants is Charlie Klapperich of Western Building Services, Inc./Comfort Systems USA in Denver, CO. Klapperich based his training program on a medium-sized company with 15 to 20 technicians.

    “Because of the various levels of technical ability in a service department, just one type of training does not work,” said Klapperich. “As a person progresses through this trade, the type of training and how it is presented needs to change.

    Level 1 techs [less than two years’ experience] should spend 12 months riding with field instructors and master-level technicians, assisting with all aspects of service calls. The mentor technician needs to instruct and enforce the basics.

    Level 2 and 3 technicians should attend medium- to upper-level classes with a lot of hands-on simulator work. Field technicians are hands-on-type people and learn best by sight and feel.

    “Classes should consist of approximately the following mix: 40% instructor/lecture lead, 50% hands-on with problem solving, and 10% open discussion. Master and instructor level techs need to work with the level 2 and 3 people in the field at least four hours per person per week.

    “Master level techs should attend upper level classes, computer-based simulation training, and oem technical classes from manufacturers. They should also be responsible for conducting classes and writing up craft assessment reports on technicians.

    “Instructor-level technicians will start attending management-type classes. This person will also need to keep current on all phases of technical crafts, so he or she will be able to mentor all levels of technicians and facilitate every level of training classes.”

    Klapperich asserted that training should not be limited to technicians, but should include all people in all departments.



    Service Agreement Program

    Consultant Aaron York said that the perfect hvacr contractor would have a well-managed and well-implemented service agreement program.

    “I learned qualities vital for a company’s success from Bill Blees, former president of Pontiac, Buick, and Oldsmobile,” said York. “He later became a consultant for Carrier and helped guide contractors into becoming professionally operated organizations.

    “He insisted that no company could be truly successful unless it did at least 40% of its volume in service. He further insisted that service contracts [agreements] are essential. I had always believed this, but he reinforced the fact that an hvacr firm should be built around the service agreement concept. This would include everything from the basic inspect, adjust, and lubricate, to the all-inclusive full-coverage agreement.

    “It would embody residential, commercial, industrial, and institutional systems and equipment. The agreements may be set for a small sum as the work is done, or they can be budgeted monthly, quarterly, or annually — or any variation of these. The important issue is that maintenance agreements must be a part of virtually everything we do.



    Referrals

    David Holt is an hvacr business consultant who helps contractors turn their businesses into “ultimate service companies.” He said that the perfect hvacr model should include referral selling — a “powerful way to build a business.

    “Referral selling is the most cost-effective, time-efficient, profitable, and enjoyable method available to build a business,” he said. “Referrals make it easier to reach prospects and increase the likelihood of making a better sale. You’ll enjoy substantially higher closing rates, increased average sale prices — and you’ll keep the crews busy all year around with little or no competition.”

    Holt said that relying on advertising media such as the Yellow Pages for gaining prospects is touchy at best. Referrals are a good way to circumvent the Yellow Pages route. “Prospects don’t want to try to figure out which guy to call out of the Yellow Pages. They’d rather learn about us from a referral.

    “When you rely on leads from Yellow Pages ads, you’re typically dealing with people who have an unplanned breakdown. Your prospect is usually skeptical of you and very tense. These prospects provide knee-jerk reactions, such as ‘Give me a ballpark price over the phone, or ‘drop me a bid in the mail.’”

    Holt said that referral selling also builds long-lasting relationships. “Referral selling is much more long-term and requires nurturing a solid relationship with the prospect.”



    Follow Up the Sale

    As a marketing consultant to the trade, Ruth King has suggested many ways hvacr contractors to improve their bottom line. One in particular is following up the sale.

    “Your customers write your paycheck,” she said. “It costs a lot of money to gain a customer. Why would you do work one time and not continue to contact a customer? Surveys show that over 60% of the people who don’t use your company again feel that you just don’t care about them.

    “A telephone call should be made after every service call and installation. Make sure that everything went right. Even if the system is fixed perfectly, the customer may not have had a good experience with the service technician or the installation crew. The only way that you can find this out is by talking with the customer.

    “Contact customers on a regular basis, at least twice a year, when you don’t want something. This can happen without a lot of effort on your part. Newsletters, apothecary jars, cookie jars, magnets, and postcards are just a few ways to stay in touch.

    “Commercial companies can send apothecary jars with their name and telephone number tastefully printed on the jars. Fill the jars with candy each month. Cookie jars given at the end of jobs sitting on a kitchen counter also remind a customer about your company. The jars provoke conversation with a customer’s friends or acquaintances and you might bet a referral.

    “At a minimum, every refrigerator should have a magnet with your company’s name and phone number on it. Think of the number of times that you open your refrigerator and that gives you an idea of the number of subtle reminders about your company. And if there is a problem, they don’t have to go to the Yellow Pages.”



    Association Memberships

    Consultant Tom DiPietro sees a lot of value in belonging to trade associations.

    “We belong to the Associated Builders and Contractors [ABC],” he said. “We’ve been able to network for jobs with the general contractor, and it has allowed us access to subcontractors in the trade.

    “ABC has been advantageous to us in the area of software, such as the construction accounting software we purchased through one of the associate members. Through the ABC Insurance Trust, we have been able to obtain medical benefits that are second to none. We are also involved in the areas of safety rules and implementation.”

    DiPietro also has high praise for the Air Conditioning Contractors of America. “ACCA has afforded us the opportunity to network with safety and building inspectors. They have conducted safety meetings and held classes in proper installation techniques, including metal and PVC flues. Education classes have also been held for our technicians.”

    Finally, DiPietro mentioned the Construction Financial Manage-ment Association (CFMA). “This association has given us the opportunity to network with construction people in various institutions, including bonding and accounting. We have also received education on financial matters unique to the building trades.”



    Did We Miss Anything?

    Are there other factors that could contribute to the perfect hvacr company? What has worked for your company?

    Let us know. We will publish your ideas in future articles. After all, we want our readers to have perfect hvacr companies — or as close as anyone can get.

    Hall is business management editor. He can be reached at 734-542-6214; 734-542-6215 (fax); halljr@bnp.com (e-mail).

    Publication date: 01/29/2001

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