Contractors Prevent Callbacks From Eating Away Their Profits

June 29, 2009
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As HVAC contractors get into the busy cooling season, many are hoping to gain financial ground. True professionals know that doesn’t always mean running as many calls as you can; rather, it means running as many calls as you can without creating callbacks, which can eat up profits quickly.

Some manufacturer warranties are getting longer again, and these too could impact contractors’ profitability, since many installation errors lead to long-term system problems rather than dramatic, rapid failures.

In order to prevent both short- and long-term problems from occurring, contractors can take advantage of quality installation and maintenance training, such as the guidelines available through the Air Conditioning Contractors of America (ACCA).

“Our training, dispatching, and management attitude is making the difference,” said Larry Taylor, president of AirRite Air Conditioning Co., Fort Worth, Texas.

WARRANTY VS. CALLBACK

Contractors draw distinctions between warranty and callback work, and they define them similarly. For Taylor, a callback “is directly related to a labor or mental error on the installer, technician, or other labor-related issues that are directly under the control of the person. A warranty is directly related to the product, equipment, etc., that is out of the direct control of the person.

“Returns are related to in-warranty parts, excess supplies, etc., that are being returned to the manufacturer or other vendor.”

For Raymond Isaac, president of Isaac Heating & Air Conditioning Inc., Rochester, N.Y., HVAC warranty work is costly compared to the way it’s handled in other industries. “If you look at an installation callback, our industry is not like the automotive industry. We’re not getting paid for it. We only get paid for parts.

“We’re foregoing the opportunity to do another call, plus gas, vehicle, labor, and loss of confidence by the customer. It’s all those things. It’s a lot more than just the cost of the part.”

The contractor has responded in part by selling extended warranties. “We sell that as an add-on to the warranty.” It offers the contractor an opportunity to up sell to an agreement that includes maintenance. “It keeps the guys busy, locks in the customer, and the marketing dollars don’t have to be targeted to them.”

The contractor tries to incorporate manufacturer warranties into its offering. “You can’t beat ’em,” said Isaac. “You’ve gotta join ’em. Customers want to know that they’re covered, that you’ll be there when they need you, they’ll be comfortable, and it’ll be efficient.

“You’ve got to sell on the benefits, not the feature. The warranty is a feature.”

Isaac stresses the importance of “some sort of qualification or verification that the system has been installed properly in the first place, and diagnosed and serviced properly.” He points to QI, QC, and NATE certification. “It should be required by the manufacturers. A lot of times it is the installation that causes the greatest variation. When they drop that unit off, it’s going to do what it’s designed to do. We are the greatest variable in the delivery mechanism to the consumer.”

Even in cases where a part might malfunction from the get go, proper system installation testing can detect it before it becomes a problem that affects customer confidence. “We can sometimes correct that before a problem occurs,” he said.

Getting manufacturers to tie their warranties to quality credentials will require “a trailblazer,” Isaac said. “It’s a risk for them, and it’s going to take a bold step.” However, having these requirements in place may prevent the government from stepping in, which could happen in the current initiatives to reduce energy consumption. “They already know that the installation and quality affect efficiency.”

Improved customer confidence would also improve a manufacturer’s image, Isaac said, and reduce warranty returns.

Ray Isaac’s company uses checklists as one of its ways to prevent callbacks.

REDUCING CALLBACKS

“Our callback rate has gone down over the years as a direct result of our increased training and education,” said Taylor. “The higher the training, the lower the callbacks.”

It’s also directly related to supervision and dispatching, he added. “We don’t try to kill our technicians and production department field folks with constant pressure to hurry in order to squeeze in an additional call. We find that when they can work to make the unit run properly and satisfy the customer, we have fewer problems.”

When it comes to the true cost of callbacks, “in general you not only count the direct labor and payroll expenses, vehicle expenses, and lost revenue opportunities, but also the negative good will caused by a callback both on the customer, team member, dispatchers, accounting, etc. This number will get very large very quickly,” Taylor said.

“If you are a flat-rate contractor, the dollars of lost opportunity can be huge.”

“I believe we are experiencing fewer callbacks based on our productivity reports,” said Ken Bodwell, chief operating and financial officer for Innovative Service Solutions, Orlando, Fla.

He cited two reasons for callbacks:

1. “Putting a technician without the knowledge or tools to do the job right the first time;

2. “Rushing the technician while he is on the job,” though this could be something a technician does to himself.

“We spend a lot of time training our technicians and attempting to develop an attitude of pride in their workmanship and a job well done,” said Bodwell. However, “We work on some very old, complicated industrial refrigeration systems that we often feel have been repaired the first time, only to have another component in the same system fail. That’s a callback, but a chargeable one.

“The question is, did the technician look far enough or wait long enough to truly say the problem was resolved? This is the rushing aspect. Did he have another call, or was it late and he wanted to get home?”

Several years ago, this contractor decided to notify field supervisors or service managers whenever a possible callback occurred. “Our policy is to try and send the same technician back, but by running the callback in front of the supervisor, he may elect to speak to the tech before he goes back, or meet him at the site. Either way, the technician understands that this call is being looked at by the client and ISS.”

Based on productivity, callbacks represent about 0.5-1 percent of labor hours, Bodwell said. “These are calls where we absorb the cost of a second trip, whether it’s justified or to minimize client pain. What is not in this percentage is the supervisory time that might be required to correct or the additional administrative time internally.

“We only get paid for doing it right the first time.”

At Isaac Heating and Air, technicians are graded on their callback rate. “If they have a certain amount of callbacks, it will affect their percentage increase,” Isaac said. Grading is performed monthly, so problems can be addressed and there are no surprises.

THE TRAINING FACTOR

Training and certification can have a major impact on callbacks. It can be readily tied into employee incentives that pay for themselves in reduced nonbillable labor.

“About a year ago, being a Lennox Professional Contractor, we started participating in their online training and tracking program offered to us under our partnership agreement,” said Taylor.

“We place an incentive program of four hours/month or more for the team member and receive a $50 incentive. The person with the most hours per month receives an additional $50, and the trainer of the year receives a $300 incentive.

“The team members are taking this opportunity, and we have seen a complete attitude change in the want to of learning,” he said. “It has gone above and beyond the dollars; they are overall more inquisitive and curious about this knowledge base they are building. The old saying, ‘The more I know/the less I know’ is proving true. They have become a learning machine.” In addition, their paperwork is better, their customer skills have improved, and their ability to solve problems without calling their supervisor has increased, Taylor said.

“Now our challenge is to keep new and additional information and opportunities coming to them,” he continued. “Overall, this is a great win for them and the company.”

“Training is an ongoing way of life,” agreed Bodwell. “We slow down our training in the summer, but we pick up our onsite visits by managerial staff. As technicians come to recognize that their path to the future is paved by knowledge, experience, and a willingness to improve, they reach out for training.

“It takes a while for young technicians to get a balance in their lives between continuing education, work, and raising families,” he acknowledged.

“New techs are like teenagers. They think they know it all. Once they grow out of that mode and stop competing with senior technicians for attention, they become sponges for knowledge. With that comes pride and fewer true callbacks.”

The refrigeration contractor approaches training “the same way you eat an elephant - one bite at a time. Allow them to dig in and digest a small portion. We will teach one or two components in a system and allow the techs to play with it by putting in problems to troubleshoot. We use old units and turn them into trainers. We may take the line voltage circuitry one week and controls another week, or we may break control circuitry into several weeks. The key is to let techs learn at their pace and grasp for more info.”

Up in Rochester, Isaac University is a four-year in-house training program that utilizes QI startup sheets and promotes NATE certification. “I think we have one of the highest specialty-per-tech averages in the country,” Isaac said. “I’m sold on NATE. If nothing else, it’s a credentialing process. They want to get certification.”

The company’s “Perfect Service Call” also has helped considerably by utilizing checklists and procedures regularly. “Airplane pilots always go through a checklist,” Isaac pointed out. “The more intelligent a person becomes, the more they need a checklist.”

QUALITY BOTTOM LINE

Programs like ACCA’s QI could be utilized more extensively to improve callbacks and warranties, our contractors pointed out. “In 2007, we participated in an Energy Star for Existing Homes installation project where we installed systems into 10 homes meeting the ACCA QI/QC installation guidelines,” said Taylor. “Since the commissioning of these systems, other than for preventative maintenance, we have not had a complaint or callback on these jobs. Thus, all the warranty reserve we set aside for installations has been returned to the bottom line of the company.”

The contractor sets aside 2 percent of the sales price for this reserve. “The amount of additional time to meet the requirements was around 2-3 hours for testing and balancing, etc. This additional cost to the job on the front end is minor compared to the warranty reserve recovery we had.

“We continue to install our systems under these guidelines, and continue to find huge reserves coming back to the bottom line,” Taylor said. “If this continues, we will be adjusting our reserve percentage downward,” potentially making the contractor more competitive from a price perspective.

“Any of the quality install or quality service programs are great tools,” said Bodwell. “We implemented the ACCA programs because they set the bar very high. We all know we aren’t going to clear it every time, but the point of setting a high enough measureable objective is really the key. We don’t beat a technician or take wages away if he has a callback, but we do train him and put an emphasis on the call.

“If manufacturers would provide a training incentive, rather than penalize a contractor for a callback, that’s reward enough,” Bodwell said. “Manufacturers need to recognize that contractors cannot send every technician to their plant for a week, or even be out of the field for a week.”

“We’ve adopted a checklist similar to the QI to make sure we are doing a good, quality installation,” said Isaac. “A lot of contractors are doing that now; the QI spec is setting the bar high.”

There are major differences between a professional contractor and “somebody who just throws a furnace in,” he said. “We have to look at NATE and QI fitting into this. I know [manufacturers] are hesitant, they don’t want to put up barriers. But with a better quality job, their image improves, there are fewer warranty claims, and a better pool of contractor-partners out there. The installation is a big part of it.

“Manufacturers need to increase the quality control. I’m sure they have tests and checklists in the factory. This is just an extension.”

He advises professional HVAC contractors to adopt QI and get NATE certification. “It’s a whole new initiative for your company. It can be counter-cyclical to weather-related business.

“Quality takes commitment and has an upfront expense with a back-end reward,” said Bodwell. “Manufacturers can put a small percentage in for training, set a goal for lower warranty claims, and when that’s met, offer a rebate or something. They will recover the cost in reduced warranties. What they cannot do is restrict access to equipment by forcing costly training up front.”

Safety also ties into it, Isaac pointed out. “When you’re cognizant of what you’re doing, your safety will be affected too. Just adopt a higher standard of what you do. It’s a trickle-down effect to everything else.

“I think manufacturers should be setting requirements,” he said. “We should be distinguishing between people doing it right, those who aren’t doing it right, and those who are just selling on price.”

Publication date: 06/29/2009

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