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- EXTRA EDITION
They are your competition. Whether you like them or not, they will always be a part of your environment.
So how do you compete in your neighborhood?
Is cost cutting ever justified?Richard Dean, president of the Air Conditioning Contractors of America (ACCA) National Capital Chapter and partner in Environmental Systems Associates of Columbia, Md., answered yes.
“Certainly I tell my customers there are times of the year where there is more room to negotiate than others,” he said. “If I had mechanics standing around in the shop in the middle of winter, then I would look at negotiating.
“We guarantee our mechanics a 40-hour week and no layoffs. For that reason I would have to cover my overhead. I would always like to make a profit, but I can never afford to not cover my overhead.”
Richard Almini, president of the Linford Service Co./GroupMAC, Oakland, Calif., said, “Cost cutting is a fact of life and often a requirement to maintaining good relations with even the most conscientious customers.
“Cost cutting can be a good thing if it comes as a result of smart engineering and creative thinking for our customer.
“We try to emphasize the concept of ‘total cost of ownership’ when discussing hvac replacements and maintenance costs with our customers,” he continued. “When a building owner finds it necessary to cut costs, we believe it’s our responsibility to educate them that lower first cost can often mean much higher long-term costs in terms of energy, maintenance, downtime, and shorter equipment life.”
Jim Norris, GroupMAC chairman of the board, replied that although saying no to cost cutting is the easy answer, in real life the easy answer is usually wrong.
“Nobody ever wants to cut their price on a job because they know they really can’t cut their costs,” he said.
“Will our supplier take a lower price for the equipment and materials we need on the job? Will our landlord take a lower rent this month? Will our insurance company accept a lower premium this quarter? Will our field personnel take a pay cut?
“Obviously the answer to all these questions is, not a chance! So if we can’t reduce our actual operating expenses, how can we justify selling work at less than it costs to perform it? If a job is priced fairly, the only wiggle room is in the profit margin. And in real life, it never makes sense to trim the profit margin down.”
Norris added that trimming the profit margin might be necessary if a contractor wants to ensure future work with a customer or wants to keep the technicians working. However, he goes on to say, “In our current market, where the work supply generally exceeds the labor supply, it almost makes no sense to take jobs at anything less than your normal profit margin.”
Roger Grochmal, chairman of Atlas Air Conditioning, Mississauga, Ont., Canada, said that long-term relationships are an important consideration when cutting costs.
“We will not cut costs to reduce the quality of the installation,” he said. “This would place us in conflict with our overriding goal, to create a lifelong relationship with our customer.
“We are always looking for products and process improvements that will allow us to reduce our costs [and] we usually share the savings with the customer.”
When to 'cut bait'Bobby Ring, executive vice president of Meyer & Depew Co., Kenilworth, N.J., said that the easy answer is to cut loose when you know you can’t make any money doing the job.
“We recently bid a job for $67,000. Another contractor was hired for the job for $27,000. We saw the job when it was completed and we’re happy that we didn’t do it. I wouldn’t have done the job he did for even $67,000.
“I like sleeping at night. If you have a backlog, then you have to stick to your guns and get your price. We’ve had a substantial backlog this summer due to the heat wave. Price has not been anywhere near as important as when the job will be done.”
Hank Bloom, owner of Environmental Conditioning Systems, Mentor, Ohio, has three simple responses to the “cut bait” question.
“You let a job go to a competitor when the customer or buyer is lying to you about pricing,” he said. “You let the job go when specifications are not attainable. And you let the job go if it’s not a win-win for the customer and the contractor.”
Richard Dean believes that if you think you can’t please the customer, no matter what you do, the best thing is to let someone else try and do it.
“A customer [who had accepted his bid] called me less than 24 hours before we were to begin the project and said he had gotten a lower bid than the one I submitted and he was giving the work to that guy,” he said. “In that case I was happy to let the work go to another company.
“This customer was reasonable but very demanding. I wasn’t sure I would have ended up with a satisfied customer even if I had lowered my price. You can’t afford to keep a customer like that because it is like bad advertising. They’ll tell others about their dissatisfaction.”
Roger Goertz, president of Aire Serv Heating & Air Conditioning Inc., Waco, Texas, agrees that customers looking for low bids are the ones to avoid.
“When the customer is price shopping, let the competitor have them,” he said. “If a customer is only interested in price and not the value of the item, the professional approach to selling the item, the professional approach to installation, the on-going service, and maintenance, etc., then let them go.
“If you know the experience the customer receives from you is worth the price you charge, then why prostitute your business, employees, and profits?”
Roger Grochmal uses a “Class A” definition when determining if a customer should be let go. “We have a clear definition of a Class A customer. This is someone who values good service, has work that we do, and cares that we make a profit.
“If we have a customer who is trying to drive down the price of a job to get to the lowest possible price without regard to our Class A criteria, we let him go.”
How not to competeJim Norris said that ignoring your competition is very important.
“The thing not to do is to acknowledge your competition,” he said. “They are really not part of your sales offer to your customer. If the client brings up a competitor, we’ll shift the focus back to their needs and our solutions to those needs.
“We get work because of a special blend of quality, timeliness, reputation, value-added features, unique benefits, and price. Those are the specifics to focus on in a sales presentation.
“If pushed on the subject, it never makes sense to downgrade the competition. The best course is to say as little as possible and be as non-judgmental as possible.”
Like all other respondents, Bobby Ring said it is best not to belittle your competition.
“We don’t knock our competition,” he added. “We point out our differences. For example, we have technicians on call nights and weekends and the phone is answered 24 hours a day, as opposed to having the phones answered by an answering machine.
“We prefer to let our clients know what we do and not focus on the other guy. Then they can ask the competition if they do the same things as us. The best they can say is, ‘Yeah, we do that, too.’”
David Williams of Kropf Service Co., Detroit, prefers to deflect the discussion from his competitor and focus on his own track record.
“Never criticize the competition,” he said. “Sell the customer on your quality workmanship, that your price is right, and that you will stand by your work. If you present these statements properly, the prospect will wonder why he hasn’t used you all along.
“I would rather explain my proposal and its costs before the job, rather than make excuses after the job and why the customer is not getting what he expected.”
Hank Bloom believes in covering all of the bases, even if it means talking truthfully about the competition. “Never downplay a competitor except if it is a last resort and you have guaranteed third-party responses or evidence of their weaknesses.
“Differ your company from the competition. Show lifecycle paybacks, integrated systems, and eliminate finger pointing. Talk about taking full responsibility for the job.”
Harry Friedman, general manager of N&M Heating & Cooling/Blue Dot, Sarasota, Fla., advised, “Do not leave the customer’s home without thanking them for including you in the group of potential providers. Ask them to keep the door open for you to come back and see them before the final decision is made.”
Richard Almini makes sure that all of his employees know how to deal with their competition: with respect. “It is written in our company mission statement that we will not bad mouth our competitors, and we expect the same of them.”