Blue Ocean Strategy

I recently read an article, the “Blue Ocean Strategy” in the Harvard Business Review, that focused on this very premise. All business industries compete. Most use the “red ocean strategy” where they compete in existing “bloody” marketplaces and benchmark off of each other to the point where businesses are all the same. In contrast, blue ocean strategy states that “they make the competition irrelevant” by creating stronger differentiators.

State Law

Seasoned veterans of the HVACR industry know that waste routinely requires special handling. We’re all familiar with state and federal requirements dealing with refrigerants. But, did you know that all mercury thermostats removed from commercial structures need to be recycled, and that more than 12 states now require all mercury thermostats be recycled? Even where it’s not required, it’s common sense, as mercury thermostats contain at least 1,000 times more mercury than compact fluorescent (CFL) bulbs.

Why not take a proactive approach and earn some money while doing it? You can distinguish your business from competitors through a new value-added service with minimal cost to implement. This will require the contracting business owner to train his or her staff on how to evaluate a job that generates waste needing special disposal, create a billable invoice line item, and be transparent to the homeowner on the charge. How would a contracting business do this?

Calculating Return on Investment

The first step is to determine what to charge for the service. Return on investment (ROI) is an important tool for making decisions regarding a job’s profitability. You want to invest in the resources that provide the greatest return. This is no different than selecting jobs you want to quote. The basic ROI percentage calculation is:

ROI % = (Net Profit before taxes / Investment) x 100

Let’s say the job you are quoting has a mercury thermostat and a condensing unit needing disposal and your net profit is $1,000, whereas the total investment cost to do the job equaled $10,000. Your ROI percentage would be 10 percent or (($1,000/$10,000) x 100).

But let’s say you were to charge $100 extra on the job as an add-on to your quote because they had materials that required your disposal expertise, such as refrigerants, scrap materials from the condensing unit, or a mercury thermostat. Your ROI percentage on this particular job would be 11 percent or (($1,100/$10,000) x 100) with the extra $100 contributing directly to your investment costs to perform the job. Seems rational to me to ask for a little more to provide a value to the customer.

Contractors charge add-ons for financing, extended labor coverage, maintenance agreements, and current promotions from the equipment provider. Here is your chance to build in another opportunity for more profit.

Train, Sell, Recycle, Repeat

Training your sales staff can provide an easy differentiator, especially when you are competing against a low-cost competitor. If the homeowner doesn’t want to pay the fee then you have the choice to waive it. The fact that you sell this service demonstrates your commitment to your local community to do the right thing, and you ease the homeowner’s fear by proving your HVAC systems expertise. And, as an added bonus, you’re protecting the environment.

Recycling Profits

Explicitly dealing with the disposal of special waste can benefit your business’s reputation, credibility, and, most importantly, profit. Recycling helps protect the environment and business, which means you have a positive public reputation in the communities in which you serve. Wouldn’t the contracting community all benefit if we added another reason for the consumer to choose HVAC businesses instead of the low-cost alternative?

Mercury thermostats and R-22 will eventually be a thing of the past. But, until they are all gone, make sure to help your business earn more profit by charging for your service. Next time you see a product on your job that requires special disposal, don’t think how much this might be a waste of your time, but think how much extra profit you will earn on the job. What would you do if you could make $150 more on every job that includes replacing a mercury thermostat? Your golf bag will be grateful.

Publication date: 8/18/2014

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