The two most important ingredients in the profit improvement formula are your people and their performance. Use the money from your price increase to hire and train the most talented people you can find. Let’s say your average replacement sale is $6,000, and you sell 300 jobs per year; a 2 percent price increase would generate $36,000 annually to help you hire the best candidates.

REDUCE YOUR UNAPPLIED LABOR

Unapplied labor is caused when technicians get paid without generating revenue in return. Non-billable time is typically added to overhead, where it drains profits. The most obvious cause of unapplied labor is callbacks to correct the original problem. The best way to reduce callbacks is to hire and train the most talented techs you can find. Top techs troubleshoot faster, repair quicker, have fewer callbacks, and create happier customers. Career-focused techs tend to gravitate toward the company that provides the best salary, benefits, and training.

The seasonality of the on-demand HVAC service and replacement business is the chief cause of unapplied labor. Service agreements have always been the key to flattening the peaks and filling the valleys created by mild weather. When business gets slow, your techs get paid to get their customer’s comfort system ready to run reliably and efficiently next season. When your current customers are taken care of, you create room in your schedule for new customers when the weather turns bad.

One way to sell more service agreements is to develop a brochure that explains all the benefits homeowners receive when you properly maintain their HVAC equipment. Your benefits brochure gives your techs a much-needed tool for a much-needed service. All techs want to help, but most don’t want to sell. Techs just hand the brochure to customers at the start of the service call and offer to answer any questions after the repair is completed.

REDUCE OVERHEAD

When you reduce overhead by $1, your net profit improves by $1. Most HVAC contractors can reduce their overhead by over 1 percent without any negative consequences. The first step is reviewing your weekly unapplied labor report. The better you manage unapplied labor, the more your net profit improves.

The processes you use to run your company are the next most important ingredient. Ask every support team member to list, item by item, the jobs they perform and how long each step takes. Analyze every process and determine how well it complements and interconnects with all the other processes. Determine what can be improved or eliminated to save time, money, or frustration. Don’t be surprised to discover Parkinson’s Law: Work expands to fill the time available for its completion. Could one person do the job of two? Could you use a 1099 sub to cover peak workloads? How can technology be used better? It is usually more profitable to pay overtime during peak periods than to pay unapplied labor when business gets slow.

IMPROVE YOUR CLOSING RATIO

The quickest way to improve your profits is to close more sales without adding overhead. “Closing” isn’t an event at the end of a presentation; it’s a process that engages buyers and builds trust throughout the sale. Depending on your current process, it’s possible to increase your companywide closing ratio by 10 percent or more by changing to a more customer-friendly focus.

Choosing the right sales process is one of the most important business decisions management will ever make. Without sales, nothing else happens. Look for a sales process that teaches the skills and provides the tools and confidence required to sell better comfort, close more sales, and generate referrals.

MANAGE GROSS PROFIT

Gross profit (GP) is the money remaining after subtracting the job cost from the sales price (sales price – job cost = GP). GP is the red light over the goal that tells when you hit your profitability target. Every time you fail to score immediately, determine the cause. Sales skills? Estimating skills? Equipment problems? Rising costs? Poor leads? Accounting skills? Billing skills? Fraud? Delivery problems? Once you learn why a job lost money, you’ll know how to fix it. When you make your weekly gross profit report your go-to management tool, expect another big boost to your bottom line.

Publication date: 10/1/2018

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