Relationship Skills: Examining the HVAC Distributor/Contractor Dynamic
“Why do we do it? I’ve been in the industry 32 years,” said Scott Ritchey, vice president of Plumbers Supply Co. in Louisville, Kentucky. “In the last five to six years, margin erosion for distributorships has really escalated. Prices keep lowering to compete, and driving out folks. You have to look outside the box with these strategic alliances.”
The “it” in this case isn’t the goal of working hard to succeed in the distributor business or even joining forces with other distributors. Ritchey is talking about the measures and programs his company invests in with one objective: assisting HVAC contractors in building and maintaining their own successful businesses.
Perhaps that isn’t entirely surprising from a man who published a book with Gary Kerns this summer titled, “Make More Money: 12 Profit Pillars for HVAC Contractor Success.”
Reaching Ritchey on his cell while on the road with his team’s operations manager, Cameron Lantz, it became clear that Ritchey has indeed put significant thought into the current landscape for the HVAC contracting business.
Ritchey starts with the organizations that he calls “mega contractors.” The ones that are doing “just fine, thanks.” These comprise maybe 15 percent of the entire contractor base, he estimated, generating between $2 million and $30 million in annual revenue. Quick references follow to comparatively huge contractors in large metro areas — Phoenix, Washington D.C., New York.
“The first thing they all recognize? There’s value in selling service agreements,” Ritchey said. “Distributors should be encouraging this.”
But that’s more of an observation than anything Plumbers Supply works with directly.
The typical contractor, as Ritchey said, “is not a marketing guy, not a business/finance guy. So basically, how do we bring value-added services beyond the normal services?”
The answer has been to build strategic alliances with other vendors who will provide useful information and assistance to contractors in ways that Plumbers Supply doesn’t provide itself.
“Example: None of these guys knows how to design a website.”
And yet, pretty much even the smallest outfit needs a website. Add a contractor on unfamiliar ground, and what happens next is understandable and predictable, Ritchey said.
“They hire some outfit, they get burned because content isn’t refreshed, etc.,” he said. “If they aren’t doing search engine optimization (SEO) management or pay-per-click campaigns ... then the website is irrelevant.”
Plumbers Supply connects its distributors with web vendors it has vetted. They can teach contractors things like the basics of a budget for SEO and pay-per-click efforts, so that the contractors might build some true, successful lead generation from their web presence. Ritchey makes a point to be wary of the terms of service issued by certain larger, legacy information brands who have moved into the website business. In Ritchey’s assessment, that can be a bad risk because of things a customer might not realize initially. Depending on the terms, the website host owns the site, not the contractor. If the contractor leaves the arrangement in the future, he said, not only does the website’s content disappear, but all the accumulated (and valuable) site traffic data does too.
While the internet remains at the top of many marketing to-do lists, physical mail marketing isn’t dead, either. The company connects contractors with firms that assist with direct mail marketing campaign as well.
The most surprising service that Plumbers Supply offers to local contractors might be the most fundamental: a Business 101 class.
“We run one every one or two quarters,” Ritchey said. “We teach them the math and terms they need to know (with regard to small business operations). They get a sheet with benchmarks of the industry that they can take to their CPAs [certified public accountants].”
The accountants provide the info about their specific situations, and the contractor can bring it back. The result is real data and useful analysis about their businesses, giving contractors a perspective on what’s happening (and how it compares to others) that many may not have ever had before.
The natural question at this point is, “And how much does it cost?”
“For website design, we help them through the process with the web designer and co-op the cost,” Ritchey said. “Typically, the website runs $3,900. Our marketing programs offer a retail value around $14,000 for a dealer investment of $2,500.”
Contractors could do some comparison shopping for those services. As opposed to checking out vendors from scratch, part of the value here, presumably, is the built-in connection to a vendor that contractors know their distributor is willing to stake some credibility on.
That assortment of services can work great as added value for contractors. However, part of what the phrase “added value” implies is that a company is already delivering value. Ritchey described this buy-in of first-level functionality as “table stakes.” In pursuing excellence at delivering that much, he offered three basics of the Plumbers Supply strategy that other distributors or even contractors might see as the basis for some adaptation in their own businesses.
1. Top 250 items guaranteed in stock for general HVAC. If a customer finds that one of these most popular 250 items is out of stock, they get a gift card, and Plumbers Supply tracks the error. While it reads like a consumer enticement on the surface, the real value may be internal. Ritchey reported that since undertaking this policy, the company’s fulfillment rate on the 250 list has gone to 99 percent. Why? The fulfillment team is being measured.
2. “Delivering On The Promise” or DOP campaign. The company makes a financial guarantee to contractors: 100 percent order accuracy. This helps contractors avoid over-promising to their own customers. Or worse, getting the wrong furnace, in which case everyone is unhappy. That mistake costs everyone more time, the customer more comfort, and the contractor both money and goodwill.
“Now, in the real world, human error is going to come into play,” Ritchey said. “But this is an olive branch. It says we’re sorry about the mishap, there’s a $25 gift certificate coming to you, and we’re going to get the right furnace out to you. That takes the temp down a little bit. And the contractor says, ‘That’s nice, but what we really wanted was the right furnace the first time.’”
With that mistake, the best thing to do with it is figure out how to prevent it from happening again.
Plumbers Supply tracks and measures errors, investigating how they happen and making corrections or improvements wherever possible.
Part of the solution may be as simple as posting performance results. Employees see the scoreboard and try to avoid seeing their own names appear.
According to Ritchey, his company is the only company making that promise in his market, and it helps the team move toward 100 percent accuracy.
3. Orders ready. Plumbers Supply works to give a guaranteed pickup time when the order is placed.
“If a guy calls in at 9:00 a.m. with a five-line order, we can do it by 9:15 a.m.,” Ritchey said.
However, the value can develop on larger orders.
“If you give me a 100-line order, that’s great,” he added, but that obviously takes a bit longer.
Setting an accurate pickup time enables contractors to avoid sending someone over too early, wasting company time and money. Guarantees to customers that actually serve to improve team performance, and a strategy of ensuring the distributor’s success by going the extra mile to enhance contractors’ chances … it’s a nuanced approach that might seem a little inside-out at first, but the payoff seems to be finding its way back around just fine.
SPEAKING OF ORDERING ...
Remember Cameron Lantz, operations manager? He’s still in the truck and on the phone call. A lot of the conversation has focused on what distributors can do for contractors, but when the topic turns around to what contractors can do to improve the process when working with distributors, he has some observations for the reader’s consideration.
Ordering online helps by freeing up more resources at the counter to take more calls. Wise contractors, Lantz said, will also manage the timing of when they send that request.
“The better contractor orders his equipment four days in advance,” Lentz said. “He’s more organized. He sells more high-end and specialty. We have 14 locations across other states, and he knows that. So he schedules accordingly, and that helps us serve him better [by having lead time to retrieve what he wants from any other locations], as opposed to the walk-in who needs it right then.”
Then there’s the contents of the order itself. A lot of distributors will offer ordering tools for contractors. “System match sheets info pricing and parts … this saves back-and-forth in the process and makes everyone’s life a lot easier,” Lentz explains. “It’s all AHRI-rated [Air-Conditiong, Heating, and Refrigeration Institutute]. The guys who do look at that match sheet, they avoid comebacks and stress, unapplied time, etc.”
Finally, Lentz said his team gets a lot of use and efficiency out of pre-built quotes. Contractors might have to spend 30 minutes to do it once the first time, he said, but then “they call in and don’t have to give us 100 items. They call in with Job X and name their list, then they come in two or three hours later, and it’s ready.”
Publication date: 12/3/2018