It seems every aspect of running an HVAC business has become more expensive this year. HVAC manufacturers increased the cost of their equipment, in some cases by double digits. Gas prices topped $3 in many parts of the country. Prices for basic supplies, like sheet metal and lumber, are reaching historic highs. At some point, HVAC contractors have to pass these costs along to customers.
“We have no choice but to pass it on,” said Phil London, senior account executive for Thermal Concepts Inc. in Davie, Florida. “When you add in the tax and the margin we need, it’s a lot of money. For heavy-duty commercial equipment, it’s considerable.”
A customer recently contacted London about moving forward on a bid from February. It priced the system at $7,300, and the customer wanted to know if London could lower that. He explained Thermal Concepts now sells that system for $8,000, but he would honor the original quote.
“The market is so volatile that there’s no telling when the prices are going to go up,” London said. “And what adds to the problem is the equipment availability is shrinking. It’s not a good mix.”
Commercial clients understand prices are rising on many goods and services, he said. They can also pass along some of the extra costs to their end users. Residential customers have no one to pass the cost to, making price increases more difficult in this market.
Focus On Monthly Payments
One way to lessen the blow is by offering finance for a project. That’s how the auto industry works. A recent survey by Kelley Blue Book found 60% of new-vehicle customers were unlikely to delay a purchase even though they expected higher prices. A main reason for that is most of those purchases are financed.
Ally Bank has been financing auto sales for decades and has been financing HVAC sales since last year. Greg Cicatelli, head of enterprise home improvement sales at Ally Lending, said consumers today think in terms of monthly payments. This is true even for those who can afford to pay cash.
“Never pre-judge a consumer,” Cicatelli said. “Just because you see a couple of nice cars and the house is in a nice neighborhood, don’t assume they’re going to pay cash.”
Some higher-income consumers face debt constraints. Others have better uses for their cash and prefer spreading a major expense over time. In the end, it’s all about cash flow, Cicatelli said.
This helps contractors compete with smaller operators that sell on price, he said. That’s why HVAC contractors who arrange financing should offer to do so on every presentation to a customer.
Offer Increased Value
Offering finance is one way to increase the value an HVAC contractor presents to a customer. There are other ways and HVAC contractors always need to find ways to do so, especially in a time of rising prices, said Steve Coscia of Coscia Communications Inc.
Coscia said contractors and their staff need to be upfront with their customers about rising equipment prices and then find a way to increase the overall value. This might be adding a feature such as a microbial filter.
Some customers will always opt for a lower price, but others will pay if they perceive a greater value, Coscia said. That requires a contractor’s staff present their products, services, and staff in way that conveys this message.
“If you want to be the contractor that charges more, you’ve got to look like it,” Coscia said. “You have to sound like it. Your employees need to behave like it.”
Another way to overcome consumers’ price concerns is by offering options. A good-better-best approach makes the consumer feel as if they control over the situation, said Rodney Koop, founder and CEO of The New Flat Rate. The bottom option doesn’t have to be the lowest priced unit in the market. It just needs to seem reasonable to consumers.
“Perception is power when it comes to pricing,” Koop said.
Control The Costs You Can
EACH BOLT: The cost of everything involved in an HVAC project, from equipment to supplies to the gas to get to the job site, has increased this year. (Courtesy of Thermal Concepts)
It’s important to remember that the equipment is only part of an HVAC system, he said. A contractor who takes a whole-house approach that includes the ductwork can make a less-expensive unit function better than a higher-priced one.
Higher equipment costs are only one of many higher costs HVAC contractors face these days. London said permit fees are another, as cash-strapped cities look for ways to raise revenue. Many of these are out of an HVAC contractor’s direct control. That makes controlling what they can more important, Coscia said.
Many contractors have efficiency issues due to poorly trained or unmotivated employees, he said. An investment in training could help lower the costs these inefficiencies create. For example, dispatchers could learn to ask more and better questions before sending a technician to a job site. This could be as simple as finding out how easily accessible the equipment is.
“The efficiency issues result in a great loss of profit,” Coscia said.