When it comes to selling replacement parts, the general consensus ofThe News'Contractor Consultants seems to be this: While replacement parts are good for business, they shouldn't necessarily be considered as a major profit center for commercial or residential contractors.

"Replacing parts is profitable, but we do not encourage our service techs to become 'parts changers,'" said Todd Morgan of Comprehensive Energy Services Inc., Altamonte Springs, Fla. "Our commercial customers rely on us to properly service and maintain their equipment. Replacing parts should always be done to benefit the owner and not to bolster the contractor's bottom line."

Commercial Contractors

The commercial and industrial contractors contacted indicated that their companies did not stress replacement parts sales.

"We don't emphasize the re-placement parts business," said Jeff Somers of Monsen Engineering Co., a commercial/industrial contractor in Fairfield, N.J. "Many of our customers have the ability to purchase the parts at the same vendors we do, and often do. We add value with parts by installing them along with a service call or quoted project, as we warranty the parts and labor for one year. The only type of replacement parts we have a niche for is some automation products and specialty sensors used for laboratory fume hood work.

"I think that selling replacement parts to customers has problems in our marketplace. Typically you can't get a decent markup for the part if you sell it without labor, so you are lowering your markups to move the parts through your system.

"It also could allow the customers to start changing the parts without your services. I feel that service organizations should sell labor with the parts - as this is where we add value - and only sell replacement parts for specialty areas of your business."

"We put no emphasis on re-placement parts," said Mary Marble of J.A. Marble Co., Dearborn, Mich. "Because we service so many boilers, we sell a lot of gaskets, roping, gauge glass, etc., to our customers who want to replace their own. Our service dispatcher handles all of the parts orders - and very well, I must add."

News' consultant and commercial contractor Hank Bloom of Environmental Conditioning Systems, Mentor, Ohio, noted, "The only replacement parts we sell are from our service accounts. We have a lot of parts suppliers that would be very difficult to compete against, let alone inventory and taxes."

Residential Contractors

The consultants who sell and service the residential market offered varied opinions on the viability of selling replacement parts. While some contractors indicated that internal expenses, inventory concerns, and possible liability issues led them to minimize parts sales to customers, others stated that replacement parts sales amounted to a healthy profit center.

"We do have a small amount of walk-in traffic for filters, etc.," said Larry Taylor of Air Rite Air Conditioning Co., Fort Worth, Texas. "But for most parts, we tell them we don't stock them in the office - only on the service trucks, and then we offer to set up a service call.

"The times we have sold parts across the counter, customers have come back and wanted a refund because the part they bought did not fix the problem. We even have a big, two-inch-letter red stamp that says 'no return or warranty on any electrical part.'

"But then you end up with a fight in your office or they report you to the Better Business Bureau, and you end up giving it back. We prefer to stay out of that battle."

Arthur Pickett of Royal Air Systems Inc., North Reading, Mass., believes some trends by manufacturers have had an impact on the replacement parts business.

"We are residential add-on and replacement only, and we sell a service contract that covers parts and labor," he said. "This came about because of the five-year parts the manufacturers have been promoting over the years. The manufacturers don't even stock parts locally. Yes, it's nice when you can sell parts on an older machine, but parts sales are no longer a profit maker like 10 years ago. Even compressors have a 10-year warranty.

"The next step in this program is the manufacturers gearing up to have us sell A/C units with a free replacement unit if the compressor fails within 10 years. When will this become lifetime to the original purchaser?

"We do not sell any parts other than filters and media pads for humidifiers. The liability of do-it-yourself people is too great. We stock some small parts for Trane and Lennox, hot surface ignitors, inducer fan motors, a couple of boards, etc. - but only about $4,000 worth."

Ann Kahn of Kahn Mechanical, Dallas, said that her company does not rely on replacement parts for a major portion of its sales. "We encourage our technicians to identify and repair a problem, not to sell parts," she said. "I would imagine service parts can be a good profit center for those companies who encourage their technicians to sell parts by giving them a commission on sales, or for companies in locations that lend themselves to over-the-counter sales."

Steve Miles of Jerry Kelly Heating & Air Conditioning, St. Charles, Mo. has a different reason for not selling replacement parts.

"We don't sell replacement parts over the counter," he said. "For the low volume of sales to do-it-yourselfers, it would be a big headache to track for tax purposes. Since we are a service company, we pay sales tax but don't collect it because services (repairing or installing HVAC equipment) are not sales taxable in our state."

At least two News' consultants see replacement parts as a good profit center.

"I think they are an excellent profit center," said Russ Donnici of Mechanical Air Service Inc., San Jose, Calif. "Selling just labor on a service call is not a significantly profitable area. You obviously cover your direct and indirect labor costs, as well as warranty considerations, overhead, and company profit.

"We use a sliding markup scale, depending on the cost of the replacement part. We also track our parts sales and costs as part of our monthly P&L. Each and every service call is costed out showing gross profit and gross profit margin through our billing system.

"Having this information allows us to track or review the profitability of the specific customer and/or specific technician. These are management tools, and we don't share the technician profitability reports with the technician, since we don't want to have any external pressure on them to sell parts to meet a quota or bonus."

"Replacement part sales are very important to the profitability of our service department," said Tom Lawson of Advanced Air Conditioning & Heating Inc., Bossier City, La. "We encourage our techs to offer to replace parts that are worn, like thermocouples, contactors, and thermostats, if it is in the customer's best interest."

At the end of the day, one consultant said that contractors need to decide what business segments they want to pursue.

"Decide if you want to be in the parts business or the service repair/replacement business and then stay there," said Taylor. "It is a lot less of a problem if you can minimize the areas of liability you create."

Publication date: 10/20/2003