Four Barriers You Must Overcome in the Connected Home Business
The connected home ties together smart devices to improve utilities, energy management, and safety for homeowners. Currently, cable and security companies are the leading players, offering turnkey connected home offerings. Neither can address HVAC controls. Neither can touch the plumbing, meaning they can put in water alarms but cannot actually install the wireless shutoff valves. HVAC contractors, especially those with a plumbing division, are better suited than cable or security companies to offer end-to-end connected home solutions.
If the right business model is deployed, a connected home division can be extremely lucrative. It offers the equivalent of mailbox money or insurance residual income for HVAC contractors. Even better, the revenue will only grow over time and is unrelated to seasonal demand.
Since business buyers place a high value on subscription revenue, contractors’ exit strategies become much more appealing. At a minimum, every thousand connected home agreements should yield $250,000 in profit and increase the value of your business by more than $1 million.
If the opportunity is not enough, consider it as a defensive measure. The connected home is intensely interesting to a variety of heavyweight players, like Google, Amazon, and Home Advisor. Why? The connected home can become a service gateway, which means they control and sell the leads. These include leads to your customers. If they capture and control your customers through a connected home strategy, they stand to control your future. With your own connected home offering, you can protect your customers — you can fence in your herd.
A DIFFERENT ROLE
For decades, every manufacturer, distributor, alliance, and consultant has taught contractors that the money is in changeouts.
The role of service agreements is not profit per se, but to cover costs, keep trucks running in the off season, and tie the customers to the company for future replacements.
“Every service agreement is a future replacement” and “service leads to sales” are both mantras in the industry. Thus, contractors look to equipment for gross profit and maintenance for marginal revenue. With the connected home, this won’t work.
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The connected home business model is built around recurring monthly revenue (RMR). This is the goal. The equipment is the means. For connected home sales, equipment is typically only marked up enough to cover costs. The profit comes from the RMR. This is 180 degrees opposite of the way HVAC contractors typically approach the market, and some struggle to wrap their heads around it.
FINDING PARTNERS
To collect RMR, a contractor must find a partner who can provide cloud services for a home awareness Wi-Fi approach, where consumers receive notifications on their phone or partner with a security monitoring company. The partner should bill the contractor at wholesale prices. The contractor marks up the service and bills the homeowner. Without the right partnership, the business model falls apart as third parties collect the RMR (e.g., Ring).
Connected home solutions can be sold stand-alone or as part of a system replacement. There is a lot to be said for the latter. It can differentiate your solution from the competition that is offering straight heating and air conditioning. After all, what’s more exciting to a homeowner: an internet doorbell camera, door lock, and garage door opener, or an extra 2 SEER?
When selling stand-alone connected home solutions, it is necessary to partner with a consumer financing firm that can offer instant decisions for relatively low amounts — usually less than $2,000. People want to buy based on a total monthly payment. While the cable and security companies can self-finance, most contractors will offer a combination of a monthly payment for the equipment and a monthly service fee from the contractor for the cloud services or monitoring.
GETTING LICENSED
Lovers of occupational licensing who enter the connected home arena often change their tune … at least until they can secure the various licenses needed to offer the array of connected home products. For example, some states will require a security license, even if there is no home security, just awareness notifications to the homeowner. Some will require a locksmith license to install an internet door lock. Licensing requirements vary by state and even by locality. Before entering into the connected home market, it’s necessary to learn what the barriers are and how they can be overcome, or the entire business proposition may get put on hold soon after it’s launched.
ASSEMBLED PACKAGES
The connected home offerings are confusing to most consumers. Few are inclined to take a DIY approach, and those who do are likely to end up with siloed solutions. To reduce the confusion, contractors should assemble a limited number of packages that can be offered turnkey to consumers. Over time, they can add one-off additions. Developing the right packages will inevitably involve some trial and error.
CONCLUSION
Obviously, adding a connected home business is more involved. However, these are the four major barriers. Once these are overcome, everything else should fall into place.
Publication date: 7/9/2018
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