If you live in a city that has a booming new home construction market, you are in rare company. The slowdown across the country has altered business activities from builders to the subtrades. Many HVAC companies that normally don’t dabble in anything but new construction have been full tilt into the residential replacement market this past summer - which can sometimes be a recipe for disaster.
Being able to make a profit in this industry has always been an interesting dichotomy. Those that have the knack for new construction are often not able to transition that same business acumen to the replacement market. The same holds true for those who usually make a good living in replacement - residential new construction (RNC) is no picnic.
Everyone is familiar with the nuances of the RNC market and of the perceived obstacles to success: “builders only want the cheap stuff,” and “you can’t sell up because you can’t talk to the owner,” are two that may often come to mind. However, there are many HVAC contractors that have mastered the art and risen above the cheap commodity approach that is often associated with RNC. Tempo Mechanical Services of Irving, Texas, has been winning industry awards and national recognition as leaders in the HVAC business while the bulk of their work is from new home construction.
Still, as one contractor friend so aptly stated at a recent breakfast meeting, “The new construction guys are coming out of the woodwork.”
New construction has been so slow that I was able to land one of the best custom builders in the Cleveland area to handle a basement remodel - something which he would ordinarily never have the time for between his multimillion dollar houses. So it has also been with the HVAC contractors who are looking to fill some dead space. Replacement work, which has been off their radar screen for years, is suddenly more attractive. After all, everybody has to feed the bulldog, and mama needs some new dancing shoes.
WELCOME TO THE PARTYAs is often the case when the dance floor begins to fill up, people start bumping into one another and a few toes may get stepped on.
In the vernacular of my breakfast buddy, “All the hard work that it takes to begin lifting customers’ [pricing] expectations in a market can go right out the window with a couple of slow business cycles.”
I can foresee my inbox piling up with e-mails from disgruntled contractors that will take exception to my inference that RNC guys are bad for business. But, the fact of the matter is, they can be if they don’t adjust their business strategies when they decide to go after the replacement sector.
CROSS OVER TO THE OTHER SIDEIf I remember any of my basic HVAC business training at the feet of some RNC contractors, most have a different accounting procedure than those contractors focused upon replacement.
Short-term crossovers between vastly different markets can wreak havoc on your bookkeeper’s psyche, and eventually the red ink begins to flow on your profit and loss statements.
Large commercial contractors often tell me that they shun residential work like the plague, accept for special requests from commercial building owners who occasionally want some help on the home front. Most residential contractors won’t bid a process piping job at a manufacturing plant. I wonder if the reason is that both groups realize that it is too difficult to serve two masters?
True enough that a house is a house, whether it’s newly built or if it has been on the block for decades. (Well, that’s almost true. Tighter home construction has changed the landscape tremendously.)
However, before you decide to make a radical change in your business approach, you may consider that switching from RNC to residential replacement can be like going from night to day for your company. The accounting requirements, the pricing strategies, and the customer interactions may all be different.
You may not be overly concerned with stepping on a few toes as you sashay about; but when you decide that you really want to learn the mambo, take a dance lesson.
Publication date: 10/01/2007