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    Spend the right amount on marketing and earn a pile of money in return.

    HVAC Contractors Should Spend How Much on Marketing? Are You Crazy?

    July 11, 2014
    Most small business owners — and HVAC contrctors count among them — invest 2% to 5% of sales in marketing. Since small businesses, by definition, have small amounts of sales, 2% to 5% results in very small marketing budgets. Small budgets tend to yield small results.

    This is no secret: most small business owners — HVAC contractors are among them — invest 2% to 5% of their sales in marketing. Since small businesses, by definition, have small amounts of sales, 2% to 5% results in very small marketing budgets. Small budgets tend to yield small results.

    Want better results? GO BIG!!!

    Less than 5% is small ball. Unless you are the biggest player in your market (and maybe not then), less than 5% won’t move the needle. If you only spend at this level, you will question the value of marketing, conclude marketing doesn’t work, and be absolutely correct in the sense that you are not spending enough to get results.

    Even 5% is only "maintenance" marketing. It’s the spending level that’s only justified for companies with a large, mature customer base, stocked with service agreements, and little desire for fast growth. Five percent will help the large contractor milk the existing customer base with replacement for lost customers and a little growth coming primarily from referrals. Five percent maintains market share. It doesn’t expand it.

    To increase market share, to grow, the rule of thumb is to spend 10% of sales on marketing. Few HVAC contractors hit the 10% level. In other industries, even other service industries, 10% is actually still considered below par.

    Twice a year, Duke University, the American Marketing Association, and McKinsey & Company, survey marketers from the Fortune 1000, Forbes 200, AMA Members, and marketers with connection to Duke. The CMO Survey, last completed in February, found that marketing spending for business-to-consumer services companies averaged 11% of sales. Companies smaller than $25 million, spent 13.9% of sales on marketing.

    So a marketing budget equal to 10% of anticipated sales will help you grow, but not grow rapidly. For rapid growth, go big. Spend 20%.

    Few companies spend 20% on marketing. In a survey of the CMO Council membership (different from The CMO Survey), only 2% of members spent 20% or more. Among contractors, the incidence of companies spending 20% or more is likely to be far lower than 2%. Nevertheless, spending at this level is not unknown. There are growth-oriented contractors doing it.

    How Do You Pay For It?

    Finding the money is simple. Raise prices.

    Photographer: Shane_D_Rymer Collection / iStock

    Marketing is part of your overhead. If your overhead increases, raise prices accordingly. If you were spending 5% and want to increase to 20%, raise prices by 18% (i.e., 20% - 5% = 15%; (1 / (1 – 15%)) – 1 = 17.65%). For a $300 repair, your price would increase to $354.

    Will this cause your prices to be higher than your competitors? Probably. But that’s probably the case now when you consider your low price competition.

    Even if you find yourself charging more than everyone else in your market, so what? At the 20% level you will be able to build a bigger brand than the competition and consumers will pay more for a better known brand, which is perceived as a safer choice. This is why well-known brands cost more than generics.

    Think about your purchases. Contractors have much better pricing information about the products they buy than consumers have about the price of HVAC repairs and installations. There are contractors who spend a lot more than 20% to buy from certain manufacturers over others, or to buy products with more bells and whistles. They come up with call kinds of reasons to justify the price spread, claiming reliability is better (everyone in our industry makes reliable products), that consumers prefer the brand they sell (consumers could care less and will buy whatever brand a favored contractor recommends), and a couple of dozen other rationalizations.

    The fact is, contractors have much more information about things they buy everyday than consumers have about repairs purchased every few years, or replacements bought once or twice in a lifetime. If contractors, with everything they know, pay more than 20% for one product over another, why shouldn’t consumers with less knowledge, pay a premium for the safety of a well-known contractor brand?

    Stated differently, most contractor brands are tantamount to generics. Consumers will pay more for a known brand over a generic. It’s why people take their cars to garages, body shops, detailers, and window replacement companies that advertise heavily when they could save a lot of money with the shade-tree mechanic operating out of the dirty garage in the bad part of town.

    20% of Nothing is Still Nothing

    The late, great economist, Milton Friedman liked to point out that there was no such thing as a free lunch. Similarly, there is no such thing as free marketing. All marketing requires an investment in either money or time. If you are too small for 20% of your revenue to make much of an impact, spend 20% of your time.

    Contractors willing to devote time to personally promote their companies in their communities can make a huge difference. Get out there. Start networking. Join a civic club. Join a leads club. Get involved in your local chamber of commerce.

    Marketing and Growth: Putting the Pieces Together. Photographer: franckreporter Collection / iStock

    Try affinity marketing. Solicit organizational decision-makers for charities and other organizations supported by people with a stake in the organization’s success (i.e., a common affinity) to allow you to make donations to the organization when its supporters use your company's services, provided the organization promotes this to its members. To homeowners without a strong contractor brand preference, why not use the company that the homeowners' association (HOAs) backs because they financially support the HOA, keeping dues lower?

    Affinity marketing is beautiful because it piggybacks on existing emotional connections and does not require upfront financial investment. Like a commission, you only pay for business you receive.

    While affinity marketing does not require an initial financial investment, it does require an investment of time. It takes time to set up affinity relationships. However, it takes much less time to retain them.

    You can practice affinity marketing with PTAs, churches, HOAs, school booster programs, civic clubs, veterans groups, home and garden clubs, alumni groups, youth sports associations, and local charities. Any one organization with a hand out soliciting dues or donations or a need to fund raise is a candidate for affinity marketing.

    In addition to things like networking and affinity marketing, you can accomplish a lot simply by walking neighborhoods. If things are slow, take a stack of door hangers and put one on every door in a promising neighborhood. Or, simply knock on doors, smile, hand homeowners a business card, and introduce yourself as the neighborhood contractor. With the homeowner standing there, ask if he or she would like $25 off the next repair and write “$25 Off” on the back of the card and initial it. You will be surprised how much business this can ultimately generate, including change-outs because the homeowner has been procrastinating due to the ordeal most consumers believe is involved with finding a reputable contractor.

    20/20 Marketing

    20/20 vision is considered perfect, even though a few rare individuals have better than 20/20. 20/20 marketing where you spend 20% of sales and 20% of your time on marketing can lead to perfect marketing. However, your marketing budget needs to be spent in the right way, using the right media, with the right messaging, and the right brand strategy. Get all of that right (or mostly right) and you are going to find your biggest challenge will be marketing to technicians.

    Matt Michel, CEO, The Service Roundtable
    For a FREE Affinity Marketing Guide from the Service Roundtable, call 877.262.3341 and ask for one. You might also ask about Fast Track, a turnkey program to recruit and screen potential technicians, train them to start making money for you fast, and monitor their progress with reinforced training and motivation over the following two years.

    Matt Michel is CEO of the Service Roundtable (ServiceRoundtable.com). The Service Roundtable is an organization founded to help contractors improve their sales, marketing, operations, and profitability. The Service Nation Alliance is a part of this overall organization.