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66df9e7217240181c9c0e80f Strategic Cost Management

Cutting Costs, Not Culture

Sept. 30, 2024
Evaluate essential vs. non-essential expenses, and seek your team's ideas on cost-cutting. Do NOT reduce wages!

As we get ready to head into shoulder season, the election, inflation, & recession are adding financial pressure this off-season. Leads are down, while contractor appetites for more are up, resulting in higher lead costs because of supply and demand. Not everyone will win the lead battle, despite possibly spending more money. Less leads spread across the same number of contractors creates downward price pressure in the market because of higher capacity with lower demand. Bottomline: We need to do more with less.

The typical first reaction is to cut costs, but HOW?

It used to be that whoever controlled the marketing controlled the market, but as the industry labor gap widens every year that’s evolving into "whoever controls the labor controls the market". You don’t want to lose qualified people in the “cost cutting” process. You must balance traditional cuts with increasing operational efficiency to achieve the same or even better results.

Things we don’t want to cut during belt tightening:

  • Marketing – cutting when you’re short on leads will only result in a bigger shortfall, starting a spiral effect
  • Pay Rates – don’t mess with people’s pay, because they are receiving “unofficial offers” from your competitors all the time
  • Employee Benefits – basically the same as cutting pay rates
  • Training – competency is crucial to improve job times, reduce callbacks & warranties, and increase satisfaction
  • Quality –


Ask Your Team for Ideas

Transparency is crucial to prevent spooking your team. They’re feeling financial pressure and chances are they know you are too. Simply share what you’re seeing and ask for their help. One of the best approaches is to ask, “If you were in charge, what are the first three things you would do to save money or increase efficiency?” Your team usually already knows where the leaks are, especially for their area of expertise. You might have to prime them with some examples, like “What if we booked just one more call per day?” or “What if we ran one less callback per week?”

Ask your team, 'What are three things you would do to save money or increase efficiency?'

Parkinson’s Law, originally written by British naval historian Cyril Northcote Parkinson in 1955 states “Work will expand to fill the time available to complete it”. An alternate version also states “Expenses always rise to meet income”. Parkinson’s laws are key to cutting costs without cutting your culture.

Evaluate essential versus non-essential expenses and processes. Some low hanging fruit include:

  • Travel & entertainment budgets
  • Customer or employee “swag” budgets
  • Excessive recurring meetings (always have an agenda & time limit)
  • 100% in-person meetings (leverage technology to do as much remote as possible).

The easiest, fastest way to reduce costs and boost sales is reducing lost opportunities. How many incoming calls are missing? How many inbound calls aren’t booked? How many calls are reclassified as non-opportunity? How many tasks/job are sold? Just go sit with the folks who answer your phones for 1-hour/week and ask questions in-between calls. Do the same thing with your dispatcher or service manager doing tech debriefs. Note; make sure you’re actually debriefing, not just letting techs add notes into your CRM without accountability.

One huge opportunity to save and increase efficiency is unapplied time. Do your techs/crews start & stop at the office daily? Do techs travel during peak traffic times or get scheduled to avoid them? Is the lead coming in daily to pick-up his helper aka Apprentice Uber Service? Does everyone in the office work the same or staggered hours to increase live availability without additional costs? Similar for field techs, staggered to be more available with less OT? Do you send a 2-man crew to complete 1-man work? How many calls are completed in 1-visit versus requiring follow-up? Go observe the am deployment process firsthand; smooth, unofficial parking lot meetings, tardies, etc?

Operating Excellence Procedures

No plan is actually a plan to fail. Standard operating procedures are mini-plans for major types of work; I call them OpX’s as in Operating Excellence. Do you have them for major recurring jobs? Do they include typical timelines, materials, programming and configurations? How do you know they’re being followed? OpX’s reduce direct labor and material costs, while also cutting warranties & callbacks. Job costing in a vacuum tells you one story, while job costing with OpX’s helps you ensure margins AND improve your efficiency. What types of work consistently runs over? Follow the labor to follow the money.

Reduce sales skus because it’s more efficient than selling the manufacturer’s entire product lineup: less to stock, easier to train. Streamlined production kits. Negotiate special pricing or quantity discounts on 2-3 core skus with higher prices on the other stuff. Most distributors use a blended cost model, so they can manipulate margins by product. Also, by increasing costs on the non-core skus, your prices will be higher, making them less appealing for your team to sell than your core 2-3 skus. Inventory engineer some projects to blow out stock that’s been hanging around for more than 60-90 days; convert iron into cash.

Most distributors use a blended cost model, so they can manipulate margins by product.

Shop for discounts. Put your general insurance out for competitive pricing. Agencies will educate you on essential vs non-essential and shop your package hard to earn your business. Make sure the incumbent knows they will not get “last look”. Do the same for employee benefits, vehicle wraps, fleet repairs, uniforms, etc. And, meet with your material and equipment suppliers, tell them that you’re evaluating everything, and you need them to get you their best pricing, plus ideas how to save money. They know best practices from your competitors in the market, and while they can’t tell you directly, they can shine light in places for you to possibly save.

Six words that will cost you big time in this process are, “We’ve always done it that way”. When it comes to cutting costs without cutting culture, you will need to avoid that type of thinking. Remember that little things add up to big results, so don’t rule anything out until you see how it fits into the whole.

 

About the Author

Tom Casey | Mentor, True Legends Consulting

Contracting Business HVAC Hall of Fame member Tom Casey, Jr. is  the "Been There, Done That" Mentor for True Legends Consulting, Ponte Vedra, FL. He can be reached at [email protected]