The off-season is upon us. When call volume slows, it’s an opportunity to make changes so you will make more money going forward. Here are six off-season changes that will boost your future profits.
1. Charge More For Service
Only one contractor in your market is the premium price leader. Unless this is you, there is room to increase your prices. Even if you are the highest priced contractor in your market, there is probably room to charge more… provided you deliver premium service, commensurate with your pricing. While any market has lots of cost conscious consumers (e.g., search for “people of Wal-Mart”), it also has people willing to pay more for better service. If not, all restaurants would offer $1 menus and high end hotels would disappear.
2. Flat Rate
Most contractor who read this will already change a flat rate for repairs. Flat rate does not expose your billable hour charge, which consumers cannot understand (i.e., they do not understand the amount of overhead necessary to operate a service business that can place a well-stocked truck and trained, professional at their door when needed).
Flat rate changes the focus from dollars per hour to total job cost, which is what people really care about. It reduces the uncertainty for consumers, which is why in every survey, consumers prefer flat rate pricing over open-ended time and materials.
3. Focus on Gross Profit Per Labor Hour
Labor intensive work looks great on the surface. It can often result in high margins. However, the margins can be deceptive. It’s total gross profit per labor hour that matters.
Gross profit per labor hour is maximized when you are installing equipment and the more expensive the equipment, the more gross profit for the same labor hour. This is why a change out results on more gross profit dollars per hour of labor than a duct renovation, even though the duct renovation may carry a higher margin.
While service and replacement contractors will always sell labor and always perform repairs, the focus should be using service to generate replacements over time. If possible, save the labor intensive work for the off-season.
4. Offer Multiple Financing Options
If you want to sell profitable replacements in today’s mandated environment, you need to be adept at financing, especially installment financing where you can stretch the payments out as long as ten years. This more accurately matches the payments to the usage of the equipment and allows you to offer better quality, more complete systems that are affordable. It is not the price. It is the affordability. Sell payments, not price.
Arrange for several financing options so you have somewhere to turn if one finance source says no. Ensure that one or more of your options is “second look” financing for the credit challenged. Do not leave a customer without functional central heating and air conditioning because the customer has bad credit. Find a way to get the customer financed.
5. View Service Agreements as Future Replacements
Service agreements benefit everyone. Consumers get maintenance and repair work at a discount and prioritization for demand service. Even if they disdain maintenance, your technicians get more steady work. You get help with cash flow, technician retention, and you build stronger customer relationships, which leads to more replacements. As Ron Smith, the developer of the residential HVAC service agreement says, every service agreement is a future replacement. Moreover, they tend to be higher margin replacements. Once you see service agreements as future replacements, you will focus more efforts on building your service agreement base.
Because the relationship between future sales and service agreements is so well established, a strong service agreement base will even make your company more valuable and more salable. Buyers like subscription businesses because future cash flow streams are more certain. Even if an exit strategy is the last thing on your mind, you should also like greater certainty in future cash flow.
6. Pay for Performance
Just as the industry was slow to adopt flat rate pricing, we have been slow to adopt performance pay. Performance pay is the perfect match to flat rate pricing and allows you to dial in guaranteed profit for each repair task. Your technicians are rewarded for working faster and smarter, paying attention during training, and offering additional options.
Technicians make more money under performance pay. You make more money when you offer performance pay. This is one of the reasons most of the Contracting Business National Residential Contractors of the Year over the past decade have all adopted performance pay.
Performance pay will boost your average service ticket. It will also increase the production from your installers. From a production standpoint, it is almost like adding additional installation crews without the need to hire anyone.
If you want to know more about any of the topics discussed here, more about how you can easily boost your marketing and co-worker recruiting, and how you can get cash back on everything you need to run a contracting business from buying smarter, visit www.ServiceRoundtable.com or call 877.262.3341 and ask for a behind the scenes tour.