recession (noun): a significant decline in activity spread across the
economy lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale or retail trade.
We’re in a recession. How does it impact the HVAC/R industry?
Certainly, HVAC/R professionals have been affected by the downturn in
new construction; new construction is not starting, and what was going on has obviously burst. This is where the contractor feels it most, especially those contractors tied to the new construction industry for the majority of their business. But many contractors also do a lot of add-on or replacement (AOR) work, and are seeing a noticeable decline. Say a unit breaks and it’s 11 years old. If we weren’t in a recession, many customers would make the decision to replace it for a few thousand dollars. But because of the recession, many people are choosing to fix rather than replace.
Some HVAC/R contractors are currently facing cash flow situations;
others are going out of business. In previous articles, we’ve touched on a few good business practices to help you prepare for downturns. Below are seven tips that can help you now that we’ve landed squarely in a recession.
1. Grow your business in a recession. Recently, Warren Buffett invested $3 billion in GE stock and $5 billion in Goldman Sachs. He has gained a reputation for buying in volatile periods. Volatility is a great time to grow your business. Some contractors are going out of business; other contractors need to look at that as an opportunity to grow. Find out who’s going under, where their markets were, and cultivate that market. Create a door hanger marketing to that area. Also, consider approaching contractors who are going out of business to buy their customer lists. Dentists and doctors often do this when they retire and sell their practice. Why not the HVAC/R contractor? “A down time is no time to neglect marketing,” said Ed Gancarz, principal of the SH+ARP Institute. “Marketing should be stepped up. I’m not talking about running billboards and TV commercials. I’m talking about spending the same amount but getting a little more targeted.” Suspending marketing is a
2. Use high prices as an opportunity. Because fuel prices are so
high, sell units with higher SEER values to customers as solutions. “Some contractors will say, ‘I can’t sell high SEER units. I’m small, I sell the other units because they’re cheaper,’” Gancarz said. “The reason they’re cheaper is because they save less energy. Now is the time to emphasize just how much a higher efficiency unit saves the customer.” During a period of higher fuel and utility costs, the payback on the investment can take even less time, so the higher efficiency solutions can become an easier sell.
3. Take advantage of financing. Getting credit in a recession is more difficult. Most families don’t have line items in their budgets for their next air conditioning units or furnaces. When they break, where will they get the $4,000 to replace them? “Make sure you have several ways of offering financing to customers, especially now when they’re finding it harder to get credit elsewhere,” Gancarz said. Some contractors offer same-as-cash agreements for six months. Have two or three different agreements with banks to offer financing at various rates to customers. “The point is, you can’t not fix a unit because there’s a credit issue,” Gancarz said. “You have to have various ways of helping consumers finance the solution.”
4. Sell service agreements. Heard that one before? “Those of you
who read my previous article on service agreements and perhaps wondered why they were such a priority for me now probably totally understand why they are a priority,” Gancarz said. “A lot of great
contractors who have already ridden out one or two recessions know the importance of service agreements. They provide wonderful cash flow during the downturn.” During a recession, people are very active in doing preventative maintenance to keep the old unit running. And instead of laying off techs because of the recession, a business can keep them on. “Selling service agreements is one of the best foolproof ways of making it through a recession,” Gancarz said.
5. Look at your costs. Again. Heard that one before, too? “We talked in the past about looking at your costs,” Gancarz said. “In that article, in a general sense, we said that you should do it early in the year, set it and forget it. In a recession year, I lied.” In a recession year, things can change quarterly. The volatility of the market causes fuel prices and interest and insurance rates to go up and down. “As these traditionally fixed costs for the year are changing before the year is up, you have to look at your costs maybe quarterly,” Gancarz said. “As opposed to a normal year, in a recession costs change more rapidly. Make sure you know the fluctuation in the costs of your business, and translate that into increases in pricing to offset your costs.”
6. Do good service work and solidify your reputation. Many
contractors might only do new construction or they might only do replacements regularly. Now that those opportunities are not as available, service work becomes a priority. It’s not as easy to fix something that’s all banged up as it is to install something new. Units may not be fixed right the first time. Good contractors are being called in to fix what other contractors cannot. “This is a good opportunity for contractors to make a name for themselves,” Gancarz said. “Market yourselves, make sure you tell customers how long you’ve been in business, that you’re used to doing service. And when you come in behind another contractor who didn’t do the work right, make sure you say, ‘you get what you pay for and I stand behind my work. In other words, the good contractors, because of their reputation, will make it through a recession.” Diversify your business so that you know how to do service, replacements and new installations well.
7. Start a website. “We try to market ourselves more in a down economy,” Gancarz said. “One great way to do that is a website. Get on the Internet. The well-informed consumer is not going to the yellow pages first.” If a business is not on the Internet, the well-informed consumer — the one who is going to want the better contractor — is going to wonder why a progressive company is not online. So many companies overcorrect, cutting too deep in a recession. “Look at the recession as an opportunity to grow your business instead of circling the wagons,” Gancarz said. “Recessions are cyclic, and leadership in a tough time is the best leadership. Think of Warren Buffet. It takes courage and is risky, but it’s what the successful leaders who have been around for 60 years would tell you to do.”
Read previous columns from Gancarz at
Edward Gancarz is the principal of the SHA+RP Institute. Its services include
small business consulting and training, individual and group coaching,
organization development, call center management and marketing and selling
support. If you would like business training conducted at your Totaline sales
center, contact your parts store manager or the SHA+RP Institute.
Phone: (315) 263-1234