Proper System Design Is Just the First Step

Image courtesy of buildingdoctors.com

The Key to Proper Performance is System Verification

If you have been around this industry very long, you are familiar with rules of thumb.  In the residential system design world, rules of thumb included X #of BTU per square foot or per cubic foot.  Of course, the cubic foot rule was more accurate because it could take into account air changes!  If you were in a hurry you could just use the 2-35 method of sizing.  (2 windows down as you drove by the home to be designed at 35 mph) Easiest of all, you could assume the original designer did their job properly and simply replace the unit with a like sized one.

Those days are gone, or at least they should be!  Today there are a plethora of software to help a contractor run the heat loss/gain calculations, make the proper equipment selection and run the duct design calculations.  The millennial generation wouldn’t know any other way, as they grew up on computers.  Yet even with today’s sophistication, you can have multiple designers come up with different calculations for the same structure.  The reasons for that are no different than when running paper-based Manual J calculations in the old days.  You remember the expression GIGO?  Garbage in garbage out.  The accuracy of the software is dependent on the user entering the correct data.  Does that mitigate the value of computer-driven software?  Absolutely not, as always it simply mandates that the designer enter the proper values.

In order to have proper operation, is it then simply sufficient to have a competent designer properly load the software with the correct calculations?  Many contractors might say no, but in real life the answer is most often yes.  What is the difference?  Verification.  After a properly designed system has been installed, it should be verified through airflow measurements, static pressure readings, duct loss calculations, BTU and other verification calculations.  How often is this done?  Typically never.  By adding this one step, you can add real value for your customers while separating yourself from your competition in a way that you can charge for.  Not everyone will be willing to pay for this, but by offering the service to your customers you set yourself apart as the right professional to do the work on their home!

For more information, see “Does Proper Design Guarantee HVAC System Performance” by David Richardson in the October 20, 2014 ACH&R news.Image courtesy of buildingdoctors.com

 


Start off the Year with a Vow to Improve Customer Service Skills

Start off the Year with a Vow to Improve Customer Service SkillsWhenever there is a discussion about customer service, your first thought likely gravitates to an interaction between your service technician and the customer.  While that is not the only interaction, it is the obvious one.

 

Don’t forget about the exterior of your building.  If a customer who is in the market for your products and services were to drive past your business, would they be more, much more, less or much less inclined to call you because of that interaction?  The same can be said for a customer who comes across one of your company’s service trucks, as well as one who calls your office or visits your website.  All of these have the power to bring potential customers closer…or push them away.

 

Let’s go back to that obvious one – your company’s service technicians.  Perhaps like no other, they have the ability to bind your company to the consumer in a way that will bring them back for many years if done correctly.  However, good customer service is a discipline that is regularly practiced and backed up with ongoing training and accountability.

 

Treating the customer equitably and with understanding and empathy is a given.  If your technicians are not going to do that, they should not be working for you.  This is the cornerstone of building trust in a long-term relationship.  Beyond that, they need to look and sound trustworthy.  It goes without saying, but your techs need to have a neat and clean appearance, and providing company issued clothing sends the message that you deem this important.  What about piercings and tattoos?  Feelings about that vary by owner, but remember – the customer is whom it matters to, not the service technician.  Good communication skills should also go without saying, but part of that means training your techs on how you want them to present problems and opportunities to the customer – and how to handle irate customers.  We all like to use technical terms and industry jargon when talking with each other, but the customer likely won’t understand any of it – and may be too embarrassed to let you know it.  By the same token, don’t talk down to your customer either, they may know more about the subject then they let on.  Make sure to pick up on cues for lack of or understanding, and take the time to answer their questions completely.  Rushing through an explanation or looking at your phone will let them know that the schedule is more important than they are.  Finally, treat the customers property with the same respect as you would your own.

 

By re-dedicating your company to these core behaviors, you can create a competitive advantage that customers will pay for!

 

Picture courtesy of SteveDiGioiacom


The Impact of Government Regulations On The HVAC Industry

The Impact of Government Regulations On The HVAC IndustryWe have all heard about how Donald Trump will reduce government regulations and the stranglehold it has on business.  While this article will not express a political opinion, we thought it would be worthwhile to point out the impact of such regulation in recent years on our industry.

 

Only last week we heard that the Department of Energy (DOE) has decided they were unwilling to moderate their stance on the 92% furnace efficiency mandate.  That standard, which was announced to the industry in March, 2015, raised minimum efficiency levels for residential, non-weatherized gas furnaces from the current 80% AFUE to 92%, which would effectively eliminate noncondensing furnaces everywhere in the U. S.  They did make a small exception for furnaces of 55,000 BTU or less, but all furnaces above that level would have to be condensing furnaces starting five years after the rule is finalized.  As anyone who lives in a southern state knows, these regulations mean that consumers in these areas will be forced to pay for larger, ultraefficient furnaces even though the monthly savings on their heating bills will not justify the higher purchase and installation costs.  Once again, this mandate, like many other poorly thought out directives from DOE, will very likely end up being settled in the courts.

 

Recently, a political think tank called the American Action Forum published a study entitled “Discounting Consumers: How The DOE’s Wishful Thinking Leads To Higher Costs And Fewer Jobs.”  This study examined 15 DOE rulemaking issued between 2010 and 2015, and found that one in eight consumers will pay higher costs on products due to DOE standards that they will be unable to recoup in lower energy savings.  Additionally, they found that the cumulative result of past DOE rules has shrunk employment in the HVAC industry by 19,200 jobs from 2003-2013.  Furthermore, the AAF has has catalogued multiple times how regulators routinely play with data in a way that justifies more regulation, leading to higher, unjustified costs for consumers.  This is done by using discount rates other than those recommended by the Office of Management and Budget.  One such example are the claimed benefits by the DOE on the 15 rules mentioned above.  At a 3% discount rate, claimed benefits from these rules are approximately $5.6 billion.  At a 5% rate, those benefits shrink to $1.5 billion and they declined even further as you approach the 7% recommended rate.  That means a hypothetical consumer who purchases a refrigerator, furnace fan, or water heater could face a higher cumulative purchase price of $620 because of these new rules!

 

As a member of the HVAC industry, this affects YOU so don’t just sit on the sidelines thinking this election has corrected the problem.  Educate yourself by becoming knowledgeable on what is going on in the industry.  Read trade publications, join industry associations and become part of the conversation.  As John F. Kennedy once said, “The greater our knowledge increases the more our ignorance unfolds.”  For more information, please reference : https://www.americanactionforum.org/research/discounting-consumers-wishful-thinking-leads-higher-costs-fewer-jobs/#ixzz4IgX7RHXu

 

Sources: Discounting Consumers by Sam Batkins and Curtis Arndt.  The Dark Side of Government Regulation article in the ACH & R news, November 21 and DOE Breaks Its Silence on Furnace Rule article in the ACH & R news, November 28.

 

 

 


Thanksgiving

cr-td16This week we will celebrate the beginning of the holiday season with a traditional American holiday, Thanksgiving.  For some, it will be a joyous time of getting together to celebrate family, food and football.  For others however, it will be a time to once again remember how much you don’t have in common with your in-laws.  After the recent contentious election, the opportunity for discord will only be magnified by getting together with relatives.  Perhaps lost in all the hustle and bustle is the reason we celebrate Thanksgiving in the first place.

 

Three hundred and ninety-six years ago a small ship carrying 102 passengers left Plymouth, England in September for the New World, lured by the promise of prosperity and land ownership.  They were also seeking a place where they could freely practice their faith.  Following a difficult 66 day journey, passengers of the Mayflower dropped anchor far north of their intended destination.  One month later, they crossed Massachusetts Bay and established a village at Plymouth.  During that first brutal winter, most of the colonists remained on board the ship, where they suffered from exposure and outbreaks of disease.  Only half of the original passengers and crew lived to see spring.  The following March, the remaining settlers moved to shore, thereby starting a wave of immigration that continues to this day.  Far from being shunned by the natives, the settlers received an astonishing visit from an Indian who greeted them in English.  Several days later, he returned with another Native American named Squanto, who was a member of the Pawtuxet tribe.  Squanto had been kidnapped by an English sea captain and sold into slavery before escaping to London and returning to his homeland.  Squanto taught the pilgrims, weakened by malnutrition and illness, how to cultivate corn, extract sap from maple trees, catch fish in the rivers and avoid poisonous plants.  He also helped the settlers forge an alliance with a local Indian tribe, one which would endure for more than 50 years.  In November 1621 after the pilgrims first harvest proved successful, Gov. William Bradford organized a celebratory feast and invited a group of native American allies to join them in giving thanks.  This is now remembered as America’s “first Thanksgiving.”

 

The trend by retailers to get you thinking about Christmas giftgiving is not a recent one either.  Abraham Lincoln established Thanksgiving is a national holiday in 1863, designating the final Thursday in November for its celebration.  Franklin Roosevelt moved the holiday up a week in 1939 however in an attempt to spur retail sales during the Great Depression.  Opponents referred to his plan as “Franksgiving”, and Roosevelt reluctantly had to move the holiday back to the fourth Thursday in November in 1941.

 

So if you are already dreading the journey over the river and through the woods, remember to think about why we celebrate Thanksgiving in the first place and remember the blessing that is your family, your career and this country.  Now, if you could please pass the turkey!

Happy Thanksgiving from Callahan Roach!


Can You Hear Me Now?

cr-cyhmnThis was the recent slogan of a telecom companies ad that touted their phone coverage.  That question could be asked of today’s EPA.

 

Starting in 2024, three HFC refrigerants will be deemed unacceptable in new liquid chillers under the US Environmental Protection Agency’s Significant New Alternatives Policy (SNAP) program.  This despite the objection of AHRI, The National Resources Defense Council, Johnson Controls and other industry organizations including mechanical contractors.  What’s the issue?

 

The EPA ruling will phase out the use of  R-134A, R-410A and R-407C in new liquid chillers as of January 1, 2024.  The industry wanted the proposed date to be one year later.  What’s the big deal, you ask?  According to Stephen Yurek, president and CEO of AHRI, “Making compliance a year sooner has a negligible benefit for the environment, but it does create an economic burden for the industry that provides comfort cooling and heating, commercial refrigeration technologies, and hot water for every American.”

 

Why is that?  According to Francis Dietz, VP public affairs AHRI, “The ruling gives manufacturers one less year to do the research, development, demonstration, testing and evaluation of new equipment along with the retooling of assembly lines to manufacture the new product.  The research that is about to begin will provide the information that code developers need to decide what changes they need to make to safety standards and building codes.  Only then could these refrigerants be used, which further compresses the equipment development process.  Besides that, many if not all of the replacement refrigerants are currently classified as mildly flammable or flammable.  Thus, they cannot be used in the vast majority of applications in the US because of building code restrictions.”

 

Brian Smith, director of global marketing for Johnson Controls added another key point.  “The greatest impact chillers have on global warming potential (GWP) is their efficiency, not the GWP value of the refrigerant.  Ninety-five percent or more of the emissions associated with chillers are the result of the energy produced to operate the chillers,” Smith said.  “As a result, efforts to regulate the use of a refrigerant without considering a chillers energy efficiency misses the mark.”

 

What is EPA’s response to all this?  Basically, they said they had reviewed refrigeration substitutes, current knowledge about the substitutes and held multiple meetings before mandating the January 1, 2024 date.  Notice, that did not say they had considered the impact on both the industry and consumers in making this ruling.  Hopefully the next administration will have an EPA that is more willing to work with the industry on these kinds of initiatives than the current one.  Toward that end, the upcoming election could be a very positive one for the industry.

 

For more information on the subject, read the article “HVAC Industry Disappointed in US EPA Chiller HPC Phaseout Plan” by Ron Rajecki in the November 7 ACHR news.

 

Article courtesy of ACHR News


Comparing Flat Rate With Time & Material

Comparing Flat Rate With Time & MaterialAre you still using time and material pricing?  Have you ever thought, really thought about how your pricing looks to your customers?  Chances are, they are a bit terrified.  All they know is there equipment doesn’t work and you are going to be sending out a technician bearing a large bill.  Why not remove that fear right up front?

 

How about your technicians?  Do you think they have ever felt pressure to finish up a job quickly because of that homeowners concern about the cost of the repair?  Do you think that has ever led to mistakes or callbacks?

 

Have you ever wondered about how you can make your company look more professional in the eyes of the consumer?  Consider the following characteristics from the points of view of your customer and your technicians.  Isn’t it time to get serious about flat rate pricing?

 

Basic Characteristics Flat Rate Time & Material
Quote Presented to Customer Fixed Price Open Ended Price
#Prices/Each Repair One Two
How Is Material Treated Bundled W/labor Priced Separately
Labor Standard Natl Standard No Standard
Co. Investment Required Thousands of  $ None
Frequency of Price Changes Every 6 Months At Will

 

Customer Perceptions Flat Rate Time & Material
Homeowners Preferring* 91% 9%
% Used on All Jobs* 44% 56%
Tech Credibility Presenting Price High W/Book Highly Variable
Perception of Risk When Repairs Take Longer Than Expected Company Risk Customer Risk
Homeowner Stress as Repair Time Lengthens None Increases

 

Technician Impact Flat Rate Time & Material
Technicians Emphasis Be Thorough Be Fast
Potential for Callbacks Less More
Complaints re-Time on Job None Moderate or Worse
Need to Justify Rate None High
Potential for Homeowner to Question & Compare Rate None Moderate to High
Potential for Math Errors Less More
Time to Complete Paperwork Less More

 

Fairness Flat Rate Time & Material
Price with Slow Technicians Same Higher
Price with Fast Technicians Same Lower
Profit with Slow Technicians Same Lower
Profit with Fast Technicians Same Higher
Odds that 2 Neighbors will Pay Different Price for Same Repair None Almost Certain

 

Miscellaneous Flat Rate Time & Material
Professionals using this Method Doctors Lawyers

 

 

*  Decision Analyst Research, courtesy of Callahan Roach Products & Publications

© 2006 Service Roundtable


Flat Rate Pricing Is So Easy A Caveman Can Do It (Part II) – by Mike Hajduk

cmeicdiIn last week’s blog we talked about a scenario where a contractor was losing money in their service department, and did not want to raise rates because customers were already complaining.  We ended that blog by saying while it might make sense to shed a department that was losing money, that may not be best for your firm in the long run.

 

The answer is not to shed service, but rather charge enough to make money in service, and the way to do that is by flat rate pricing the service rate.  This way it takes the focus of your company away from the “per minute” rate and puts it on the quality of your company.

 

Contractors have told me their customers want:

 

  • Prompt service
  • Thorough service
  • Things fixed right
  • The fix stays fixed
  • Fair Price

 

You cannot do the first four by undercharging your customer. And just what is deemed to be a fair price to the consumer? When you offer the customer a $65 or $70 per hour rate that is BELOW cost in many situations, they hoot and howl about the rate since THEY DO NOT MAKE THAT AMOUNT OF MONEY IN THEIR JOB!  And if they do, they sure don’t want their pool guy to make that amount!

 

The only way to charge your customer is by quoting them a single amount for the entire job that includes all labor, parts and expenses and do that before the repair is performed. In the construction or remodel part of your business it’s called a quotation. In the service department it’s called Flat Rate Pricing.

 

Flat Rate Pricing is advantageous because the customer doesn’t nit pick your hourly rate, what you’re charging for the part, your tech taking a call on his cell phone or having a smoke. Again, it’s the ability to focus your company on the quality delivered, not on the per hour rate that you are charging.

 

So now you can go up to an hourly rate that is ABOVE your breakeven. You can now make a profit on what you sell. But there are other financial benefits to flat rate pricing.

 

Each flat rate repair has a time allotment that is based upon what a journeyman tech would take to do a repair under normal working conditions, with a little time added for working conditions. If the tech finds 2 or 3 items that need work, there are economies of scale because the tech should be able to do all items in less time.

 

Let’s look at a service scenario. A tech goes to a home in response to a noisy pump.  The tech finds that the bearings on the motor are bad but also finds the burners on the heater need cleaning and the time clock mechanism has rusted to the point of  keeping the pump running continuously.   In a time and material scenario the tech goes to the house, changes the pump and then goes on to the next service call. At $75 per hour the contractor billed out $304 for the motor and $75 labor for an invoice total of $379.

 

In a flat rate scenario, the tech charges the customer a diagnostic fee, takes the time to thoroughly analyze the entire pool and spa system, and then makes recommendations for all repairs. Now the repair is thorough, professional and gives the customer options to buy repairs suggested because of the pool pro’s professional diagnostic. With finding the dirty burners and time clock mechanism, the repair is larger and done along with the original reason why he was there, the motor. Now the call went to $786, taken from the flat rate manual based upon $100 per hour (not a rate shared with the customer) which includes $391 for the motor, $100 for the burner cleaning and $246 for the time clock mechanism, PLUS the $49 for the diagnostic. This repair yields a significantly higher margin. Now the service company makes a profit!

 

Good news, right?  Well the better news is that the customer PREFERS the flat rate scenario because you gave them the option to accept or decline the repairs before the job was started and they fully knew how much the check amount was that they were going to write before they committed. This is far preferable to the open ended way that time and material contractors charge.

 


Flat Rate Pricing Is So Easy A Caveman Can Do It – by Mike Hajduk

Flat Rate Pricing Is So Easy A Caveman Can Do ItGive me 20 minutes and I’ll show you how to raise your margins by 20%.  Ever hear anything like this?  This is a variation on the popular commercials with the caveman who is miffed at the reference that cavemen are Neanderthals.  The insurance provider claims that if you invest 15 minutes, they can save you up to 15% on your auto policy. I’m not as conservative. Take 20 minutes to read on and I will show you how to increase your margins by almost 20%. And without your customers beating you up over your prices.

 

Ok, so you do all the things right. You hired service people with a good aptitude and attitude, gave them some training through your distributor and manufacturers, promoted your company in your community, added some new truck signage and then, alas, you get called by a customer for your services to do a remodel, start weekly maintenance or repair something that has broken.  But when all is said and done and you get your Income Statement, you found that you have lost money in service.  How can that be?

 

This scenario is not unusual, and has even prompted some influential and sizable companies in the pool business to minimize or even close their service departments. Some construction companies have even resorted to having a subcontractor friend who does service to “take over the account” once the pool is out of warranty.

 

What the contractor is really saying is that they do not know how to charge enough to make money in service. Since so many contractors charge LESS than breakeven, it’s no surprise that they want out of service. It’s not unusual for a service company to incur a breakeven per hour cost of $75 – 85 per hour or higher*. Why, oh why, do so many service companies charge less than that for service? Do you?

 

“We can’t charge any more, our customers are already complaining about our rates”.  Have you ever said this?

 

If your customers are complaining about a service rate that is BELOW your breakeven, it does make sense to want to shed that losing department and let someone else worry about the customer. “After all, the customer already gave me $48,000 for a new pool and I don’t need to lose any money on the customer”.  Sound logic. But not the best for your company in the long term.

 

So what is the answer?  Stay tuned for next week’s blog!

*See June, 2016 blog about calculating your breakeven point


Calculating Overhead per Man Day

Excess overhead is a burden on both the business and the employees

Excess overhead is a burden on both the business and the employees

The last blog in this series talked about calculating monthly average overhead along with your breakeven point.  You may want to go back and review that blog prior to reading this one.  In this blog, we will talk about measuring company capacity and calculating your overhead per man day burden.

 

Capacity is measured as the number of units available for sale in a given month, and in contracting terms that capacity is measured in man days.  When you’re talking about labor, you are talking about the number of man days available to perform work in a given month.  In this case, men days is calculated only for your field staff, which typically includes service techs, billable apprentices, installers and their helpers.  Let’s say for the sake of this discussion you have 20 such individuals.  In a perfect world, that means you would have 20 billable days per month or 20 man days.  However, we don’t live in a perfect world.  We will never be 100% efficient because we lose time to vacations, holidays and sick days.  We also lose time to things like late arrivals and warranty callbacks.  Unless you have been monitoring this number for your organization, how do you know what to budget for?  A good number to use is 85% efficiency, and if you are not monitoring your actual man days versus total available, you should start.  Again, for the sake of this discussion let’s use 85% or 17 man days.  (20 X .85 = 17)

 

When you look to spread your overhead across your capacity, the result will be here overhead per man day burden.  This is the amount of gross profit dollars each man has to earn each day to cover the firm’s overhead expenses.  This is one of the most critical numbers in your business!  It effectively measures how competitive your firm is along with your ability to make a profit.  Generally speaking, if your firm’s overhead burden per man day is $200 or less, it means you have a good balance of field staff relative to your firm’s overhead expenses.  The higher your firm’s overhead burden, the less competitive you become.  This affects labor-intensive work the most, like labor-intensive installations, maintenance agreements and diagnostic fees.  It is typically very difficult to cut overhead expenses because the vast majority of it is comprised of overhead staff – people.  By understanding and controlling overhead expenses, you’ll be able to determine and allocate each job’s true overhead expense burden based on how long the job takes as measured in man days.

 

Article Courtesy of the HVAC Business Dr.

Picture courtesy of kbenglishsla.wikispaces.com


What do Ben Franklin, William Shakespeare and Peter Drucker Have in Common?

Benjamin Franklin once said, “We are all born ignorant, but one must work hard to remain stupid.”  What does that have to do with the HVAC industry?  The answer lies in how aware you are of what is going on in the industry today, and how you are keeping yourself abreast of related developments.  Specifically, are you involved in your local trade association?  If not, why not?

cr-wise-ben-bill-pete

For those of you who are followers of this blog, you have seen a number of articles talking about the foibles of the Department of Energy.  (DOE) Last month, they published a new rule regarding enforcement of the residential central and single package air conditioner energy conservation standards that took effect… Get this… On January 1, 2015!  So one and a half years after the standard went into effect, there is finally a rule in place dictating how the industry is supposed to comply with the standards.  But wait, there’s more!  As I’m sure you are aware, 14 SEER has been law in the South and Southwest since December, 2014, yet the DOE only just released this as a final rule in June.  Situations like this point to some disturbing behavior on the part of DOE, and it’s not the first time.

 

This blog has talked before about regional furnace standards, and how several industry organizations banded together to sue DOE in 2011.  As a result, the standards were vacated and remanded in early 2013, yet DOE is still proposing a contentious 92% AFUE national standard!  The DOE was also sued over the final rule for walk-in coolers and freezers in late 2014, which resulted in portions of that rule being vacated and remanded.  More recently, several groups threatened legal action against DOE regarding commercial boiler standards before DOE backtracked.  This is not a time to remain unaware of what is going on in our industry!

 

The August 1 ACHR news published an article by Mike Weil which listed the top 25 reasons for joining and participating in a trade organization.  While some of these reasons involve staying on top of industry standards and events, others relate directly to helping you improve your business.  How so you ask?  Access to forums for peer review and best practices, discounts on products and services, networking and learning opportunities at dinners and social events, and much more.  If you have not checked this article out, you are definitely missing out on opportunities to improve yourself and your business.  Take it from William Shakespeare who said, “Ignorance is the curse of God; knowledge is the wing wherewith we fly to heaven.”  I’ll temper Willie’s words however with those of Peter Drucker, “Knowledge has to be improved, challenged, and increased constantly, or it vanishes.”  In today’s environment, we ignore these words at our own peril!

Information about DOE practices taken from Opinion – ACHR news, July 4, 2016