Four Steps to Increase Service Profits
July 20, 2011
Integrated approach ensures competitive advantage
Profitability in your service department has never been more important. Of course, this sounds like a simple and obvious statement with a fundamental logic that spans decades of industry history. However, it is more than just commonsense in today’s marketplace. Our contemporary market demands that full service dealers treat their service departments the same way a stand-alone HVAC company would – be profitable or suffer the consequences.
So what has changed that would force many full service oil heat providers to look differently at their service group? The price run-up in 2008 changed a fundamental and historic philosophy in the oil heat industry.
That philosophy was that oil sales could cover losses in the service department and that customers would pay higher prices for oil if they received dependable 24/7 service. When the vast majority of competitors operated under that assumption, the competitive playing field was level. However, 2008 provided an impetus for change that has evolved quickly and is threatening the old paradigm; and, it’s not just from discounters. Clearly, the price run-up legitimized the “discounter” model and changed the competitive dynamic for many full service companies. Another model has emerged that may prove even more threatening to companies still operating under the old paradigm.
This model emerged in the Mid-Atlantic market and is catching on in other areas of the Northeast. That model provides customers with lower fuel prices and service. Many of the companies that have adopted that model were previously discounters that evolved into service. The difference between them and the traditional marketer is that they, by the nature of their business model, had to run a lean service department that could compete on quality. This is a competitive change in the industry’s landscape that is not going away. So if you are a marketer that still believes you need to charge higher prices for fuel because you “have great service,” you need to think about changing – and changing fast – to a new service philosophy.
Change begins with adopting basic principles that capitalize on evolving competitive conditions in a way that creates long-term sustainability. Given the predictable changes in our competitive landscape, one simple principal must be adopted by the traditional marketer – run your service department as a stand alone profit center. For example, if your service department was profitable at 10 percent of total HVAC sales, would a discounter-only competitor really threaten you? Sure, you may take a hit on fuel margins if you had to – but your service department in this case has become your competitive advantage. Likewise, this change prepares your company to compete against the emerging model discussed earlier. Either way, this change is necessary. There are four critical steps to accomplish this change. And, the good news is they are realistically achievable.
1. Measure Service Separately
Most marketers combine oil sales and service sales and all the expenses together. As a rolled-up presentation, the financial picture is unclear with respect to profitability in each group. This will mask losses in service and provide an unclear picture as to the real profits in oil sales only. Obviously, being able to analyze each separately allows for much better management decision-making with respect to cost, pricing and planning. With an independent financial look at each side of the business, a marketer can manage the process of establishing a sustainable competitive advantage.
2. Implement a Marketing Calendar
Profit improvement in service requires better cost management, better efficiency and more sales – at the right time. The peaks and valleys of service work flow can drive employees crazy during the busy times and worry management when things are slow. Unfortunately, both the peaks and valleys create inefficiency for different reasons that dilute profit. An annual marketing calendar is relatively easy and cost effective to have implemented. Planned properly and implemented by the marketer or an outside firm, this approach can be a solution to lling the valleys and taking some of the overload out of the peaks. The objective of a marketing calendar is to drive pro table sales and increase service revenue while fully utilizing human resources on a more consistent year-long basis. It works best with a targeted equipment sales approach.
3. Targeted equipment sales
The TankSure® Program has the industry’s most robust equipment sales database available. The marketing data is spot-on because it’s collected by service technicians at each customer residence during a service call. With one in three residences requiring some repairs or replacements for the tank system or heating equipment, this database grows quickly once the process is implemented. These sales opportunities are then catalogued in each marketer’s database by each specific corrective action required, like replacing a bad tank or selling central air to a residence that has existing duct work. Using this process, some marketers have filled work “valleys” with hundreds of thousands of dollars in new service revenue. It is also a turn-key process that includes all the marketing.
4. Make the techs part of the process
Your own technicians are a great source for process improvement feedback. When an integrated method is implemented to improve service profitability the first line personnel must be involved. This can seem a little intimidating for some managers. However, when an outside firm conducts a non-threatening “focus group” to initiate the process, they almost universally participate in a positive way. In most cases, it helps to implement or reinvigorate an incentive or bonus program based on new goals and measures. In aggregate, this can help create an environment where much of the change is recommended, supported and implemented by front line employees.
Improving profitability in service requires an integrated approach that involves separate financial analysis, better year-round marketing, improving efficiency and more employee involvement. And, it is now more than just profits – it’s about strategically preparing for a future that is rapidly approaching.