Tom McCart, the first salesperson to sell $1 million of residential replacement sales in the HVAC industry, left a rich legacy of advice for contractors. In this series, we present, in alphabetical order, Tom's posts to The Service Roundtable's HVAC.Roundtable discussion list.
This month: the "C"s.
Calculating Job Costs
Please remember to calculate your cost of sales correctly. I once did a class with 24 contractors. They were all given the same numbers. When I polled the room, I had 25 different sales prices (one contractor couldn't make up his mind which to charge).
The sales commission is calculated in the cost of sales on all install jobs! It is not taken out of gross profit, which is where we pay our overhead burden.
What is calculated in the cost of sales?
- Service agreement
- Extended warranty
- Labor burden
Some contractors add:
- Trash fee for landfills
- Fuel surcharge
- Recycle or recovery fee.
Call-in Lead Policy
The following is a lead policy for a company with two or more salespeople.
When a call comes in to the office, the following must take place: A customer contact and appointment log sheet is filled out; an appointment is scheduled on your service management program at the next available free time.
The lead sheet is entered into the lead tracking database with the following information: Customer name, address, phone number, system type, and how they heard of us.
If the next available appointment is more than two days from the call date, the customer service representative calls the customer 24 hours ahead of time to confirm the appointment.
The lead sheet is then given to the salesman and he keeps his scheduled appointment.
Sales leads will be issued in order of closing averages daily.
If the salesperson doesn't close the sale, he informs the office that the sale is either a “no sale” or “open.”
The status must be finalized for all leads the week they are issued. Any leads not closed within seven days are then given back to the sales manager for final review.
If the salesperson closes the sale, he collects the required deposit and informs the customer that the installer will be collecting the balance at the time the job is completed. The job is scheduled with the customer at that time. One of our job signs is placed in the customer's yard at time of sale.
The salesman starts a job packet with the following:
- A copy of the proposal
- A work order (from the accounting department)
- The material and equipment pull sheet
- Any permits needed
- Any drawings and or pictures
- Service agreement
- Equipment stickers
- Equipment start up sheet
- Satisfaction survey
- Copy of invoice
- Two referral cards.
The job packet is given to the production manager (installation) for review. The production manager checks to make sure the job is on the schedule board and assigns the installation crew.
The job packet is then given to the accounting department to have a work order written up, the deposit posted, and the final invoice generated. The work order and the final invoice are then entered into the job packet.
The job packet is given to the warehouse to have all the necessary materials and equipment pulled for the job. The warehouse opens every unit and places the equipment warranty information and thermostat booklet in the job packet.
Once the installation crew is at the job location, the following must be done by the installation crew: The installer introduces him self and any apprentice and gives customer his business cards; the installer reviews the job to be performed with the customer and gives him or her a customer satisfaction survey form to be filled out by the homeowner and returned in the job packet at the end of the job; the installer places the equipment stickers at the appropriate locations, as follows:
- The equipment history sticker is placed on the indoor unit
- The warning sticker goes on the inside of the disconnect box
- The air conditioning service sticker goes on the homeowner's yellow page book
- The round sticker on a round thermostat, the rectangle sticker on all other thermostats.
Once the equipment is installed and completed including clean up, the following is done by the installer:
- Reviews the system with the homeowner
- Collects the satisfaction survey form
- Collects the check from the customer
- Gives the customer the referral cards
- Returns the job packet back to the project manager (installation)
- Fills out the materials section of the materials control sheet for any materials returned.
Calls Per Day
When you run a business on fear and greed, doing the right kind of job is less important than getting what you can, when you can. Why else would someone brag that their techs can run five to eight calls a day? I have yet to figure that out. I have worked in hundreds of companies and measured production. It's a fact that the more calls you run, the smaller your invoice dollars get.
Cameras for Heat Exchangers
Many contractors use the cameras on every call, including air conditioning season. They market the service as a lead generation program for the neighbors of current customers and customers not on an agreement, and as a complementary service for existing customers to get their foot back in the door.
Is the consumer really asking for low price or are some contractors selling low price? I have yet met a consumer who could job cost an installation. In my years in this business I have never had a customer ask me for something cheap and half-assed. I have even asked the customer on several occasions, "Would you like me to show you something cheap?" The answer is always no.
Charging $200 Per Hour
I have audited companies that need to charge more than $200 per hour. Work in a metro area where traffic adds hours to each job and you are lucky to run two calls a day. You don't zip across town in Los Angeles, Miami, Seattle, Dallas, or Northern Virginia. I have several contractors who must charge more because the time clock doesn't stop with traffic delays. It may sound utopian to many when it's not how much you charge, but when can you get here? Yet, it comes with a whole new set of challenges!
If you base your labor pricing on your financials (real and defined numbers, not what your tax accountant gives you every month), budget at least 15% net profit after everything is paid. Twenty percent is even better. You deserve it.
Checks for Customers
Print checks made payable to your company in amounts of $35, $50, $100, $250, and $500. Your techs can endorse the checks for prospects to use toward various services, products or toward the purchase of a new system. People love getting these checks. Have all your techs and sales people carry the checkbook with them on calls.
I'm also not so cocky as to think I can close every sale. The laws of human nature would not allow that to happen. My personal closing average was over 90% and that was too high. It meant I wasn't challenged by our pricing at the time and we maintained 54% margin after commissions (the commissions were GREAT).
Cluster selling is the way to build your customer base. Who are some large employers in your market area?
- School board
- Federal government
- Fraternal clubs
- Large manufacturers.
Cold Calling Script
Knock on the door and step back.
"Hi, my name is Steve. I'm in your neighborhood today to inform homeowners, like yourself, about some special funding (or financing) to add or upgrade your home comfort system."
"Would you like to see if you qualify for these funds?"
Then, shut up.
Either sell the appointment or take the credit application.
Don't change a word or add to the script.
The special funding is low interest financing, deferred financing, debt consolidation, equity loans (tax deductible), or new low interest first mortgages.
Quit selling and let the customer buy from you!
Commissions Based on Gross Margins
As for paying on gross margin, what control does a salesperson have on gross margins? If the pricebook has been set up correctly, management has set its margins. The only people who can affect margins are the installers (and callbacks).
Salespeople, if trained properly, can be taught equipment application and how to compensate for the degree of difficulty on hard jobs.
I once took a couple of days and dove into the company file cabinets. In two hours I had found nine invoices with tech notes that had never been followed up on. I found four mismatched systems over 10 years old, 11 systems with refrigerant leaks, and 19 systems older than 15 years. In fact, I had these compiled before I was halfway through the "Bs" in the cabinet.
If you want a price from me, I'll give you my best price up front. If you want to compromise the price beyond my flexibility (built in finance fees or promotional fees), then you must compromise the system I recommended.
I’ve found if you can get a salesman to compromise once, you can do it again. Besides, prospects are not interested in the price. It is the cost they are concerned with — they just don't know it!
Contractors and Cab Owners
Cab owners make more than most contractors!
- Time in cab: 29 Minutes
- Retail price: $50.00
- Hourly rate: $103.80
- That’s $1.73 per minute.
Cost of a Salesperson
The salesperson is the cheapest employee you will have on your payroll, other than the cost of listening to him whine about leads and exhort to everyone how great he is.
Sales commissions are paid by the client, not you. The full commission is part of the cost of sales when figuring your selling price isn't it? If you have to pay a "draw" during a slow period, make sure it’s on a 30-day payback.
Cost of Goods Sold
If one puts fuel usage in COGS, why not put the cell phone for the techs in there as well? Or, vehicle repairs? Advertising and marketing expenses? Why not charge rent for your parts room to COGS? What the heck, let’s bill the dispatcher to COGS!
Have you ever thought about printing a coupon book worth $100 to $300, with specials from your company? Include non-competing trades such as pest control, carpet cleaning, lawn service, plumbing, etc.
Our biggest untapped resource for business is our customer files. That’s why it’s vital to keep good records!
A long-time contributor to Contracting Business, Tom McCart was HVAC’s first million dollar residential retail salesperson. Tom died of Lou Gehrig’s Disease on Jun 10, 2004. ALS took a toll on Tom physically. It took a toll on his family financially and emotionally. Tom’s business has survived. Please support Tom’s survivors and his legacy by purchasing his books or attending No Secrets training (www.nosecrets.com).
You can also purchase “From the Sky Up, the Tom McCart Story on DVD,” or any of Tom’s seven sales, marketing, and management manuals, at www.hvacprofitboosters.com. All proceeds from the sales of Tom McCart’s products go to Tom’s estate to help his survivors pay Tom’s medical and long-term care expenses.
For more information about the Service Roundtable, including a FREE e-book on service company marketing, visit www.ServiceRoundtable.com, call Liz Patrick at 877/262-3341, or e-mail firstname.lastname@example.org.
|Matt Michel is president of the Service Roundtable (www.ServiceRoundtable.com), an organization dedicated to helping contractors prosper. Matt is also the publisher of Comanche Marketing, a free marketing e-zine. Subscriptions are available at www.ComancheMarketing.com. You can contact him directly at email@example.com. Or send your comments to Contracting Business at firstname.lastname@example.org.|