Are we entering a time of inflation? It certainly seems so. Over the past six months, we’ve seen dramatic increases in commodity pricing that is being reflected in equipment costs. Here are six things you should do to stay ahead of the game and prosper during inflationary times.
Price Up
When your costs increase, immediately raise prices. Do not sacrifice your margins. In fact, it is more prudent to raise prices in anticipation of an increase. If you wait, you are late.
Prepare your technicians and salespeople for push back from consumers over higher prices. Stand firm in the face of price resistance if encountered. It is better to lose the occasional job than to lose money by failing to pass along the cost increase.
Stock Up
As a rule, stocking more inventory than immediately needed is a mistake. It is like sticking a pile of money in your warehouse. Moreover, there is a carrying cost. Some of your inventory will inevitably get damaged. Some will become obsolete. Some will grow legs and walk away. Factor the carrying cost of inventory into your pricing.
However, in times of inflation, inventory is an investment. If prices go up after you buy the inventory, but you're pricing on current costs, not the past costs you paid when you purchased.
In times of shortages, which characterizes the present, carrying higher levels of inventory than normal becomes a business a requirement. You cannot sell what you do not have.
Do Not Over Promise
At present, there is a worldwide shortage of computer chips. It is bad enough that it has caused many automakers to temporarily halt production. These same chips are used on higher efficiency, communicating HVAC equipment. If the chip shortage is affecting automakers, who have more purchasing clout than air conditioning manufacturers, you can expect it to impact us. Do not be surprised if high-end HVAC equipment gets hard to source this summer.
When you quote jobs, make sure you quote using product on hand or product a distributor has on hand and will reserve for you. If you do not have a product in stock, do not assume you will be able to get your hands on it. Verify availability before you sell something.
Have a Back Up Line
If you do not have a second line of equipment, now is the time to add one. Managing your equipment lines will be a juggling act. Manufacturers are likely to award inventory to their most loyal dealers. Yet, you need a second line as back up in case your main supplier experiences shortages. To be able to count on the second line you will need to present them with enough business to keep their interest.
Switch to Performance Pay
The current technician shortage is likely to be exacerbated by pressure to increase pay. You can either pay more directly (further increasing your costs) or you can switch to performance-based pay so your technicians can award themselves a pay increase anytime they want. At the very least, consider putting your installation crews on performance pay.
Sell Payments
It is likely that you will not encounter a lot of resistance on service pricing. Replacement pricing could be another story. The best way to handle it is to sell payments. Sell them on every change out.
Lower payments by offering installment financing over a 10-year term. Ten thousand dollars on a 2% revolving plan starts out at $200 per month. On a ten-year installment plan at 8% interest, it is only $121 per month. Do not rely solely on revolving financing. Line up an installment source.
You should be selling payments and using installment financing anyway. Due to efficiency mandates and refrigerant changes, the installed cost of a home comfort system was already causing most homeowners to experience sticker shock. Selling payments is a way to reduce the surprise.
With a summer like this one, you need to stay on top of the changes occurring in the industry. There is no better source than the Service Roundtable. Join today for $50 per month and also benefit from the industry’s largest library of downloadable business content and the industry’s largest buying group. Visit www.ServiceRoundtable.com or call 877.262.3341.
