Facing HVAC in '15 With Gusto

HVAC contractors we interviewed for this story concur: 2014 was great, and 2015 will be even better. Here’s what they had to say about their success in ‘14, and what’s to come in the new year.

Referrals + Smarter Marketing = Growth
Brian Stack, president of Stack Heating & Cooling in Avon, OH, said his company experienced tremendous growth in 2014.

“As of November 30, we are 20% above sales from last year,” he said. “Our growth came from great referrals and a more targeted marketing campaign.”

Stack Heating & Cooling increased its marketing within a 10-mile radius of its headquarters location.

“Our marketing consists of local newspapers, sporting events, theater programs and nonprofits,” Stack said. “This has given us exposure as the local heating contractor to go to, and has really increased our residential customer base.”

Stack added a number of field technicians and inside support staff as a result of the double-digit growth.

‘The Service Experience’
Dewey Jenkins, CEO of Morris-Jenkins in Charlotte, N.C. — CB’s 2009 Residential Contractor of the Year — said his company also had a banner year in 2014, the natural result of concentrated efforts to improve service.

“We’re on track to finish the year with 14% growth over 2013,” Jenkins said. “We focused on making it a good service experience for our customers. We emphasized our commitment to being on time and fixing it right the first time.”

In terms of growth, Castellano Air Conditioning Service in Tampa, FL stayed the same size, but the year was positive in terms of net profit.

“While we performed the same dollar amount as 2013, we became more efficient, eliminating waste,” said owner Tommy Castellano. “We improved our training and customer service. This allowed us to increase our net profit by lowering our overhead.”

Castellano also eliminated duct cleaning in 2014, because it was taking resources that could be applied elsewhere.

Jenkins said 2014 was a year in which already-solid training was improved upon at Morris-Jenkins.

“We’ve had a full-time trainer for a long time but we stepped up our efforts last year,” he said. “We improved the curriculum, standardized our testing and did more field training. Our call-back rate is now among the lowest in the industry.” That training is continuing this winter.

“Winter is our busiest training time,” Jenkins said. “Customer demands slow down, but this is our prime time for training. Every day is scheduled with some training activity.”

Construction Up in 2015
Strong construction numbers benefit HVAC companies, and that’s what’s in the forecast for 2015. According to the “2015 Dodge Construction Outlook” from Dodge Data & Analytics, single-family housing will rise 15% in dollars and 11% in units, to 700,000, and multifamily housing will increase 9% in dollars and 7% in units, to 405,000.

But in spite of that predicted home building increase, Stack Heating is changing its focus slightly in 2015 by discontinuing work in the new construction custom home market.

“We’ve completed radiant heating/geothermal systems in large custom homes that are very difficult to keep profitable,” Stack said. “We’re currently finishing a 20,000 sq.ft. home that we’ve been working on for over four years. These projects are fun to do, but tend to take away from more profitable jobs during our busy times.”

Castellano said his company also is adjusting its operations to improve performance.

“We’re in the process of creating two programs to increase sales of equipment without increasing manpower and labor costs,” he said.

Efficiency Standards Raised
HVAC companies also must be aware of new energy conservation rules that took effect on January 1. The rules, by the Department of Energy, impose elevated minimum standards and regional standards for HVAC systems.

One of the components of the revised rules is that all split-system central air conditioners in the South and Southwest regions must meet the new national heat pump efficiency minimum of 14 SEER. The North region still can install 13 SEER pumps. For heat pumps, the standards raise the cooling efficiency requirement to 14  SEER for all three regions. HVAC companies with units in inventory that were manufactured before Jan. 1, 2015, still can install them during an 18-month grace period, which ends on June 30, 2016.

Companies with longevity have been through other efficiency change scenarios. Castellano said the change is going to require some adapting to, but his company is prepared.

Stack is also prepared, and said the energy conservation rule changes will not affect sales at Stack Heating.

“When the standards changed from 10 to 13, we were able to explain to our customers the change without a problem,” he said. “This new change is not as drastic for our region.”

Jenkins said the new efficiency rules will have a minimal impact on Morris-Jenkins because the company primarily sells 14 SEER-and-above equipment already.
 

Changing consumer requests are something all the companies must deal with throughout the year. Castellano said his company’s clients are asking for a variety of efficiencies, from the minimum standard to the maximum efficiencies available.

 

Stack has seen more customers inquiring about ductless mini-split systems, as well as Honeywell Wi-Fi programmable thermostats and RedLink-enabled thermostats. In fact, Stack said he's considering starting a campaign to promote the thermostats because of the heightened consumer interest.

No matter what services HVAC companies add or drop, consumers still want reasonable rates, and that’s something contractors have to keep in mind, according to Jenkins.

“Customers today want a good service experience but they are also value conscious,” he said. “It forces service providers to operate efficiently.”

Going Beyond the Basics
Homesense, based in Indianapolis, IN, is a newer company that is having an impact in its region because of its awareness that customers won’t necessarily refer a company just becaue they provide what is expected: the basics of heating and cooling.

Two commercial HVAC leaders — Tempo Mechanical Services in Irving, TX, and Service Unlimited in New Castle, DE —  had a performance record to back up 2014’s growth numbers.

Steve Saunders, Tempo’s CEO, said 2014 revenues were up about 20% from 2013.

“This growth is pretty much in all divisions and reflects the fact that we are blessed to be located in the Texas market, where the economy is strong,” said Saunders who in 2014 was inducted into the ContratingBusiness.com Hall of Fame. “This is a case where the rising tide lifts all boats, and our boat floated pretty well in the still-turbulent and competitive water of the Texas HVAC and plumbing business.”

Service Unlimited’s improved numbers were based on proper utilization of manpower and proper acquisition of materials and equipment, according to CEO Carl Wolf.

“Total sales volume increased by 3.7% for our service division,” he said. “This was spread evenly over time and material billing and new commercial HVAC contract sales. Our construction division grew 4.2%, driven primarily by replacement sales and Design/Build projects.”

Wolf — whose company was the 2012 ContractingBusiness.com Commercial HVAC Contractor of the Year — added service and installation of variant refrigerant flow (VRF) ductless systems and low-temp chillers for breweries and milk processing plants.

Looking Forward to More Construction
Strong construction numbers are predicted for 2015, which will be a boon to HVAC contractors, both commercial and residential. The “2015 Dodge Construction Outlook” from Dodge Data & Analytics predicts that total U.S. construction starts for 2015 will rise 9%, to $612 billion, a larger gain than the 5% increase to $564 billion estimated for 2014. According to the report, commercial building will increase 15%, and institutional building will advance 9%.

Both executives feel their companies are prepared for 2015.

“After a mild summer in Delaware, we’re looking forward to some extended cold weather generating more service calls and more opportunities and leads for our sales team in the way of replacements and upgrades,” Wolf said.
Saunders said Tempo is entering 2015 with "a sense of possibility." The company has many opportunities to improve service, employee experiences, and profits, and the goal is to work on all of those goals at the same time, he said.

Tempo also plans to introduce a new company and product in 2015, in conjunction with Air King. The product, a fresh air machine, is appropriate for existing and new homes and apartments.

“There is no doubt that we under deliver our services way too often and that our processes break down way too frequently,” Saunders said.

“While we receive high customer satisfaction scores, we are pretty sure that too much of that comes from ‘heroic’ efforts of CSRs and technicians. We want them to rise above corporate-created problems less frequently, and that will give them a better platform for successfully filling our client expectations.”

Winter Planning Around Service
Saunders said this winter is about building a better platform and rebuilding the basics of on-time arrival, completion of service in one trip, and service that is of real value in a hurried and complicated world.

Tempo also plans to introduce a new company and product in 2015, in conjunction with Air King. The product, a fresh air machine, is appropriate for existing and new homes and apartments.

“It’s a simple product that allows for dial-in of the desired outdoor air temperature (high or low), desired outdoor air relative humidity (high or low) and CFM of the blower (30 to 130),” Saunders said. “The combination is the best set of simple controls to actually deliver the real amount of desired fresh air in tight retrofits and in code and above-code new homes.”

Saunders said the new company will be a division of Tempo, and will likely be called QuFresh, Inc. The initial distributor for this product is Carrier Enterprises/Watsco, which placed the first order in October of 2013.

More Design/Build
About 50% of Service Unlimited’s business is commercial Design/Build projects, and the company plans to increase its D/B oferings in 2015.

“We work with them to develop new control strategies along with control system upgrades and equipment replacements,” Wolf said. “Associated Builders & Contractors has awarded Service Unlimited the first-place trophy in the Design/Build category seven of the last eight years.”

New Standards & Energy Awareness
Wolf said Service Unlimited is very aware of the efficiency standard changes but they are a non-issue.
“We don’t stock any equipment in inventory,” he said. “Depending on jurisdiction and local code requirements we will order equipment accordingly.”

Service Unlimited also plans to continue its own efforts to improve energy efficiency.

“We’re working with the University of Delaware, through the ‘Energize Delaware’ program, to identify energy-saving opportunities,” Wolf said. “The response has been positive.”

Saunders said that in his region, energy and environmental improvement are at the forefront of every building manager’s considerations, and of the entire real estate and investment management community. Tempo has responded by creating a division that does nothing but energy efficiency and green building consulting.

“This is a challenging and complex business that is an ‘all in or don’t venture forth’ type of opportunity,” he said. “But it has real value when working in the new construction side of the business. We are still hopeful that we can figure out how to connect the knowledge and lessons learned in consulting to our HVAC and plumbing service business.”

Saunders and all of the contrators we spoke to are good at learning lessons. They know the value of those teachable moments that can help elevate the best companies to a newer level of awareness, leadership and customer service.

We wish our HVAC contractor readers a Happy New Year, and all the best in 2015. Now go get ‘em!

Elaine Yetzer Simon is a freelance writer based in Cleveland, OH.