Whether its geothermal systems, connected thermostats, or system diagnostics, HVAC contractors are always in search of untapped profits.
Therefore, most contractors are shocked to learn that they’re overlooking a $1.2 billion opportunity immediately available in their market – an opportunity that requires no capital and minimal business adjustment. So, what is this holy grail of HVAC contracting? Consumer-direct HVAC equipment sales.
Two years ago, Kevin Walsh, president of a Grand Rapids, Michigan-based residential HVAC contracting company, began encountering more and more advertisements from national websites offering to sell HVAC equipment directly to consumers online. Walsh clicked an ad and began to ponder the profit potential of such an approach.
He presented the opportunity to his team and together they drafted a pricing structure that allowed his techs to price and install HVAC equipment that was purchased online.
“If and when online HVAC equipment purchases become a big-ticket item, we wanted to be ready, willing, and able to capitalize on such an opportunity,” he said. “As a business owner, I never want to walk away from a sales opportunity, especially one that has the potential to grow at such a significant pace.”
When crafting his pricing structure, Walsh elected to inflate the price of labor in installation-only calls as a way to protect his profit margin.
“Regardless if the systems consumers purchase are economy or high-end units, HVAC systems take time to properly install,” he said. “I need to make sure I’m making a certain amount each day, so, to counteract any loss of overhead revenue, we’ve built a bit more cost into our labor and utilize a gross-profit model rather than a price-per-hour model. As a businessman, at the end of the day, I don’t care where the equipment comes from as long as I’m making the right amount of money off the installation.”
Walsh said one common problem with these types of jobs is that customers lack the proper components. Therefore, during the initial meeting, his team stresses to customers that they’re responsible for all time and material costs necessary to complete the installation.
“If the homeowner is missing materials, we make sure they’re aware that they’ll be billed for the time it takes to gather those components from the local supply house,” he said. “We bill for time and material; our clock is always running. Additionally, before we turn a wrench, we offer the customer good-better-best installation packages so that the consumer has options when it comes to any ancillary work that needs to be done.”
While sales in this sector have been sparse, Walsh said he’d rather be locked and loaded than unprepared.
“Consumers are shopping online nowadays,” he said. “You can’t stop that from happening. I’d rather be ahead of the game than trying to play catch up.”
While some contractors are embracing the potential of installation-only services, others, such as Rich Morgan, owner of a residential and light commercial contracting company in Mesa, Arizona, refuse to consider installing equipment that arrives outside the traditional two-step supply model.
“When a consumer approaches our company and asks if we’ll install an air conditioner that was purchased online, our answer is simply: No,” he said. “This may surprise some people, but it’s typically the answer they’ll get from most other reputable, established HVAC contractors.”
Morgan lists warranty concerns, damaged equipment, and sizing issues as the primary reasons he keeps his distance from online HVAC equipment purchases.
“Many manufacturers state they won’t warranty anything purchased online unless it’s installed by a licensed contractor, which sounds great, right? Consumers should be covered when working with professional contractors,” he said. “However, that’s where the problems start to come in. Lines start to get blurry between what problems were created during installation and how to handle sizing, airflow, or actual equipment issues. Both the installing contractor and retailer have reasons to point at each other as the problem, leaving the consumer in the middle.”
HVAC units are not plug-and-play systems, which is something many consumers don’t recognize when they purchase comfort equipment online, Morgan said.
“A new air conditioning system requires someone who understands how to purge the system with nitrogen and flush it, pull the system into a vacuum, charge it properly with refrigerant, utilize superheat and subcooling, and so much more,” he said. “When done improperly, or not according to exact manufacturer specifications, not only will the system not operate properly, but it can damage a unit to the point where it is unusable. I have seen this happen; this is not a drill. The problem with this is it gives an online retailer an opportunity to start finger-pointing, which then becomes a game of he-said, she-said. The consumer is ultimately the one left holding the bag, and attorneys cost more than the unit and installation combined.”
A NEW MODEL
Why can’t HVAC contractors sell equipment online and install it? Well, they can, as showcased by Justin Riley’s Gaithersburg, Maryland-based HVAC contracting company.
“Our business is an online marketplace designed to empower consumers shopping for heating and cooling products through transparency, availability, and choice,” Riley said.
Rather than hide costs from customers and surprise them with a grand reveal during a contract presentation, Riley showcases both equipment and labor prices on his website and encourages customers to shop accordingly.
“Our direct-to-the-public wholesale pricing is the lowest allowed by the manufacturer, and we offer expert installation of the equipment the customer chooses.”
Initially, Riley’s team focused solely on selling HVAC equipment online, but he quickly realized that anyone who purchased equipment from his company also needed an installer, so he adapted the company to fit both needs.
“Today, a very small percentage of people are buying the equipment without purchasing installation services,” he said. “We sell basic and elite installation packages and offer a discount on the equipment if you opt for us to install it.
“When it comes to HVAC contracting, it comes down to offering customers a price to do a job,” Riley continued. “We believe it’s more advantageous to deal with customers that are aware of and like our prices.”
This price transparency is allowing Riley to close 60-85% of all calls his company receives.
“The only people who call us are those who want to do business with us,” he said. “They already know our prices. When you’re upfront, honest, and transparent with customers about the price of labor and equipment, there’s really no rebuttal.”
As consumer-direct sales continue to pick up steam, Riley believes his company is in great shape to embrace this digital shift in the market.
“Change is difficult and scary, and HVAC contracting is slow to change,” he said. “Whether it’s fear of change, laziness, or ignorance, people in this industry are often intimidated by change. Unfortunately, we don’t have a choice in this matter. The consumer is changing. It’s our responsibility to acknowledge that and do our best to keep up.”
ADD TO CART
One way contractors can combat online equipment sales is by making sure their companies are appearing in Google searches for the HVAC service in their local areas.
“The real magic bullet to skyrocket to the top of Google is to be unique and have content on your website that the end-user consumes and converts on,” Riley said. “Optimizing the Google My Business listing offers a very large bang for your buck. Get reviews, respond to the reviews – even the negative ones – and post special content and blog postings on your site. These optimizations will make the phone ring. Honestly, if you’re not showing up in your local searches, you might as well close your doors.”
Whether you’re embracing, considering, or rejecting consumer-direct sales, it’s important to at least be aware of this sector’s potential impact on the future of HVAC contracting. Now’s the time to explore your market and consider adding the profit potential of this sector to your cart before your competitors jump ahead of you in line and cash in at the checkout.