Sales-Style Analysis Pays Off Terry Tanker 5
The Craft Of Communication HVACR Staff 6
The Formula For Leaving Customers More Than Satisfied David Indursky 9
How to Build a Dynamic & Highly Profitable HVAC Business Ron Smith and Jackie Rainwater 14
List Your Strengths, Weaknesses Michael Moore 18
HVACRBUSINESS.COM JANUARY 2022 / VOL.17 / NO.1
FINANCIAL BASICS FOR CONTRACTORS PART 1:
page 10
ALSO INSIDE » Ruth King: Two Things You Absolutely Must Have in 2022.....................................................................21 20 Questions with Colleen Keyworth, President of Women in HVACR.....................................22
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CONTENTS
JANUARY 2022 / VOL.17 / NO.1
F E AT U R E S
6
9
The Craft Of Communication Good leaders set the course for employees to follow. Great leaders make sure employees understand where they and the company are headed. By HVACR Business Staff
D E PA R T M E N T S
5
The Formula For Leaving Customers More than Satisfied Every person on your team has to understand they are in the business of creating “More than Satisfied” customers if they wish to be the best of the best. By David Indursky
10
Financial Basics For Contractors Part 1: Five Crucial Measures of a Sound Company
14
How to Build a Dynamic & Highly Profitable HVAC Retail Business
18
List Your Strengths, Weaknesses
Understanding the basics is key to your financial success. By Skip Snyder Service Agreements a key to winning year round. By Ron Smith and Jackie Rainwater SWOT Strengths, Weaknesses, Opportunities, Threats. They face your business every day — can you identify them? By Michael Moore
C O LU M N
21 Two Things You Absolutely Must Have in 2022
Cash and a solid maintenance program will make your company thrive in 2022. Ruth King
22
Publisher’s Page Understanding how your sales team approaches customers will enable you to provide the right support. By Terry Tanker
20 Questions with Colleen Keyworth, President of Women in HVACR
REED BORTON Owner
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THE HVACR MANAGEMENT MAGAZINE
TERRY Tanker Publisher ttanker@hvacrbusiness.com MEGAN LaSalla Art Director mlasalla@hvacrbusiness.com BRUCE Sprague Circulation Manager bs200264@sbcglobal.net
ADVERTISING STAFF ERIC Hagerman National Sales Manager Tel 216-409-3246 ehagerman@hvacrbusiness.com TERRY Tanker Publisher Tel 440-731-8600 ttanker@hvacrbusiness.com
BARBARA Kerr VP Operations bkerr@hvacrbusiness.com
HVACR Business, founded January 1981, is a monthly national trade magazine serving contractors, mechanical engineers, manufacturers, manufacturer representatives, wholesalers, distributors, trade associations, and others in the heating, ventilating, air conditioning and refrigeration (HVACR) industry primarily in the U.S. The editorial focus and mission of HVACR Business is to provide business owners and managers with the very best business management concepts available. Critical topics covered include leadership, management, strategy, finance, sales, marketing, training, education, staffing, operations, human resources, legal issues, customer service and more. We are dedicated to helping contractors master these key management skills and provide them with the resources necessary to build strong, profitable companies. Every effort is made to provide accurate information, however, the publisher assumes no responsibility for accuracy of submitted advertising and editorial information. Copyright©2022 by JFT Properties LLC. No part of this publication may be reproduced or retransmitted in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, recording or any information storage retrieval system, without the prior written permission of the publisher. Unauthorized copying may subject violators to criminal penalties as well as liabilities for substantial monetary damages up to $100,000 per infringement, costs and attorneys’ fees. This publication should not be utilized as a substitute for professional advice in specific situations. If legal, medical, accounting, financial, consulting, coaching or other professional advice is required, the services of the appropriate professional should be sought. Neither the authors nor the publisher may be held liable in any way for any interpretation or use of the information in this publication. The authors will make recommendations for solutions for you to explore. Any recommendation is always based on the authors’ research and experience. The information contained herein is accurate to the best of the publisher’s and authors’ knowledge; however, the publisher and authors can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof. Subscription Rates: Free and controlled circulation to qualified subscribers. Non-qualified persons may subscribe at the following rates: U.S. and possessions: 1 year $48; 2 years $75; 3 years $96; Canadian and foreign, 1-year $108 U.S. funds only. Single copies $8. Subscriptions are prepaid, and check or money orders only. Subscriber Services: To order a subscription or change your address, write to HVACR Business, 31674 Center Ridge Road, Suite 104, North Ridgeville, OH 44039 or call (440) 731-8600; or visit our Web site at www.hvacrbusiness.com. For questions regarding your subscription, please contact bkerr@hvacrbusiness.com. HVACR Business (ISSN 2153-2877) Copyright ©2022 is published monthly by JFT Properties LLC,31674 Center Ridge Road, Suite 104, North Ridgeville, OH 44039, Phone: 440731-8600. Periodicals postage is paid at North Ridgeville, OH and additional mailing offices. (USPS 025-431) POSTMASTER: Send address changes to HVACR Business, 31674 Center Ridge Road, Suite 104, North Ridgeville, OH 44039.
31674 Center Ridge Road, Suite 104 North Ridgeville, OH 44039 Tel: (440) 731-8600 Web site: www.hvacrbusiness.com (ISSN: 2153-2877)
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PUBLISHER’S PAGE
BY TERRY TANKER
Sales-Style Analysis Pays Off
H
ow do you analyze your sales people? It’s a fair question and one you should be able to answer. Typical answers: she’s our ace, he’s unremarkable, or he has lots of potential but is a bit raw. Not exactly descriptions that help you categorize individuals so that you can offer the best support, advice, and training. With that thought in mind, I’ll offer a few suggestions on how to identify and categorize sales people in your organization so that you can train potential stars, weed out non-performers, offer encouragement to those who need it and deliver a kick in the pants to producers that have become unmotivated.
products and is not afraid to discuss both in an open way because over the course of his career he has represented all of the major brands at one time or another. Most often he has a friendship with the client and is wary not to step over the line by taking advantage of it. Tells the customer what they need.
Understanding how your sales team approaches customers will enable you to provide the right support.
Without a rating system it’s a guessing game. As a professional manager you need an evaluation system. To help you, I’ve accumulated these categories: The Telemarketer – This is actually an outside sales person that believes they can accomplish more on the phone and with e-mail than they can making face-to-face sales calls, building relationships and moving through the sales process. Their presentation skills are often weak, and they are uncomfortable during a presentation. The Visitor – The visitor is friendly and positive and wants to be the client’s friend. Product knowledge is fair, but could be better. The visitor doesn’t challenge the customer with questions about their needs or their problems. Typically, the visitor has a canned sales approach and is simply trying to make their set number of sales calls each month. Any sales made are typically from buyers that have done a fair amount of homework and already know what brand and system they want. The Story Teller – This salesperson has been around a while and thinks they know much more than they really do about sales and the sales process. This person emphasizes comparisons among the competition — most specifically with regard to price — and assumes most, if not all, objections are price related and the reason they did not get the sale. Mr. Story Teller (aka Mr. Slick) has a not-so-subtle “me” focus and places a great deal of emphasis on his needs rather than those of the client. Slick almost always pushes the client into solutions that “he” believes in, rather than what may be most appropriate. The Journeyman – This is the resident expert who knows the business and wants to close the sale today. Products knowledge is excellent, and understands problems and the solutions. Knows strengths and weaknesses of competitive
The Partner – Has an incredibly high closing rate because they are able to sell solutions to problems. They are students of the business and more specifically of sales. They ask dozens of questions before discussing any solution for the client. They incorporate all of the good qualities of the Journeyman and have moved to the next level of sales, which is focusing their objective toward helping people and as a result they are sales leaders. While you may have different names or categories, I’m sure you recognize one or more of these individuals at your company. The important lesson is to identify your sales team’s strengths and weaknesses and set up training, tools and programs that help move individuals to the Partner level. One low-cost tool is a digital tape recorder. We use the Olympus WS-100. It weighs less than an ounce and is roughly an inch-and-a-half wide and three inches tall and is easily hidden in a shirt pocket. The recorder has a USB port and can be plugged into any computer. The digital files can be played back with any media player. Ask your sales team to tape a few sales calls. Don’t expect to get many files back at first. Experience says once the sales person replays the conversation they are embarrassed at how many mistakes and rough transitions they make. After making more calls, listening to them and making adjustments and improvements they are finally willing to share some of the taped sales calls. This is a great start, and once they share the tapes with you the real training begins. Another technique is pairing your great sales people with the not so good. Nothing is as beneficial and motivational as watching someone really good do their thing. It also provides a peer-to-peer forum, which is the best training tool of all. Since this is the start of a new year, I’d like to invite you to renew your subscription. Just click on the Subscription Center button on the left-hand side of our homepage. u
HVACR BUSINESS JANUARY 2022
5
THE CRAFT OF COMMUNICATION
BY HVACR BUSINESS STAFF
I
once had a boss bite my head off in front of all of my co-workers. The “crime” I committed turned out to be her mistake, and she later skulked into my office to offer a private apology for a very public flogging. Unfortunately, rather than opening the lines of communication, asking questions, and listening to the answers, she assumed she knew all the facts. Her knee-jerk reaction created tension (always praise in public and reprimand co-workers in private) and lessened my faith in her leadership abilities. In her defense, trouble rolls downhill and she was merely responding to a knee-jerk reaction from her boss. Had he effectively communicated his dissatisfaction with the project and
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Imaginations run wild when the grapevine drips tidbits of information. Employees will piece together cryptic knowledge to form their own picture of what is going on. If they are left without official notice for too long, and you will be managing more than you bargained for. described what caused his blood pressure to rise, only one of us would have had to lick our wounds. Instead, he waved a piece of paper in her face and stormed out of her office. Unfortunately, this chain of events
HVACR BUSINESS JANUARY 2022
happens more often than it should because people assume they work with mind readers. As leaders, it is your job to shun that notion and practice effective communication. The best way to practice effective
communication is to learn from others’ mistakes. Fortunately for you, I have witnessed (and at times committed) my share of communication fiascos. Among the most significant blunders is the practice of not communicating - at all, especially when a company-changing event is underway. Sometimes the powers that be feel that such information is on a needto-know basis and only for a select few. While employees certainly don’t need to know every detail of mergers, acquisitions, financial results and downsizing before said events, some communication is necessary at the very least to stop the rumor mill. continued on page 8
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Imaginations run wild when the grapevine drips tidbits of information. Employees will piece together cryptic knowledge to form their own picture of what is going on. If they are left without official notice for too long, you will be managing more than you bargained for. The best way to handle change is to communicate often. Let employees know that you respect their position in the company enough to explain to them what is going on. If you don’t want to commit your communiqué to paper, call a
meeting. In fact, meetings are often more effective — they lend themselves well to an open discussion that can put to rest any nasty rumors that may have surfaced. Meetings also are a way for you to really listen to your employees. Why is listening critical? Listening forms the basis of trust that builds the foundation for effective communications. Another mistake managers make is not enough one-on-one communication. Many times the only structured message an employee receives regarding performance happens when it’s too late to matter. Good
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leaders set the course for employees to follow. Great leaders make sure employees understand where they and the company are headed, have all the tools needed to reach their destination, and aren’t averse to changing course if needed. The only way great leaders can assess the situation is by talking to employees. And the only way employees will understand and execute goals is if communication is open and often. In a recent Interact/Harris Poll, communicating well is the one critical skill that 91% of 1,000 employees said their leaders lack.
According to another study, if given a chance, employees would like to sit down with the boss to discuss the competitive environment, the company’s long-term vision, the company’s strategy and industry trends. The study summarized the action plan that business owners and CEOs must take to be better communicators: “If you are the owner or CEO, you need to step out of the corner office and get more face time with the people who work for you.” Indeed, engaging employees in conversation may help you better run your busi-
The study summarized the action plan that business owners and CEOs must take to be better communicators: “If you are the owner or CEO, you need to step out of the corner office and get more face time with the people who work for you.”
The survey results, drilling down further, indicate a much deeper issue: a lack of emotional intelligence (EQ) in how business leaders and managers communicate, leading to many dysfunctions. Respondents said the communication issues that impair effective leadership are as follows: • Not recognizing employee achievements — reported by 63% of respondents. • Not giving clear directions — 57%. • Not having time to meet with employees — 52%. • Refusing to talk to subordinates — 51%.
ness. After all, these are the folks that are closest to your market. They are the ones who interact with customers and witness trends firsthand. Dismissing their contributions and keeping them out of the loop is poor business practice. I’ve worked for many bosses and I’ve observed their varied communication styles. Obviously, the ones who took the time to publicize their thoughts and listen to employees garnered the best results for the bottom line. On the other hand, those who sat in their ivory towers hoping their message would eventually make it to the masses failed miserably at reaching their goals. And it doesn’t take a mind reader to know when things are going south. u
• Taking credit for others’ ideas — 47%. • Not offering constructive criticism — 39%. • Not knowing employees’ names — 36%. • Refusing to talk to people on the phone/in-person — 34%.
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HVACR BUSINESS JANUARY 2022
• Not asking about employees’ lives outside of work — 23%.
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THE FORMULA FOR LEAVING CUSTOMERS MORE THAN SATISFIED
BY DAVID INDURSKY
I
n my November article, we reviewed the need to establish a set of “core values” to set a company’s identity. They may have seemed to be common sense to many people, but the reality is simply that we can never assume any level of a consistent value system. The examples listed in the article were all demonstrative of situations that we may meet at any time. However, that is part of the fallacy in developing the proper programs since they were all reactionary. Instead, we need to have programs and a proactive culture in place. So how do we start? First, a company that defines its identity on the specific abilities of a trade has lost the battle before it even begins. A bit confusing? Your goal should not be to become the best HVAC company in your town. Your goal must be to become the BEST overall company in all areas, the employer of choice, the best corporate citizen, the best in customer service, and so much more. Homeowners expect you to be the best in your trade. It is the cost of doing business. When was the last time you saw a competitor’s ad saying, “Hire us – we are pretty average in what we do!” Never! Everyone claims they have the best technicians. Words are just words – actions, performance and experiences are all that matter. To break free from the pack, you must differentiate yourself from others. In the past, we claimed that a neutral
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All my technicians look for that something extra in the home to help the customer (at no charge, of course). experience for a customer had little value, but if they had a good experience, they would tell three to five people. Conversely, a lousy experience meant that up to 10 people would be told how badly they were treated. Now with social media, we could multiply that number by 10 or more. This brings us to my promised discussion of Lagniappe from last time.
LAGNIAPPE A lagniappe is “a small gift given to a customer by a merchant at the time of a purchase,” or more broadly, “something given or obtained gratuitously or by way of good measure.” You can use it more generally as meaning any extra or unexpected benefit. Wikipedia Using a bakery is an excellent example. You go into a bakery and buy 12 donuts. You pay for them and receive 12 donuts. You are satisfied but tell no one about it since it is a neutral experience. You go into a bakery and buy 12 donuts. You pay for them and receive 10 donuts. You are angry and you tell everyone that they ripped you off. It is a bad experience. You go into a bakery and buy 12 donuts. You pay for them, but a sign says, “Baker’s dozen free
day – buy 12 and get one free.” You receive 13 donuts. You are satisfied but it’s no big deal since you received what they advertised. You may tell one person since it was a good deal but the expected experience. We want to experience the experience of lagniappe. You go into a bakery and buy 12 donuts. You pay for them and receive 12 donuts. However, as you are leaving, the baker comes from behind the counter and says he appreciates you as a customer and gives you a bag of fresh, hot, delicious beignets. It is a total surprise. You feel special and tell everyone you meet. It was a great experience. So, what do donuts have to do with air conditioning! Primary lesson – we are not in the business of fixing boxes – we are in the people experience business. Resolve; therefore, we must fix all their real and perceived issues and have your customers feel a genuine bond with you. As a practical example, all my technicians look for that something extra in the home to help the customer (at no charge, of course). They carry extra light bulbs and offer to change any lights that are out as a convenience. We will apply a coat of
wax (or detailer) to the condensing unit. Customers enjoy seeing the unit looking like new and protected from rust. We have walked the homeowner’s dogs on long jobs if they could not make it home. If they are elderly, ask if you could help with small items such as pulling out the refrigerator to clean behind it, or putting up a box on a shelf. Many small items take no time, cost nothing, and make the homeowner feel that you care about them. Finally, with COVID, be sure you respect their health and follow every protocol, from masks and sanitizer to social distancing. Do not assume they are OK with any shortcuts. The bottom line is that every person on your team understands they are in the business of creating “More than Satisfied” customers if they wish to be the best of the best. Stay tuned for the next article, where we discuss the true meaning of setting and attaining goals. u
David Indursky is president of ENCON, an award-winning, second-generation familyowned mechanical company in Ocean, NJ. For additional information, please visit enconmech.com.
HVACR BUSINESS JANUARY 2022
9
FINANCIAL BASICS FOR CONTRACTORS PART 1:
Five Crucial Measures of a Sound Company BY SKIP SNYDER
D
o you believe that growing your company will result in greater profits, a higher selling price, and an easier lifestyle? The reality is, these things won’t happen — despite growth — if you don’t understand and act upon some basic financial knowledge about your company. Based on the number of contractors I’ve spoken to over my many years in the hvacr business, flat performance is not a good thing. That’s why I am so passionate about contractors learning financial basics. I’d like to dispel a common myth about business finances and share with you some basic rules and formulas that I think any business owner must solidly understand. Right now, some of you are thinking:
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“You know your risk tolerance; after all, you are the entrepreneur, and you want to achieve your goals and objectives. Tempering your decision-making because you don’t understand your financials probably will curtail your success dramatically. What a crime!” “My CPA can analyze my financials and provide good advice.” Here’s why this is a myth: Your CPA has a different risk tolerance than you. Basing your decisions on your CPA’s interpretation of your financials could result in missed opportunities. Most CPAs I’ve known
HVACR BUSINESS JANUARY 2022
have been very moderate risk-takers, and they lean to the rather-safe-than-sorry philosophy. You know your risk tolerance; after all, you are the entrepreneur, and you want to achieve your goals and objectives. Tempering your decision-making because you don’t understand your financials
probably will curtail your dramatically. What a crime!
success
You, the hvacr contractor, the entrepreneur, the risk-taker, need to understand the basics of return on investment, factoring in the risk/reward ratio and understanding what you were doing last year and what you need to do differently this year. I have identified five crucial measures of a financially sound company:
1. HOW YOU FINANCE YOUR BUSINESS Most of us have monies owed to us in our accounts receivable. We also need to meet payroll, pay our vendors/suppliers, and pay ourselves. Where does this
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cash come from? How are we going to finance our business — especially if we are growing? Common sources include selling stock and negotiating lines of credit with banks; unfortunately, not paying our vendors on time and not paying ourselves an adequate salary fall into this category, too. One debt that also goes unnoticed because it’s mostly invisible is a return on investment for the investment in time, money, sweat equity, and guarantees you gamble on the venture. How you finance your business has a direct impact on your long-term success or failure. If people are calling you for money, your corporate credit cards are maxed out, and you barely take home enough money to support your family, then your finances are in trouble. Only with good business practices will you be able to pay your vendors with discounted values, pay yourself an adequate salary, and also receive some additional cash as a return on your investment.
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One debt that also goes unnoticed because it’s mostly invisible is a return on investment for the investment in time, money, sweat equity, and guarantees you gamble on the venture I have a friend who has mastered how he finances his business. He operates a $1.5 million dollar residential service and replacement business. When you look at his balance sheet, his accounts receivable shows a “negative” figure — that’s right, a negative figure. He is so aggressive in his invoicing and installation payment plan that he is prepaid for the majority of his installation and large repair work. Because I’m not a residential contractor, I was shocked at this, but he runs a tight ship and has an excellent reputation.
2. CASH IN THE BANK With good business management
and leadership, you can structure your marketing plans to gain a better relationship with your customers. One obvious win-win strategy is using maintenance agreements. I’ve seen many different maintenance programs. Some place what I consider to be an undue risk on the contractor but, as a very general concept, your maintenance agreement should accomplish two goals: Ownership of your customer. Your maintenance agreement should put you in front of your customer when a problem occurs. You should be the first call. If not, revisit your agreement. Generate working capital (cash)
for your business. Your maintenance agreement should include a “prepayment” for future visits. Depending upon your structure, you can generate enough cash to operate your business for 10 to 30 days, depending upon the marketing concept. This is free cash that is injected in your company for you to invest. As our market changes, the need to “own our customer” will become a very critical strategy.
3. WHAT YOU PAY YOURSELF AND YOUR EMPLOYEES I believe that we need to raise the bar of professionalism in our industry; not just the technician but management and leadership, too. How can we expect to attract talent in this industry when some of us don’t guarantee 40 hours a week for 52 weeks a year, vacation days, national holidays, and a health-benefit package? To me, this “I’ll pay you when there’s work” business concept is self-defeating. If we continued on page 12
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continued from page11
are striving to attract talent, we need to start from the top of our organization and work down. As a business leader, you need to change marketing strategies to give your employees a 40-hour workweek 52 weeks a year and pay them an adequate wage with benefits that is commensurate with competing industries. As the business leader, you should receive a weekly paycheck reflecting your talent, risk, and leadership skills. And as mentioned earlier and elaborated on later, you should receive that second payment for the investment in cash and guarantees you make to fund your business.
4. DISCOUNTING OF BILLS With the drop in interest rates a few years ago, many of the 2%, net 10day discounts disappeared, but with rising interest rates, they are making a comeback. This is easy money. It also makes a statement that you operate a wellfunded business and are a good credit risk.
So, you should be paying yourself a decent salary representing the work you provide; plus, the business also should pay you for the equity and guarantees you put at risk. With this reputation, vendors will come to you offering better deals. Missing these discounts is a cash loss to you and your organization.
5. PERSONAL GUARANTEES TO LENDERS I’ve had some pushback on this issue; however, I stand by my position that you should not personally guarantee loans to your business. I will concede that it took me 10 years to adequately fund my business before I went to the banks and asked that my personal guarantees be removed from business lines of credit and bonding. So let’s start by saying if you have
been in business over 10 years and still are personally guaranteeing your business lines of credit, you need to re-evaluate your business relationships and strategies. Banks are hungry for quality businesses. Leverage your business acumen, and stop guaranteeing your business debt. If you can’t, then you need to re-evaluate the funding of your business. To attain these, you need to understand the cost of doing business and the dynamics of the marketplace.
COST OF DOING BUSINESS There are a number of methods for
determining the “cost of doing business” from annual volume per technician to revenues per truck. An interesting experiment is to take your year-end financial statements, plug in the profits you desire, then calculate the number of billable days/hours per technician, including values for warranties and maintenance agreement exposures. Some of you may be surprised at the cost per hour of delivering a talented technician to the customer. Some contractors have different hourly rates for installation/ contract work and service work. It will take some research, but the time invested is worthwhile. Once you find the actual cost per hour, you may want to challenge your competitor to do a similar exercise. Sharing formulas on calculating overhead is not a conflict with anti-trust issues. With this “cost to deliver” a talented technician, you will appreciate the damage done to your business by underbidding work and guessing at what you should be charging per hour.
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HVACR BUSINESS JANUARY 2022
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DYNAMICS OF THE MARKETPLACE Do you compensate yourself for putting your personal assets at risk? What about the equity built up in your business or the time and worry in building and then operating the business? I’m not speaking about what shows up in your salary; instead, it’s compensation for putting the business and personal equity at risk every day. What risk are you exposed to? Let me name a few: Lawsuits, pollution, discrimination, accidents (trucks/cars), accidents with system failures, carbon monoxide issues, customer bankruptcy, employee theft, workers compensation, and ever-rising health insurance. Consider this: If you had $200,000 to loan to an hvacr business, and you calculated what your return should be based on the risk exposure for your investment, what would you expect annually? Compare this with putting the money in U.S. Treasury bonds or junk bonds. Should the return be 10%, 20%, or
more? Some say the return should be close to 30%. So, you should be paying yourself a decent salary representing the work you provide; plus, the business also should pay you for the equity and guarantees you put at risk. If you have $200,000 at risk, the company should also be paying you 30% annually on that $200,000 above and beyond your reasonable compensation. Next month’s column will address job costing, gross margins, managing accounts receivable, and a variety of formulas such as working capital and return on sales. u
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HOW TO BUILD A DYNAMIC & HIGHLY PROFITABLE HVAC RETAIL BUSINESS With Residential Service Agreements
BY RON SMITH AND JACKIE RAINWATER This year, in each issue of HVACR Business we’ll be publishing an article from our archive based on popularity and website traffic. This is the first in a series from Ron Smith and Jackie Rainwater. We hope you enjoy.
A
fter a combined career in the hvac industry of over 90 years, we can say one thing with absolute certainty: We fully recognize and understand the importance of residential service agreements in growing a highly successful retail hvac business! We were each fortunate enough to successfully develop and operate large, highly profitable retail hvac businesses, one in Fort Myers, Florida and the other in Atlanta Georgia. These two markets have significant differences in their climates and demographics; however, we utilized
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Residential service agreements are known by many names, such as maintenance agreements, service agreements, service contracts, energy-savings agreements, comfort agreements, etc. Residential service agreements include periodic maintenance, inspection, cleaning, and testing of hvac equipment and accessories typically twice a year.
HVACR BUSINESS JANUARY 2022
the same basic principals and philosophies in growing our businesses. Beginning with this issue and continuing with the March and April issues, we will share with you many of the things we have learned about the use of residential service agreements in building a residential retail contracting business. Residential service agreements are known by many names, such as continued on page 16
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Are you looking for more time, money or freedom? We have the training tools for you. Training can provide benefits to both an individual and the business where they work. At Goodman, we believe ongoing training is worth the investment. Training may help develop skills that increase productivity, improve employee morale and help boost a company’s profit margin. Benefits of Ongoing Industry Training: Stay Informed of Industry Changes Increase Job Satisfaction and Internal Promotion Opportunities
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Sales • Business • Technician and Technical Training The Goodman Business Toolbox programs are presented and administered by third-party training organizations. All training programs are designed to support independent HVAC contractors who sell Goodman® brand products. Any costs for the training programs are determined and charged directly by the third-party training organizations. Our continuing commitment to quality products may mean a change in specifications without notice. 2021 Goodman Manufacturing Company, L.P. Houston, Texas USA
continued from page14
maintenance agreements, service agreements, service contracts, energy-savings agreements, comfort agreements, etc. Residential service agreements include periodic maintenance, inspection, cleaning, and testing of hvac equipment and accessories typically twice a year. Additionally, they also include certain customer benefits such as discounts for repairs, overtime work at regular rates, priority customer status, and more. A complete list of customer benefits will follow. Residential service agreements are not “full-coverage” service agreements that typically include costs associated with repairs (parts and labor), nor are they extended warranties. We have learned through communicating with thousands of hvac contractors throughout North America that there are three primary obstacles to building a highly successful hvac residential retail company. 1. The inability to attract and retain good people (technical, support, management, and sales). 2. Difficulty in driving revenues during mild weather periods. 3. Overcoming low-price competitors in the marketplace. The only consistent long-term solution we have found to these problems is the development of a large, loyal service agreement customer base. This, combined with the establishment of an appropriate company culture, ongoing training, and the use of effective systems and procedures will overcome these three primary barriers to growth, profitability, and sustainability. Easier said than done! We have also learned that in order to succeed in building a successful hvac and IAQ retail contracting company, it is mandatory to complete the necessary up-front preparations, have proper implementation, and then continue the disciplines required to assure service-agreement customers continue to renew their agreements each year. Our advice to those unwilling to make the firm commitment to take these steps is: DON’T sell residential service agreements! Selling residential service agreements without the systems and processes in place to assure renewals, referrals, and ongoing retail revenues from these customers will actually cost your
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company money. We have both observed false starts by contractors, most often caused by their early enthusiasm and haste in getting their residential service-agreement program up and running. Typically, this is caused by the contractor’s lack of understanding or their unwillingness to put the basics in place. First, the owner of the company must be absolutely committed to the success of the service-agreement program and must fully understand how it operates. The owner must totally support the effort. And the owner must demonstrate the same degree of excitement for a $150 residential service-agreement sale as they do for a $15,000 equipment-replacement sale. The owner must understand that a residential service-agreement customer, is properly cared for and marketed to, can provide an annual average of over $700 in revenues with little if any price sensitivity and with a minimum of marketing cost, as well as an ongoing source of new customer referrals. A residential service-agreement customer represents a future replacement and IAQ accessories sale. It is important that not only the owner, but all leaders and other co-workers fully understand and appreciate the residential service-agreement program and the many benefits it affords. A “service-agreement culture” is the objective. In fact, with the right explanation, combined with initial and on-going training and co-worker participation, a culture can be achieved whereby the co-workers, including service and maintenance technicians, will actually feel sorry for anyone in their service area who does not own one of the company’s residential service agreements. Here are the benefits enjoyed by all three parties — the customer, the coworker, and the company:
CUSTOMER BENEFITS • Lower monthly utility bills • Fewer inconvenient and expensive service calls • Longer equipment life • No overtime charges • Discount on any required service calls (parts and labor) • Priority customer status • Regular information on available products and services • Compliance with extended warranties conditions
HVACR BUSINESS JANUARY 2022
• • • • •
Peace of mind Improved safety Improved comfort Improved IAQ Improved cooling and heating equipment capacity • Protection against rising energy costs • Being a good citizen through helping conserve our nation’s energy supply
• Quality precision tune-up procedures by the technicians • Procedures by the technician in selling service agreements • • • •
CO-WORKER BENEFITS • More work available year round
•
• Happier customers to interact with • Cleaner equipment to work on • Additional compensation earned from spiffs and commissions • More, and better-qualified sales leads for equipment and accessories year round • Benefits of working for a more stable and growing company • Improved career-path opportunities
• • • • •
•
• More predictable working hours • Increased job satisfaction
COMPANY BENEFITS • Increased and sustainable revenue growth and profitability • Improved cash flow • More, and better-qualified equipment, accessory, and IAQ sales leads year round • Reduced advertising and marketing cost • Increased company value • More predictable workload and revenue growth • Reduced co-worker turnover • Increased customer retention • More referrals from happy customers • Easier to attract new co-workers • Improved sales closure rates • More sales of higher priced high efficiency and variable speed equipment, accessories, and IAQ products and services This series of articles will include information on: • Procedures for converting demand service calls to service agreements • Procedures for converting precision tune-ups to service agreements
• • • • •
The renewal of service agreements On-going structured training Forms and documents Support co-worker (dispatchers and customer-service representatives) training A co-worker spiff program to reward sales and renewals of service agreements Operating software The necessary performance-tracking information Pricing strategy How to market precision tune-ups Procedures by the technicians in developing equipment-replacement sales leads Profiling natural behavior characteristics of technicians and support staff Realistic and practical benchmarks Establishing a maintenance department Maintenance technicians vs. service technicians Your company’s identity Debriefing of service calls and precision tune-ups
In the March issue we will discuss in detail the specific steps necessary to prepare your company to build your residential service-agreement customer base and leverage it for increased growth and profits. u
Ron Smith is a well-known authority in the HVACR business with more than 50 years of experience as a contractor, franchisor, consolidator, and consultant. He is the author of HVAC Spells Wealth, More and New HVAC Spells Wealth and HVAC Light Commercial Service Agreements. Jackie Rainwater was a 46-year hvacr veteran and former owner of Peachtree Heating and Air-Conditioning in Atlanta. He built his businesses on service agreements.
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LIST YOUR STRENGTHS, WEAKNESSES
Conducting a proper SWOT analysis for your business is easier than you might think BY MICHAEL MOORE
T
o position your business in your particular market, you need to know who your competition is, and what they’re doing. A great way to gain insight is to run a SWOT analysis on the major competitors in your market. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. If you’ve already done that, some of the insights you gained will be useful in analyzing your own business. If you haven’t, don’t worry. You’ll have a chance to gather useful data about your competitors while analyzing your own company. Assessing the strengths and weaknesses of your own business can be easier — you have access to all of the information you
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Benefits of a written job description? It helps you in the hiring process by providing employees with your expectations as well as assisting with evaluating future performance. need. It can also be harder — it’s tough to be objective about your company.
VITAL TOOL SWOT analyses are a vital tool for business and marketing. They help you to organize important information about your company and your market, before launching a new action plan. Anyone
HVACR BUSINESS JANUARY 2022
can make decisions based on hunches and what seems obvious, but similar to a general in wartime, you need the best information you can gather, to create a winning strategy. By the way, you can enlist others. If you have a management staff, or a business partner, or a few key employees you trust, you can recruit your team to help you
build your SWOT lists. It’s fairly common for business owners and managers to avoid sharing financial details with their service (and sometimes sales) departments. Knowing where the business stands, however — what’s going great for it and what elements are acting against it — can help your staff to understand the importance of their roles to the business’s health. When people feel included and valued, they are more likely to work hard to make the whole enterprise more successful.
VISION If you don’t have a vision for your business, there’s not much point in analyzing whether your current situation
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and strategies will get you there. If, for instance, you’re aiming to be the premier HVACR company in your area, offering stellar customer service and high-end products, that gives you more details to work with than wanting to make money. You run a SWOT analysis to help your business become more profitable, but that’s not the same as having a vision for what you want the company to be. You can also start with a question. For instance, “Do I need to grow my service department?” could be an area you use a SWOT analysis to explore. “Should we start offering an additional service?” is another example of a question that a SWOT analysis can help you determine the answer to. The process of conducting the analysis doesn’t change, whether it’s a single facet of your strategy, or an entire operational plan that you’re building.
STRENGTHS These are internal factors. Make a list of your business’s strengths. These could include employee dynamics, such as having a strong and close-knit team, financial details, having a good location for your business, competitive advantages, and perhaps pricing. The list doesn’t have to be perfectly complete. You can add to it later.
WEAKNESSES These are also internal, and may be less comfortable to evaluate. What factors could put your business at a disadvantage in your market? These will be things inherent to your business, not threats from outside. We’ll get to those in a bit. Examples of internal weaknesses could be things such as low employee morale, not having enough new customers to support business growth, having trouble stocking enough equipment, parts and supplies, billing issues, low profit margins, and so on. If your list seems long, don’t despair. The results of your analysis can help you to improve your business. If you do this again in a year (and you should), the weaknesses you find now may be gone, or significantly reduced.
OPPORTUNITIES These are external factors. Consider your market, and what’s going on in the industry. For instance, digital tools that allow you to train new hires without sending them away to a school or class, or that make it easier for your sales team to
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The results of your analysis can help you to improve your business. If you do this again in a year (and you should), the weaknesses you find now may be gone, or significantly reduced. present information on new products or services to your customers, could present opportunities.
four!) number one items. Each entry in your list gets one number, in descending order of priority.
Perhaps there’s been a recent influx of younger homeowners in your market. That could be an opportunity to gain new customers. Partnerships with other businesses or suppliers of products, training or tools may also help you to gain a competitive advantage.
STRATEGIZE
Some factors may be an opportunity for one area of your business, but register as a threat for another. For instance, if you’re thinking of expanding your services to include a service that a competitor has the corner on, that’s an opportunity to increase profit. But, it could also make your competition seem extra threatening. However you look at it, don’t list the same things in both the Opportunities and Threats categories.
THREATS This final category is also for external influences. The industry-wide shortage of HVACR installers and technicians could be a threat. Increasing competition in your market, rising costs of equipment and supplies, or unfavorable weather could all be external threats, not under your control.
WHAT’S NEXT? Now that you’ve listed Strengths, Weaknesses, Opportunities and Threats, what do you do with that information? As far as organization goes, it’s a decent idea to put your categories side-by-side, such as in a spreadsheet format, so you can look at them all at once. At this point, the items on your sheet may seem overwhelming. It’s okay. You are not going to be able to tackle everything at once, no matter how awesome you are. That’s why the next step is to prioritize. For each of your four lists, reorder and number the entries so that you have the most critical item at the top, the second most urgent item next, and so on. No cheating. You can’t have two or three (or
This is where we get to the good part. You’ve got your prioritized lists, so now you can use that information to develop a strategy that will make your business more profitable. Ask yourself these questions, while reviewing the factors you’ve listed. 1. How can our strengths help us seize the opportunities we’ve found? 2. In what ways can these strengths help us nullify the threats? 3. Weaknesses can keep us from seizing the opportunities. What actions are needed to surmount our weaknesses, so we can make use of the opportunities? 4. What do we need to do to overcome our weaknesses, so we can deal with the threats? KPIs can help, too. In addition to the answers you come up with for the above questions, these operational Key Performance Indicators can help to guide your strategy. Whether your business is small, or one of the biggest fish in town, everything you do needs to stem from a culture based on ethics, excellence and integrity. Model these traits for your employees, insist on them when serving customers, and reinforce them with training. In a Residential Add On Replacement sector, everyone in the business needs to know and understand the maintenance agreement business model. Maintenance agreements aren’t just for filling in hours during slow months. They can be a sophisticated marketing platform to help maintain and grow your customer base. It’s more profitable to cultivate a long-lasting service relationship with each customer, than to have to constantly add new customers because you’ve lost touch with those you had.
All managers and employees need to understand the financial numbers and KPIs. How can they help to boost business performance, if they don’t know what’s needed and expected? For a residential service, maintenance and replacement company, the gross margin should be about 42 percent. Margins and overhead change by business segment, so a plumbing company wouldn’t use exactly the same figures as a residential HVACR company, or a company working more in the commercial sector. If you’re primarily in the residential service, maintenance and replacement business, overhead should be 28 percent or less. This is one of the places where your pricing comes into play. All system replacement jobs should be completed in one day. These are relatively easy jobs that should not entail any complex troubleshooting or diagnosis. Use these “gravy” jobs to maximize your gross profit dollars per day. Running a SWOT analysis does not give you the strategy to make your business grow and increase profit. What it does is show you the areas where you’re doing well, things you can improve on and external factors that you can proactively address to build a plan for the next year. Next time, you may be quite impressed with how you’ve managed to strengthen your business, using a plan based on the results of your SWOT analysis. u
Mike Moore was a founding member of Lennox Learning Solutions and Director of Training. He focused on helping HVACR leaders, salespeople and technicians grow their businesses and develop their skills.
HVACR BUSINESS JANUARY 2022
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FINANCE
BY RUTH KING
Two Things You Absolutely Must Have in 2022
F
irst, happy 2022. I wish you a safe and healthy year. Two things are critical, not only for survival but to sleep well at night: a thriving maintenance program and cash.
grow your maintenance program: Your company is worth more. At some point, you will exit your business. I hope it is by plan rather than due to a surprise health issue. If you sell it to outsiders (nonfamily members or employees), the multiple they will pay partially depends on the number of renewable maintenance agreements you have. They look at maintenance as predictable cash flow.
The amount of cash you need depends on your appetite for risk.
CASH The amount of cash you need depends on your appetite for risk. If you love risk and the thrill of skating on the edge, only have enough cash to pay your bills and squeak by with payroll each week. Generally, this cash is in your operating account, and there is zero, or close to zero, in a savings account.
Beware: If you have 3,000 maintenance agreements, and only 50% renew each year, that is of less value to an investor than having 2,000 maintenance agreements with a 90% renewal each year. This is because they look at the number AND renewal rate.
If you are risk-averse and take no risks at all with your business, then you probably have at least a year’s worth (or two) of operating expenses in a savings account (either in the business or personally) at all times.
So, if your renewal rate is under 80%, one of your 2022 goals should be to get the renewal rate to at least 80%. Even if a business sale is not in your plans, a higher renewal rate means less that you have to replace each year.
What’s a good middle ground? 1. Determine your payroll expense for the busiest month of the year. Then multiply this number by three.
2. Put all of your residential maintenance money received (or all of the renewal money received) in a savings account.
2. Determine your overhead expense for the busiest month of the year. Then multiply this number by six.
3. Put 5% of your commercial maintenance money received in a savings account.
3. Add the two numbers together. The addition of the two numbers is a “middle ground” of the cash to be stored in a savings account. Some of you already have this amount saved. However, if you don’t and want to use this cash formula, then one of your goals for 2022 would be savings to this level.
The fastest I’ve ever seen a savings account built on maintenance money savings is $1.7 million in 5 years. You can do it with focus and growth of maintenance.
YOUR THRIVING MAINTENANCE PROGRAM
How do you do it?
Imagine if maintenance customers paid for the entire overhead of your company. What is that number?
1. Save 1% to 2% of every dollar that comes in the door. If you get payments of $10,000, put $200 in the savings account. You still have $9.800 to operate on. The small amounts add up quickly.
The residential calculation is easier than the commercial calculation. Residentially take the price of your maintenance agreement and divide it by your estimated 2022 overhead. The number will probably be large. However, it is feasible to attain it.
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Commercially, take the average dollar amount of your maintenance plans and divide it by your estimated 2022 overhead. Remember, this is an average. You’ll have some maintenance plans that are higher in revenue and some lower. Nevertheless, it should be feasible to attain the average.
Grow your cash reserves and your maintenance plans in 2022. Having enough cash in the bank gives you the confidence to handle any cash crisis that occurs. In addition, having enough maintenance plans gives you the confidence that your business is more valuable and your cash flow is more predictable. u
Here’s why I use revenues to calculate the number rather than cost: On average, residentially you get $1 in service or replacement revenue for each dollar of maintenance revenue. In addition, the closing ratio is 80% or higher on replacement proposals for maintenance clients.
Ruth King has more than 25 years of experience in the HVACR industry and has worked with contractors, distributors and manufacturers to help grow their companies and become more profitable. Contact Ruth at ruthking@hvacchannel.tv or at 770-729-0258.
On average, commercially, you get $2 to $4 in service or replacement revenue for each dollar of maintenance revenue. Unfortunately, the closing ratio is not as high on replacements – many corporations require three bids … even if you are their preferred vendor. And an even more important reason to
HVACR BUSINESS JANUARY 2022
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20QUESTIONS >>
with COLLEEN KEYWORTH
Terry Tanker sat down with Colleen Keyworth president of Women in HVACR to discuss the organization, growing up in a contracting family, on-line marketing and being named Service Nations Woman of the Year 2020. 1. How would you finish this sentence: “People would be surprised to know I ...” was a former kayak tour guide in the Everglades.
2. You have a salespersons motto, can you share that with us?
My motto in life has always been, “Work until you no longer have to introduce yourself,” and I even have that on my wall.
3. Your father and uncle own Vincent’s Heating & Plumbing. Is that how you got your start?
I went back after college, but I wasn’t ready. My uncle fired me! And, he should have. I left work and missed an important call to go shopping. I was 20, I wasn’t focused. I didn’t get it. From there, I was holding down four jobs. Event planning full time, which I loved. I also worked midnights at Meijers, worked as a greeting card distributor and as a childcare provider.
I direct all sales, marketing, events and our social media departments for Online Access and help coordinate Vincent’s social media, community outreach activities and marketing.
9. Can you tell me more about both companies?
Vincent’s is a contracting company in Port Huron, Michigan, and we have 17 techs and do residential light commercial HVAC, plumbing and drain cleaning. in addition, Online Access manages online marketing for and develops and maintains over 500 websites for customers all over the U.S. and Canada, and we’ve been in business for 21 years.
10. How is Online Access unique from other vendors?
In the ’60s, my grandfather worked for this grumpy old man named Vincent Unte. His company was Vincent’s Heating and Plumbing, and when my grandfather bought it in 1968, he kept the name. And our motto is, “Wherever you see a Vincent van Gogh, you know the job will be a work of art.” Pretty catchy.
We own a contracting company. That gives us a great perspective to understand our customers’ wants and needs. We have an entire staff of full-time in-house programmers, graphic designers, customer support, and our own product development, sales and social media teams. Our turnaround time for our client’s customer service requests is the same day, and that’s unique in the industry. We’re also subscription-based and are low-cost and accessible to everyone.
5. What brought you back to the family business?
11. After contractors hire Online Access, what do you have to teach them?
4. How was Vincent’s started?
My dad told me that I’d be very good at sales for a long time. I happened to be at an event and got up in front of 400 people and loved it. Something clicked. The company putting on the event wanted me to join their sales team. But then, I immediately called my dad and said, “Hey, is that sales position still open?”
When you hire an outside expert, let them do their job to help you. Contractors are the experts when it comes to HVAC. We’re the experts when it comes to on-line marketing; it’s all we do. Often, we have to help them take their hand off the wheel and let us drive this part of their business.
6. So, you were going to sell for Vincent’s?
12. Are there too many cooks in the kitchen?
Actually, no, for another company he had started called Online Access. This is a digital marketing company for contractors. It’s a hosting platform for websites and a content management system. We created a nontemplate-based system to develop custom websites for contractors. It was revolutionary in early 2000. I joined Online Access in early 2013.
7. Why did your father (Dave Squires) see a need for this?
My dad worked with many manufacturers and wholesalers because he had invented a refrigeration recovery unit and worked with Muller Brass. He was also involved with a lot of boards and early best practice groups. Because of this, he saw the need for a marketing platform for contractors.
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8. What do you do for Vincent’s and Online Access?
HVACR BUSINESS JANUARY 2022
HaHa yes. Sometimes we have to help them get out of their way. We understand their passion, but they’ve hired us to do a job to help them better navigate this side of their business.
13. How much does it cost a contractor to have a website developed by Online Access?
We can do it all for under $1000 a month, and that includes our top bells and whistle package. Our turnaround time to get a customer live is about two weeks assuming they are active participants in the process.
14. You just became president of Women in HVACR. How did you get involved?
I went to an industry show and I met my now mentor, Patti Ellington. She was at the entrance, with all these sparkling lanyards, I wanted to know what it was all about. I introduced myself, and she knew my dad because Online Access has provided Women in HVACR’s website since Ruth King started the organization.
15. After that meeting, you joined?
Yes, I joined the following year in 2015 and I’ve been on the board ever since. Back then, we had about 100 members; now we have over 700!
16. Last year you were also named Service Nations Woman of the Year, correct? I was just shocked when Matt Michelle announced that at their virtual conference for Service World Expo. I have been involved with Service Round Table from my start and have done a lot of work for their advisory board groups too. It was such an honor and surprise for me.
17. What three business principles guide you?
Lead with compassion, definitely have a sense of humor and be transparent.
18. What are the best lessons that you learned from being in the family business?
Make sure you show up to work and don’t get fired by your uncle ... lol. Have some humility, and give people a chance to share their thoughts and ideas.
19. Do you have a business philosophy?
I have two. Work until you no longer have to introduce yourself. And would you rather be right or would you rather be successful?
20. What are your top three management strengths and weaknesses? Passion, knowledge and connections. Weaknesses, stop making assumptions. sometimes I rush to fix a problem I get ahead of myself. This circles back to “would you rather be right? Or would you rather be successful?”
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