By Ed Cardell
In my 25+ years in this business, I can’t remember a more challenging time. The warmer winters are painful enough. But there are longer term trends – like fewer gallons per customer, increased gas conversions, hyper-competition from both full service and discount companies, and increased customer churn – that seem to be here to stay.
Our business is both growing in complexity and risk. The margin for error is shrinking. And the need to evolve – to get better and find new ways of operating – is accelerating on all fronts.
How Are You Responding?
A few years back, I launched an initiative to bring together small-sized, non-competing fuel companies, which would provide members with the opportunity to figure our new and better ways of doing business. We call them Breakthrough Groups. They give each company the opportunity to learn from the experiences of others, from their moderator and from all of our groups combined. They facilitate true breakthroughs.
The results have been exceptional. There is usually someone who has valuable experience in an area that is important to someone else. Because the companies don’t compete, they can get real. It allows members to leapfrog their learning curve, avoid costly missteps, and more quickly adopt better approaches.
We just finished moderating several meetings last month. I wanted to share a few of the many things that came out that I thought were interesting. They skim the surface of what was discussed, but they may be helpful to you.
The Great Sales Debate – “Innies” vs. “Outies”
In several of our groups, we’ve had a raging debate between the “innies” and the “outies.” The outies used outside sales reps, who were supposed to chase down movers, hand out their flyers in neighborhoods, do a walk-through for new customers, network at Chamber of Commerce meetings, field sales leads on their cell phones, etc.
The innies used salespeople who were mostly strapped to their desk, handling incoming calls, making outbound calls during slow times, handling retention calls, etc. Some of them used real inside salespeople; others used general CSRs who were also tasked with selling.
Over the past couple of years, we’ve tracked the relative effectiveness of each approach, based on cost per closed lead and other metrics. In every case where companies switched form outside sales to inside, their sales numbers went up and their cost went down, often dramatically. However, the use of CSRs to handle sales calls, rather than true inside salespeople, is fraught with danger. When we mystery shopped companies, it became clear that how sales leads are handled is the Achilles’ heel of most companies, and it deserves significant attention.
Best Practices for Implementing Flat Rate Pricing
If you don’t bill your service on a flat-rate basis, as Gomer said, “Shame, shame, shame!” (Wow, I really am showing my age.) It is one of those essential tools that adds profitability to your HVAC department at a time when you can’t rely on your oil margin alone. And it can appeal to customers, to boot.
But implementing flat rate to its fullest potential is not so simple, at least by what we’ve found out in our group mee3tings. We discussed different aspects, from getting techs to buy in and making sure they were using it correctly, to resolving service disputes and communicating its virtues to customers.
One big eye-opener was simply looking at the labor rates that companies were building in to their flat-rate models. In one meeting, seven of the nine companies had switched to flat rate. But their labor rates varied from $129/hour to $250/hour, and not because of the economic conditions in their particular markets. In fact, the highest rate was being charged by a company in one of the most depressed places.
What ensued was a vibrant discussion about what was possible, necessary and fair. It definitely changed minds. Though no one else was jumping up to $250/hr so quickly, several others were planning to raise rates immediately upon returning to their companies. There is something so powerful about testing your “sacred cow” beliefs with other business leaders in similar situations who are not trying to show you up, but only to be of help.
Discount Oil – If you can’t beat ‘em…join ‘em?
As more homeowners opt for discount oil, the question has started to move down from “whether or not to do it” to “how to do it best.” The range of approaches was broad. Most ran discount operations as completely separate entities. One intrepid company was experimenting with offering it as a “good, better, best” option under their regular brand. We were able to dig into the relative costs and beliefs of different approaches, discuss what marketing angles were working best, and also explore target margins and price elasticity of these buyers. One company shared that the smartest thing they did was to use email alerts to spur orders when they were going into an area. Another company used a donation tie-in to attract business and get a higher margin. Still another had reduced overhead by making it virtually impossible for callers to get a live person, etc.
So there are different ways to skin this cat, each with different benefits and drawbacks. The trick is to consider all your options so you can make the best choice for your company.
Figuring Out What to Measure
It is an old adage that “what gets measured, gets managed.” In several of our groups, we benchmark key metrics to allow members to compare themselves against peers in a real apples-to-apples way. Too often, general industry numbers are apples to oranges. For instance, if you compare new customer gains and losses, how do you define an active account (i.e., will calls). When you compare service costs, do you include benefits? Unless the methodology is pure, the numbers don’t end up meaning much. But if you can get numbers that are apples to apples, then you can start zeroing in on areas that deserve attention. And often, simply forcing ourselves to come up with our own numbers can be a game-changing experience.
Of course, there’s so much more I could tell you than can be covered in a single article. From time to time, I’ll try to share some more ideas. These are challenging times, and it doesn’t look like they’ll get easier anytime soon. Find ways to expand your range of possibilities, learn from others’ successes and mistakes, and accelerate your evolution, whether through our Breakthrough Groups or through other means. Because as Bob Dylan said a long time ago, “The times, they are a-changing.”