Swimming with the Sharks: Transforming your Service Department

Posted on May 14, 2013

It’s been 5 years since I started working with fuel companies as part of the Warm Thoughts team, helping them diversify their service businesses and turn them into profit centers. Those of you who know me know that my own personal background is not in the oilheat and propane space. And while it’s true that I began my career as a power plan technician working on commercial oil burners, I’ve spent the vast majority of my career fully entrenched in the HVAC world. I first served as division manager of a multi-state HVAC equipment distributor, and then served as general manager of one of the largest residential HVAC companies in the mid-Atlantic, serving over 70,000 customers.

I’ve been thinking about what I’ve experienced since I started working with oil and propane companies as part of Warm Thoughts, and the lessons I can pass on. Many of our clients realize that diversifying is no longer a goal, it’s a necessity. They also realize that they can no longer subsidize their service operations as a means to hold onto gallons. Simply put, there aren’t enough gallons to go around, and service departments increasingly need to be profitable in their own right, through a combination of smart management and diversified offerings. From a management and operational standpoint, there’s a huge difference between running a diversified fuel service department for profit and running it for retention. If you don’t get the strategy right, and execute well, all you do is create more ways to lose more money.

Here’s what I can tell you – It is absolutely possible for a traditional fuel dealer to make money at service. One company I worked with went from a $600,000 loss in service to a $400,000 gain. I worked with another company and eliminated a $250,000 loss just by getting their purchasing process and inventory under control. I’ve seen companies double their equipment sales in just a couple of years, and others successfully introduce home performance contracting (energy audits, insulation, weatherization, etc.) into their repertoire.

But it’s not easy. You will face a number of significant challenges, not least of which is transforming the way your team operates, and replacing ingrained, “comfortable” behaviors with new ones. It takes discipline, perseverance, and a steadfast commitment to accomplish this. For those of you who are coming to terms with the reality of this new world and are trying to figure out how to turn the corner, here are some of the most important areas to focus.

Identifying your KPIs and Managing to the Numbers
Any company worth its salt is very in tune to its key numbers. Supervisors, managers and owners use certain key performance metrics to manage their skilled labor in order to assure profitability. Two key metrics you should be managing to are:
- Revenue per technician on at least a monthly basis.
  Including credit for service agreement work and covered parts and labor contracts, your revenue per residential service technician should be at least $175,000 annually. Best-in-class contractors and dealers operate at closer to $200,000 per service tech. To reach these targets, you’ll need technicians who are well-trained and comfortable charging properly and fairly for their service. You’ll also need to equip them with a flat-rate pricing system that is straight-forward and easy to use.
- Gross margin by department (service, service agreements and installation).
  From what I’ve seen over the past five years working with fuel companies across the mid-Atlantic, there are two areas where gross margin opportunity is missed. The first is during the equipment sales and estimating process, when your equipment salesmen don’t fully recognize the true costs of completing an install job. The second is during both service calls and install jobs, when the work can often be done more quickly and efficiently without sacrificing quality. By looking at each department’s gross margin separately (and looking at your sales and estimating process), you’ll be able to sales into profit.
Changing Decades-Old Behaviors of your service employees
Spend time talking with your technicians about the true cost of running a fully allocated service van. Discuss the cost of unapplied vs. applied time and the others costs that must be factored in, like travel, overhead, etc. This way, you can erode the all-too-common thinking that “I get paid $20 an hour, the part costs $30 and so it’s unfair to charge the customer more than $80 or $90 for the repair.”
Be sure to follow the education up with coaching and training on how to have financial conversations with homeowners. Your techs are probably not used to talking with customers about money. And they are probably quite uncomfortable quoting even reasonable prices for repairs. Educate first, train second, and you will begin to see changes in employee behavior and company operations.
Staffing your company and hiring technicians that can help you diversify and grow, not get in the way.
The reality is that there will be some employees who simply do not have the ability to change or flat-out refuse to change their ways. As difficult as it can be, the best option in this case is to reassign or replace them with the right people. If your department is filled with techs who are technically proficient but also have solid communication skills with a willingness to learn, you win. In fact, many fuel and hvac companies are doing personality profile assessments as part of their recruiting and hiring process. They are actively looking for and utilizing proven screening techniques to find techs who have appropriate levels of customer service savvy and salesmanship potential. Those companies are also recognizing that technical skills can be taught, so it’s more important to hire someone with the right personality traits for in-home sales and service.

The grim reality is that whether we like it or not, building a diversified and profitable service department is a necessity. The days are gone when we could make up for service losses with a big margin and big gallons. David Singer, a client at Robison Energy in NY and a terrific marketer, put it best when he said, “we used to manage to margin and to customer satisfaction. We’ve never really managed to profit. Now, it can’t be avoided.” Truer words have never been spoken in our industry. And I hope the insights I’ve shared here will help you navigate the often rocky waters of transforming your service department from “problem area” to “profit center”.