In the latest free Clip of the Week, Gary Elekes is back, talking about mindset. Specifically, in response to a viewer question, he explains the connection between fostering a successful mindset in your service techs and those techs going beyond simply fixing equipment and actively selling accessories, such as filters or service agreements.

This clip is an excerpt of the full EGIA Contractor University Weekly Show. If you’re an EGIA Plus or Premium Member, click here to view the full Weekly Show.

Question: How do you maintain good cash flow during the slow times?

Gary Elekes: Cash flow is the key to driving the business in its growth pattern. We usually have good cash flow during our peak seasons, and then the transition periods are kind of “hold on, buckle up and keep saving what we created during our peak period.” So there’s a number of issues.

I think the first thing would be that we actually have a planned cash flow statement, and that’s a mystery to a lot of contractors. They can log-on to the website [EGIA.org], or put a search function in for cash flow, and there’ll be a simplified as well as a more detailed cash flow template that will pop up. So typically what we’d do is project the sales for each of the businesses – for demand service, maintenance, replacement, new construction, commercial etc. And then the collections that come from those sales are not always timely. Some of those are collected at time of completion; some of those are collected over a period of days, weeks or months. So what we do is we lay in when that money comes due to us, when we expect it, and then there’s an expense pattern – there’s basically cash-in and cash-out. So we want to project our cash-out and really what we want to be able to do is maintain liquidity in the business.

So that’s a misunderstood metric inside of the trade. A lot of companies don’t really understand “how much should I have around?” Typically we would recommend about 10% of your yearly sales be in some form of operating cash flow. So that’s going to include cash, that’s going to include immediate receivables — what we call current receivables in the 0 to 30 day call. So as long as that divided by the sales revenue is somewhere around 10% — we’d like to see 15, but in your slow period that’s kind of going to be a struggle – that’s really the secret: being able to understand that.

Then the second layer of that is being able to understand your expense pattern; how businesses are actually burning money. What we call the burn rate. And that really comes down to two basic variables.

There’s a fixed type of an expense, something like rent or an insurance payment. Those are going to be very difficult to change in a week to week, month to month, even — yearly is when we can start making those types of adjustments. So those we’re kind of stuck with. And those are typically about two-thirds of the expense pattern of the overhead of a business. And that’s just 20 years of history doing budgets and financial planning and all that good stuff.

The other one-third is variable, and that’s stuff that we can control like gasoline and the number of events that I might have an a service call, or a two-day job vs a one-day job requires me to be there twice. So what we want to do is look at the expense patterns and be conservative as much as possible and set limits and live within your means, if you will, during those transition periods. So we understand that cash coming in is going to be tough to find and get, and cash going out is going to be really easy to spend. So we really need to pull both of those levers.

The third lever – the one that’s probably most interesting to our participants today – is, “Hey, how do I actually create some leads and create some sales revenue in a period when maybe leads are tough to find?” So we have to expand maybe how we’re looking at promotions, we have to think of creative ways that we might get consumers, as a call-to-action, to actually buy something. So financing is a big key in that.

We’ve found that if we have a great promotion that includes financing, that’s a tremendous opportunity to get a customer to buy something when they may not have necessarily wanted to spend their personal liquidity. And in addition to that, we create a call-to-action that’s almost silly for a client, or a potential service agreement customer, to not want to say yes to. So we’ll extend warranties to 16 years, we’ve even gone so far this year as to go to a 24-year parts and labor warranty, on a 16 or 18 SEER system as long as they’re buying a furnace and air conditioner. There’s a lot of question about how to do that, but that’s too much to get into in this discussion. But suffice it to say that, if I create that promotion — I create that financing program, and that call-to-action — is strong enough, what I can do is get a customer who might be a replacement customer next July to buy something in, say, February or March, when my transition soft selling season is on me and cash is tight. So I get additional cash flows by filling up the labor board.

And that leads to the fourth point which is that we need to have a forecast for how many crew-days we actually need to sell and how many service calls we need to create to break even; so that we don’t dig a hole during our cash-tight period, we at least maintain a level playing field. So the budget process is there, certainly we teach those classes physically in workshops, but also online and certainly you can ask an expert and use EGIA.org/University to understand the breakeven calculation. So over the last two weeks I’ve been doing that with most of my clients, planning for 2018, saying “Hey, these are breakeven numbers for each of your departments. So what we have to do is do whatever we can promotionally to create at least that minimum sale — gross margin, gross profit dollar — to be able to cover up the overhead sins, so that we don’t give back all the money we intend to make during the peak season.

And the final point on that is, just having a general understanding of pricing and service agreements and how you want to manage your existing customer base. So the larger my customer base, the more service agreements I have, typically the more opportunity I have to have an intelligent conversation without being in a competitive situation with other companies. And I can get customers to agree to buy a new system, give them a deal, so I can use pricing as a strategy to my advantage during my offseason. I can use my service agreement customer base to sell some accessories and essentially manage that process.

The real key is that you have a plan going in and you don’t get trapped during the actual slow season and say, “Oh, I’ve got a problem, I need more leads.” This is something you have to budget and plan ahead of time. There’s probably some other things, but those are the main four to five items.

Listen to the whole Ask the Experts call: Every week, EGIA offers two Ask the Experts conference calls to allow contractors to ask questions and get answers about the issues affecting their business right now.

This is the weekly Ask the Experts free excerpt. To listen to all of this week’s calls, or to see the schedule and register for future calls, click here.

Ask the Experts: I just signed up to offer financing. What is the best way to bring up financing with a customer?

James Leichter: Good question. I think financing is really important. First thing you want to remember is rich people love financing. They use it to leverage capital and they’re always thinking about return on capital. And poor people love financing. They use it to acquire things they otherwise couldn’t have. The trouble is is rich people often act poor and poor people often act rich. So you can’t assume that you know who you’re dealing with, and a lot of us think, well if they’re rich they won’t want financing, they’ll think my interest rates too high et cetera. But that’s just not the case. I would say this: Always assume financing. So when you walk through somebody’s door always talk payments, always talk financing, always talk return on capital or return on investment.

So, for example, you might say for a total investment of $15,000, we can replace your entire comfort system. We can finance that for five years at 12 percent that’d be $333.67 a month and you might save — and I’m making up these numbers of course — you might save a thousand a year on your utilities, which would be $6000 for the next six years, or $5000 for the next five years. And if you think about a $20000 investment, if you’re going to save that much on your utilities, your return on investment is going to be 30 percent, which is three times better than the stock market.

So again I’m making those numbers up, but you get the idea. You think about the investment but you don’t walk in and say it’s going to be $15000. You say your total investments are going to be $333.67 a month. And then think about how much they’re going to save on utilities.

You might also throw in how much they might save on repairs, although that’s tough to predict. But you might be selling an extended warranty for five or ten years and talk return on investment. But again, remember: Rich people are always thinking about leveraging capital and they’re not always concerned about interest rates. They’re just concerned about leveraging capital — what can they do with that money. And poor people, poor people are using the financing to get a better system than they could otherwise afford. So to answer that question: just assume financing; always talk financing.

One thing I might add to that is if you have the software for it, or if you have the ability to do this, it’s really handy to track financing activity. So very briefly, when a lead comes in you should record five things:

• Financing was offered and the bank approved
• Or financing was offered and the bank declined and they paid cash
• Or financing was offered, the bank declined and the sale was lost
• Or client declined financing and paid cash
• And finally no financing was offered at all; we forgot, we just didn’t do it

The reason why I would suggest tracking those with each of your sales leads is so that you can analyze your sales people based on if their offering financing. You’ll probably notice that closure rates are higher, gross margins are higher when you offer financing.

Listen to the whole Ask the Experts call: Every week, EGIA offers two Ask the Experts conference calls to allow contractors to ask questions and get answers about the issues affecting their business right now.

This is the weekly Ask the Experts free excerpt. To listen to all of this week’s calls, or to see the schedule and register for future calls, click here.

In the third episode of the Contractor Coffee Club podcast, host Mark Matteson taps his unique background and shares some of the valuable lessons and singular strategies he’s learned over his four decades in sales and contracting. Plus Mark answers contracting questions submitted by listeners and previews his upcoming webinar on how to achieve 75% closing rates.

Ask the Experts: How should we respond when we are called out to a sales call and there are three other companies lined up in front of the home waiting to give a price?

Weldon “Wally” Long (HVAC Sales Academy): I refer to this as the Priceline.com mentality. Unfortunately for us, people have been conditioned for multiple bids. My philosophy with my sales guys – and this is why I’ll be so interested to hear Gary’s and Drew’s perspectives – was that we deserve a higher level of respect. We need to maintain our dignity and our self-respect, and I thought that was a real violation of our dignity and self-respect; that we should be so minimized in terms of our value that we’re just some number to drop off a cheap number. We’d never go line up three doctors or three surgeons or three of any other profession and say “just give me your cheapest number.”

So I always advised our guys to make contact with the homeowner and simply explain, “Mr. or Mrs. Homeowner, I see you have a number of our competitors here. We see this more and more, this mindset that it’s just about a cheap number. But the reality is that we’ve learned through our years of experience, these are complex mechanical systems. They’ve become more and more technical over the years, and they need to be designed, installed, measured and serviced by well-trained experts. It’s not like it was in the old days. So really it’s virtually impossible to give you the information you need with these other guys in and out of the house. What I’d like to do is to offer to come back another time at your convenience, and we can take as much time as we need so that I can really give you the thorough education and what’s going on with respect to efficiency, technologies, proper sizing, proper installation; there’s just a lot of variables to consider. So with your permission I’d like to find a time to come back out and have that conversation.”

Drew Cameron (HVAC Sellutions): I agree 100% with what Wally said. I would offer, if my schedule allows, to kind of say, “Hey, I understand you have these guys here. Take your time with them, do whatever you have to do with them. I’ll be waiting outside in my vehicle across the street and we can chat when they’re all done.” Or, like Wally said, schedule a better time.

I agree, it is disrespectful to us, but you get what you tolerate. If you don’t stand up for your professionalism, then who else is going to? You deserve respect. Their time is important, but so is yours. You have to honor that, honor yourself. I’m not going to demand professional treatment, but I’m going to hold myself accountable to that standard, that’s the standard I set for myself. I’d be dishonoring myself and my profession and my company if I played the game the way everyone else played the game. I’m going to find a better time or wait ‘til they’re all done. And I love when there’s three other companies, because that just tells me the customer’s in the mindset of comparison shopping, and that’s the one thing I know they can’t do with this. They think they can buy this like a television, an appliance, a car, electronics – comparison shopping. That’s the one thing we know they can’t do.

But until a true professional shows up – like Wally did with his company, or I do with his company, or Gary with his company – and realizes “my job is to teach the customer that that’s not how they can buy. My job is to teach them how to buy this.” Because you can’t buy based on a comparison shopping basis. So the fact that they have three guys in there willing to play that game, I can go in there and completely dismantle them without discrediting them in a dishonorable way. I can say, “My job is to teach you how buy while making good decisions.” So I agree, I’m 100% in line with what Wally said.

Gary Elekes (EPC Equity): Totally agree with these gentlemen 100% so, rather than reiterate, I’ll just maybe add two things.
Lead coordination – you know, setting up the appointment – is the part how you can deal with this as a process. So we’re going to make sure we ask the client if they have the correct time to do our survey, our load calculations, our software platform. That’s going to vary company by company but for us that’s at least an hour and a half, usually it’s two hours. So we’re going to set an expectation, to Drew’s point, you sort of get what you tolerate.

And then the second part of that is, upon lead generation, we’ll usually drive an email with a couple of documents that explain the expectation of what we are going to be doing, and what we expect the homeowner to be able to do. One of those expectations, from their point of view, is the amount of time and the need to have privacy in front. So decision-makers – who’s present, who’s an influencer in the decision – those types of things, and then the documentation we send out is PDF-driven. It’s basically by design to explain to the client what our process is going to be, how we’re going to work with them, so we’ve hopefully been able to put the homeowner in a position to realize when we get there that, if we have to say something like, “We’ll be back at a later time,” or “We’re going to need a couple hours of your time,” we haven’t surprised them. So that’s how we’ve handled it in the past, and that’s how currently we do it when we set our leads.

Listen to the whole Ask the Experts call: Every week, EGIA offers two Ask the Experts conference calls to allow contractors to ask questions and get answers about the issues affecting their business right now.

This is the weekly Ask the Experts free excerpt. To listen to all of this week’s calls, or to see the schedule and register for future calls, click here.

In last month’s Snapshot Survey, we asked contractors all about customer service and dispatching to get an idea of what’s working in the industry and what’s not. Here’s one survey question and its results from the summary report.

Question: Do you have established scripts for your dispatchers or call center?

As mentioned in the above question, the expected customer experience should be established so that the entire company is on the same page. So, does that extend to dispatchers and their call scripts as well? At 68% of companies it does, as they indicated they have planned and established call scripts, while 32% of respondents do not. The dispatcher is largely the first impression for a company, so it’s important that they offer the customer the best possible interaction. Not only does a script lay out how that interaction can go, but it can give the dispatcher various best practices and proving tactics for closing leads.

Login to access the full research report on Customer Service & Dispatching at EGIA.org/Login.

Ask the Experts: What are the best methods for finding qualified service techs to work for my business?

Gary Elekes: We are experiencing an entire decline across the US in the vocational tech training that we see from the high school levels from, for example, when I was in school all the way through now. So that’s a declining number of people coming into the industry. And then we also, demographically, are experience the general aging of the technicians – people, even like myself, are beginning to exit the industry. So recruiting is going to be a cultural answer, and it’s going to be an organic answer.

You’re probably going to have to take people from your competitors – that’s going to be one strategy and that’s going to be cultural. So I think you want to build a company that is a great place to work and that your value structures are well known. You’re going to be able to recruit because your technicians are going to say great things about having worked for your particular company. I would suggest there are a whole bunch of things to attach to that. I would suggest anybody who’s listening to this go to the human resources and company planning sections of Contracting Best Practices Library and walk through the idea of what an employee is looking for in a company.

Most people don’t actually leave a company because of money, they leave because of lack of recognition, they don’t feel appreciated, they don’t feel like the company value structure is there, they don’t feel like they’re getting the development. And then they use money as an excuse because it’s convenient, it’s inoffensive to the business owner, so they don’t burn a bridge. So setting up a really great culture is one of the first things you can do.

The second layer of that is, I think, you’re going to have to think organically. You’re going to have to think about developing young people who maybe aren’t in the trades today; hiring them in and establishing a training platform that supports manufacturers not only on the HVAC side, but there’s plenty of stuff out there on the plumbing side as well. So creating a plan inside of your company to say that we’re going to put you in a maintenance program, we’re going to build you, we’re going to develop you as a technician, we’re going to teach you the technical trade. As long as you’ve got a good attitude, you’re willing to learn and you’re the right kind of individual, we’re willing to invest and accept the idea that maybe 50% of the people who come into the platform are going to survive it, maybe 50% are not, so that’s an expense to the business.

But if I’m going to grow my company and I need to recruit and I need to build service techs, I’m going to have to figure out a way to do that because, if I don’t, I’m going to be relying strictly on my competitors. And oftentimes the people who come to us from competitors aren’t well trained and don’t have the skill sets we’d like present. We always like to test our guys after we hire them to make sure of what they know and what they don’t know, and then we’ll build a skill development plan for each of those individuals. It’s not just technical, but it’s also customer relations, it’s going to be driven based on the sales process, based on application, and we’re going to train them over a period of years.

It’s a difficult problem to solve and it’s not going to get easier demographically, so that’s where you have to go organic.

Listen to the whole Ask the Experts call: Every week, EGIA offers two Ask the Experts conference calls to allow contractors to ask questions and get answers about the issues affecting their business right now.

This is the weekly Ask the Experts free excerpt. To listen to all of this week’s calls, or to see the schedule and register for future calls, click here.