Question: “How can I ensure that my team is actually offering our financing options to the customer?”

Drew Cameron; President, HVAC Sellutions & Energy Design Systems, Inc.:

Oh, I love the conversation on financing, one of my favorite topics. And companies that embrace this, like this individual is asking about, are the ones that can kind of take their game to the next level. You can just show customers a way that they can get what they want today and not have to pay for it all today and, in fact, what you save in energy and repairs costs can more than offset, usually, that monthly investment.

So, we’ve got to educate our salespeople on the various resources that we have available to us as far as the various lenders that we deal with, and then the various plans that we can offer within those lenders, if you will. We have to show our people how to offer it, and show the benefits to the customer, the company and themselves, like we talked a little bit about earlier. So we talked about service agreements earlier and spiffing technicians couldn’t get by in.

Again, you can keep telling your salespeople they have to get better with offering financing, but if you don’t teach them how to do it, and why it’s important, and that today’s consumer is a payment customer . . . these systems – good systems – are now $10,000+, and again, if you’re putting in a variable speed, or staged or modulating equipment, now you’ve gotta have duct modifications just to get the thing to work right, because the average duct system in the United States is 57% efficient. So you want me to do duct work plus a new system, I’m gonna be probably between $10,000 and $12,000 easily for a new system.

So today’s customer tends to buy these – nobody pays cash for these, very few do. Most of my clients are financing – and credit cards are a form of financing – most of our clients out there across the United States are financing 60% to 75% of the business that they do.

So get everybody on board, show your people the benefit to the customer, the benefit to the company and the benefit to themselves for doing so. And then teach them how to educate the consumer with information that you may have on your website, you can mail some of this information to your customers, it should be included in your marketing promotions and your newsletters as well. And then there are some things that you can do specifically to ensure your people are communicating the options.

Debrief your salespeople. When they said that they gave a quote, ask them if they did give finance options.

Survey your customers to find out if they did in fact offer the customer the payment options. When you do happy calls, you can even ask your customers, “Were you given a quote with monthly payment options that fit your budget?”

You should also, as sales managers and owners, go ahead and do your coaching ride-alongs with your people and see how they’re doing it and see if they’re doing it well.

Get them to roleplay it in your business, and see – if they can do it well in a classroom setting, then you’ll know that they can do it in the home. But if they can’t do it in front of you and the team, they’re probably not doing it in the home.

And then to kind of make it foolproof, what we do with our clients is we put the prices in smaller print, and not bold, in the price book, or in your pricing software. And let the customer see the payment options first, and in bold numbers, so that they kind of jump off the page. And then the total investment is there for them to see. But, I don’t care who you are, you could have more money than anyone on the planet, if you can see that you can get this solution for $100 to $200-some a month, and that’s before energy and repair cost savings, you’re going to see that, OK, if I’m buying a $10,000 system, and I’m using Enerbank, and I’m using 6.99 for 10 years, with a payment factor of 1.16, that’s a $116/month payment.

At $116/month, I’m gonna save you $80 on energy and repair costs, you’re looking at just over a dollar a day to have this brand new system in your house that’s going to take care of you and your family.

So, again, teaching your people how to have those prices right there in front of them, and multiple options on financing. We offer all customers at least four ways to pay: cash and check would be 1; credit card would be 2; 0% for a period of time would be 3; and then we take a low APR, long-term approach that gets you the lowest payment possible. And we show every customer on every quote all four payment options.

Also what you could do, if you’re using pricing software and quote forms, and you want to make sure that your people are quoting a financing option on every job, even the ones that they leave the price behind on, then have them turn a copy of that document in, or email a copy of that document in, showing the quote and showing all the ways the customer can pay. And then that way you know the customer saw the document, in fact you could get the customer to sign off just acknowledging that they did receive a copy of the quotation form.

That doesn’t’ necessarily mean they’re going to wind up moving forward with you per se, if it was a leave-behind quote, but you could have a customer sign-off just saying “yes, we did receive a copy of this,” along with a notice of cancellation. And then that way you know that they’ve got it, you know that it’s been reviewed with them, and hopefully you know that they understand it.

Lastly, if you wanted to, you could incentivize the behavior. So, if you had a salesperson who gets over 65% of his or her business financed, then maybe you give them an extra percent on their commission, or something like that. Because we all know that people spend more, and buy more readily, when financing is available to them, so they’re probably getting bigger ticket items anyway.

So if you have somebody who has financed, the key performance indicator of let’s say 65% of what they sell, that I may pay them an extra percent commission because I know they’re selling bigger jobs, and there’s more money in the jobs to give them an extra percent of commission in everything they’ve sold that particular month.

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.

Question: “I have seen Amazon Home Services and Google Local Services on the internet. Should I be concerned about their offerings? How can I compete against them?”

Stephen Dale; Trainer & Coach, Power Selling Pros:

That’s a great question. It’s an interesting time in our industry, and I look at all the disruptors like Uber, and what they did with the taxi industry, and Airbnb, and what they did with the hotel industry. And the phrase I like to look at is “keep your friends close and your enemies closer.”

What I mean by that is that as a contractor, you need to understand what’s going on in our industry. And two of those juggernauts happen to be Amazon Home Services and Google Local Services.

Amazon Home Services – I’m sure you’ve seen it, you can go to Amazon.com/HomeServices – they offer over 1200 different services right now. They’ve made it extremely simple to use. They offer heating & air, electrical, plumbing, all sorts of stuff. They do background checks; they have licensed technicians, insured. They have a happiness guarantee which, if you’re not completely satisfied, guess how much you have to pay: zero dollars.

So it’s interesting how Amazon is coming into our industry and they see it as a multibillion dollar opportunity. They’ve been doing it now for about three years and are very successful.

Google Local Services – used to be called Google Home Services but they switched over – they’re basically doing what I would call lead-selling; AdWords. It’s a Google-generated lead, contractors have to pay for those leads, but then you get top of the local search results.

The interesting thing about Google Local Services is that, to me, it appears it’s designed to create the illusion that all contractors are created equal. We all know that’s not the case, but they’re really driven on price, because they actually set the price.

When I look at both of these operations, and such large operations, I look at it as the commoditization of services – meaning it’s about the commodity, it’s about the price, the time, the availability. I think you need to know what’s out there, I’m not here to advocate you be a partner with them or without them, I’m simply saying they have a presence and it’s growing quickly.

How do you compete against them? I believe you’ve got to have a very strong online presence, in how you communicate with your clients, through email, through chat, through texting. Being able to setup appointments online. What do your reviews look like? Your first line of communication has to be spot on.

So it’s an interesting time. We don’t compete on price, we compete on value, so your competitive advantage is creating that customer “WOW” experience with them.

James, are you familiar with both of these services?

James Leichter; President, Aptora Corporation & Mr. HVAC, LLC:

I am. I think you did a great job of addressing it. I think that Amazon Home Services is a bigger concern for me when it comes to satisfying millennials.

I think millennials like the idea of buying something on Amazon and clicking an extra button and having them install it. But they wouldn’t if they knew a local contractor.

So you started to mention what I was going to say: It’s all about how you communicate with your clients. Nowadays that’s texting, actually sending them text messages, and Facebooking with them, and instant messaging with them, and all the things that the younger people are used to.

The whole reason you would click that button to have it installed is because you don’t know anyone else. So you just need to be the contractor of choice, you need to be in that person’s mind, instead of a stranger on Amazon Home Services.

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.

Josh Kelly, co-founder of RevuKangaroo, a leading online reputation management system, joins Mark Matteson on the latest episode.

Josh explains not just what contractors needs to know when it comes to their Yelp, HomeAdvisor, Google and Facebook reviews affecting their search engine ranking, but also some of the marketing and operational strategies he used to help take his family HVAC company, Parker & Sons, from $6.5 million to $80 million+.

In the February 2018 Snapshot Survey, we asked contractors all about the Perfect Service Call. Here’s one survey question and its results from the summary report, which is now available in its entirety to EGIA members.

Question: Are your techs instructed to invite the homeowner to observe the diagnosis?

Contractors are largely split over whether or not to invite homeowners to observe the diagnosis on a service call, with 55% of respondents indicating that their company’s technicians are specifically instructed to extend the invite while 45% have no such policy in place.

While preferences vary, having the customer accompany the tech on the diagnosis can ease the interaction in the home, helping the customer build trust and rapport with the tech, while the tech builds credibility that they know what they’re doing.

Trust, of course, lays the groundwork for a long-term relationship which can precipitate more sales down the line.

Login to access the full research report on the Perfect Service Call.

EGIA Premium & Plus members: For a deep dive into Service Management Operations research, recommendations and educational materials — including a point by point roadmap for planning the perfect service call — visit the Contracting Best Practices Library at the EGIA Member Dashboard.

Question: “How do I determine how much of a percentage of my overhead to allocate to demand service calls?”

Gary Elekes; Founder, EPC Training: Well, it depends on the expectations that you want to deliver to your accountants. With today’s technology, software and basic bookkeeping, you ought to be able to get a clean financial statement within two days of the accounting month-close. You’re going to have some adjustments for that, and it should really be what I’d consider to be an audited or accurate version by the fifth of the month.

A lot of companies are going to end up with something along the lines of the 15th of the following month, and that’s not terrible, except that about six weeks of operating experience have gone underneath the company by the time you actually have the opportunity to interpret that.

So the next layer of that conversation is, well, you really ought to be able to get that into a weekly format, where you’re really looking at your data and your KPI’s and business metrics that you have on a weekly basis, and be able to review that with your management team. That’s probably not going to happen if you’re using a manual-type system, and you’re a smaller company that’s relying on the bookkeeping function to be able to deal with that.

So software becomes the next generation of how you get that information into the accounting system, and the bookkeeping function is doing a lot more trial balancing and just making sure there’s exception reporting and auditing of the ledgers and the purchase journals and the regular cash journals and so forth, and their function changes a little bit.

So the best case scenario in that is a daily accounting system. A lot of companies have achieved that, and I think that’s eminently doable for even a smaller business today. It does require some software, and it does require some discipline in terms of how you’re actually getting the data into the software. But that allows you to actually, essentially, audit on a weekly basis and make sure that you’re not adding those adjustments. So at any given time, theoretically, you could have a cash-forward and accounting system that’s up to date that’s, really current, but at the end of the day for sure.

So it depends on the business owner’s expectations and desires, and how they want that to occur. You know, we moved to a daily accounting system a while back, and that’s an adjustment to the bookkeeping function, and it’s an adjustment for the crews and the men and, just, everybody. But it’s something that’s cultural, and you define that, and hopefully you’re sharing some of the performance data points on a daily if not weekly and monthly basis with your people.

The second part of your question is how do I interpret it, and that’s an entirely different discussion. We have a three-day and a one-day class where we talk a lot about interpretation. I think the easiest, simplest method for this type of a call is to say we do have benchmarks, KPI’s, and those benchmarks have been vetted for many, many years, and then re-vetted again through the consolidation period, and then re-vetted again through the most recent consolidation period. And they’ve withstood the test of time because they’re driven based on percentages.

So as costs change and vary around the United States, Canada and so forth, the metrics are based on percentages. So the real estate costs in California might be higher than in, say, Florida, but you would have a higher price point there, to Drew’s point earlier.

So the metrics give us the opportunity to do some comparisons about how we’re doing against the standards of excellence. We want the business to produce at least a 15% EBIT, if not a 20% EBIT – – EBIT being “earnings before interest and taxes,” we’d define that as operating income. And if we’re not doing that, the interpretation is, “Why aren’t we doing that?”

So operationally we look at those metrics and we look at our company as a comparison against that, and that points us in the direction of trying to figure out what we’re doing operationally. And that’s how we should begin the creation of a business plan, a blueprint to change, and maybe figuring out what we want to do differently.

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.

Question: “When should I expect to receive my financials from our accountant each month? And how do I read my profit & loss statement?”

Gary Elekes; Founder, EPC Training: This is a complicated question, so we’re kind of diving in right off the bat. Overhead allocation is a step beyond the gross profit line being departmentalized.

So, when allocating overhead to the service department, replacement department, new construction, commercial – any of the departments – there’s basically some principles that we follow. Then there’s one basic principle that we’d outline that would be sort of “Don’t do this one.” So let’s start with the “Don’t,” because it’s the easiest one.

A lot of accountants or financial folks will use the percentage-of-sales method to apply overhead into the departments based on what they sell, and that’s the only method that you really don’t want to use. It’s eminently flawed because, if you think about it, if you raise your price 5% in the marketplace, you really haven’t created any additional overhead. You’ve gained 5% of gross profit dollars and overall profitability. So no additional overhead is created. Percentage of sales method is used because it’s the easiest method, so people get trapped into that idea.

So with that in mind, the main concept about overhead is it’s really driven in the service industries by the labor. And so the labor is part of the cost of goods sold. So we’ll use three methods to determine how we’re going to allocate overhead.

The first method is simply direct expense. You really just look at any chart of accounts list, go through the whole list, and ask the simple question, “Does it apply as a direct expense?”

So if I have a service truck and I have a service technician and he really is, or she really is, dedicated to the service department, and that’s the only work they do, that’s pretty easy. And then you could say the same thing about the gas card there, and the uniforms and the various expenses that would attach to that individual’s vehicle.

In a smaller company, where you’re spreading out lots of different people over many different departments, that’s really where you get into the second layer.

So the second discussion is percentage of labor in each of the departments, divided by total labor of the whole company. So the service department – if that’s the question we’re talking about – we would look at the service department direct labor not including benefits, just the W2 wage. And then we would divide that by the total direct labor of all the departments combined, and we would come up with a ratio. And if we looked at all of the percentages, hopefully they’d add up to 100%, the service department would have its percentage.

What really we’re looking at from an accounting and financial point of view is that whatever dollar of labor we spend, some portion of overhead is being created based on the usage of labor. And that varies quite a bit from material, because high-material low-labor type of work is similar to sales: it’s very profitable, we love it, but it really doesn’t produce much overhead at all. So labor is the one variable that sort of creates the dollar in the overhead category. Especially what we would consider to be the variable costs; fixed costs are generally not moving around much.

So those are the first two methods, and then the third method, after we’ve gone through all of the chart of accounts with the first method, and then we go back and we go through all of the chart of accounts with percentage of labor, what’s left over?

And there might be some remaining accounts left over, such as general manager’s salary, or bonus programs, you might have a discussion about rent and some of those types of things.

So the third is, we really look at managerial discretion. We do an assessment of the core departments inside of a business. Service would certainly be one of those, and HVAC and plumbing, and we would use management discretion. So typically what we’d do in the financial class or the budgeting class is just make a comment box in Excel and make sure we annotate how we’re thinking logically about this application of overhead. And so we can then apply those – so our company, we have six core departments we spread rent relatively evenly across the board.

There’s a fourth method, which some people might want to use, that’s percentage-of-square-foot method, but personally I think that that gets overcomplicated; it’s already complicated enough, so we’re already taking a subject matter that is a very sophisticated, advanced financial concept and then we’re breaking it down. But I’ve found that percentage-of-square-foot method doesn’t really add any differences, it really only applies to one area – rent.

So those would be the three methods we would use, and then we would finish out the chart of accounts. So the service department prototypically ends up with an overhead that’s somewhere between forty and fifty percent of the overall costs associated with the business. And most of that is applying based on the idea that variable costs – things like gasoline and workman’s comp and those sorts of things – are moving around with the percentage of labor method.

If there’s any questions, there is a pretty detailed article inside the Financial Structure section of the Contracting Best Practices Library on EGIA.org, I believe it’s about a 13-page outline on how you can allocate overhead. I go through some chart of accounts and some other examples.

The last comment I’d make is the larger you are, the more specialized you tend to become. So it’s relatively easy for a larger company to do it, because a lot of the direct expense method applies.

In a smaller entity that’s doing allocations, typically you have to do some percentage of labor method because there’s not a lot of direct expense. We’re moving people around on, you know, the service board to do maintenance and we might have them do installation, we might have them to some commercial service, commercial installation, so the percentage of labor is really how we can dictate that.

Drew I don’t know if you have anything to add…

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 part 3 of an ongoing series, Mark Matteson talks about how attitude and goal-setting can yield big results on the job and off, paying particular attention to how those simple ideas helped transform him from a service tech to his company’s best salesperson.

Plus a peek at the latest Snapshot Survey summary report on digital branding, and discussion of a topic that’s important but far too overlooked by contractors: digital asset protection.