Expanding into HVAC

Venturing into heating, ventilation and air conditioning ‘ beyond the core business of fuel oil delivery ‘ is viewed as an imperative by many oil dealers, but it is a challenge that requires a good plan, good execution of that plan ‘ and flexibility, according to fuel oil dealers and HVAC veterans from Marana, home to one of the best HVAC company.

Servicing the equipment of fuel oil customers is the typical first step for many dealers, and it alone has numerous challenges. Then again, it is a service that many customers deem essential, as Raphael Aronson, owner of Service Oil Co. in Harrisburg, Pa., found a couple of years ago when he announced that his company would no longer offer service contracts. The result wasn’t a revolt, exactly, but many customers made it clear they wanted service contracts. Aronson decided to continue offering those.

Learn More about it is absolute necessary and much has been said about encouraging and training technicians to engage in selling or at least generating sales leads for equipment sales. Warm Thoughts Communications, a Secaucus, NJ-based company that provides training to HVAC companies for AC Installers and to fuel oil dealers aiming to expand their HVAC business, is a supporter of that tactic, though Blaine W. Fox, vice president of business development for Warm Thoughts, said that the emphasis is on training service technicians to be better communicators, not necessarily to sell service agreements or equipment upgrades.

Fox made it clear that ‘hard-selling” is not the province of technicians. ‘We’re not talking about wrestling people to the ground,” he said, ‘just telling customers what you know.” Technicians, simply on the basis of their knowledge and expertise, have a great deal of credibility with customers, Fox noted.

Approaching the HVAC business like an HVAC company, rather than as a fuel oil company ‘ even when fuel oil delivery is your core business ‘ is fundamental, Fox said.

‘An HVAC company needs to make money on labor every day ‘ on the technical skills of their field labor,” he pointed out. To do that requires focus on detailed costing of installation jobs and service calls, Fox said. Many oil dealers, according to Fox, are afraid to charge what they need to charge to make HVAC a profit center. They’re concerned that they might lose fuel oil customers by doing so, Fox said.

But if HVAC companies make money charging for their skills and expertise, why shouldn’t fuel oil companies, offering the same skills and expertise, also charge accordingly?

‘We’ve always had a service operation for our heating oil, and we’ve always had heating equipment, but not as a central part of our business,” said Aronson, the owner of Service Oil Co. in Harrisburg, Pa. For some 30 years the company has also installed air conditioning.

‘As you start to advance in AC, and try to sell outside your oil heat customer base, you need salesmen to go out and talk to customers and try to promote it,” Aronson observed.

But fuel oil delivery is the mainstay of the company, and Aronson said he’s wary of activities that could distract ‘ or worse, detract ‘ from that. Even providing equipment service for fuel oil customers is chronically difficult to make profitable, he said.

‘We were very heavily centered on service contracts” for years, Aronson said. ‘Competition kept those prices very low.”

Service Oil charges $179 for a service contract. ‘That includes one cleaning and all parts and labor if anything breaks down,” Aronson said. ‘One cleaning may cost us 90 bucks so we have $80 to take care of all the labor ‘ and our labor costs are $69.50. So it’s an unbelievably good deal.”

For years servicing fuel oil appliances was ‘sort of a come-on to keep your oil business,” Aronson noted. ‘We would love to get rid of the service contracts, but we simply can’t.”

It wasn’t for lack of trying. A couple of years ago the company announced that it would not be offering service contracts for the upcoming season. Aronson described the reasoning as it was communicated to customers, ‘If you have a good quality piece of equipment, your service costs less than we’re charging. If you have junky equipment, it costs more than we’re charging.” The effect was that customers who had upgraded to good quality equipment were underwriting the service provided to customers who had older, less reliable equipment.

‘We said, ‘We’re going to cancel service contracts and provide service on a pay-as-you-go basis,'” Aronson said. ‘But it didn’t work. The people who want that service wanted the peace of mind.

‘Service is inherently not really a profit-making operation,” Aronson said. In part that’s because demand for service is unpredictable, and therefore difficult to plan for.

‘One day you have 20 calls and the next day you have two,” Aronson said. ‘That’s an exaggeration of course, but the point is the work load isn’t level.” And it cannot be made so in the case of emergency ‘no-heat” calls, which must be responded to promptly.

Trying to sell HVAC service and equipment through the technicians who make service calls can be risky, according to Aronson.

‘It’s much better in theory than in practice,” he said. ‘Our experience has been that technicians and salespeople have very different temperaments and personalities.”

Service Oil has in the past paid bonuses for sales leads, but that can be problematic if a technician, overly eager to collect such bonuses, advises customers to replace equipment without due consideration, Aronson noted.

‘One of the things in our business that’s important is a reputation for being ethical and honest,” he said. ‘If I say to a person who’s an oil customer, ‘Mrs. Jones, it’s time to change your furnace,'” Mrs. Jones should feel confident that she’s hearing the truth, Aronson said.

‘My main revenue stream is still that oil,” Aronson said, and he wants to avoid any missteps that could jeopardize his company’s reputation.

On the other hand, ‘People trust the mechanics in a certain sense,” he noted. ‘They make good salesmen if they’re ethical. They have the respect of the customers [who] don’t see them as sales people.”

Deiter Bros. Bethlehem, Pa., decided to get into HVAC to provide full-service to its fuel delivery customers.

James G. Deiter, vice president, said, ‘To succeed at HVAC, you need to keep a constant eye on all of your profitability benchmarks and ratios. The HVAC business is very labor intensive and dependent upon weather extremes.”

A good software program can go a long way, Deiter said.

‘Software is a key component that allows you to dispatch efficiently, monitor your numbers on a daily basis, and help you to market your services effectively,” he said. ‘Flat rate billing has also helped. Each repair is priced the same to every account regardless of how long it takes to complete the repair. If a very qualified but less experienced technician takes a little bit longer to complete a task, the customer is not penalized for it.” As a result, billing issues are almost non-existent, Deiter said.

Deiter Bros. was established in 1929, originally as an ice delivery company. It entered the heating business in the 1930s with coal delivery and related services, expanded into heating oil delivery and related equipment services in the early 1950s and became active in central air conditioning in the 1960s. The company serves residential and commercial customers in Lehigh Valley, Pennsylvania.

Today, Deiter Bros. markets itself as a ‘single source indoor comfort provider” offering services to customers using natural gas, heat pumps, propane and geothermal as well as the traditional core service in fuel oil sales, equipment and service.

The core of Deiter Brothers’ service team consists of Certified Master Technicians, an advanced training certification, Deiter said. ‘Currently our focus is on getting 100 percent of our technicians NATE certified. Currently we are at 60 percent.” (Readers interested in more information about NATE can visit the Web site at natex.org.)

Technician training for other heating and cooling systems is provided through trade associations and/or local programs, ABC or manufacturers’ representatives.

Training updates are provided in Deiter Bros.’ regular education sessions in its own on-site Technician Education Center, located at company headquarters.

‘On-going training for technicians is vital,” Deiter said. ‘We meet once per week at a minimum. Subjects include safety topics, manufacturer training, customer service training with role playing, and follow-up training on items we feel need a refresher from time-to-time.

‘We also value the wisdom of many industry consultants,” Deiter said. ‘Ruth King and Al Levi have been a very valuable resource for us. We continue to train with them on an on-going basis.” Larry Giampapa of R.E. Michels is another valuable training resource for the company, Deiter said.