Changing Times

It’s not your father’s supply house anymore! Oh, but you knew that. You’ve been living it day in and day out.

It was about twenty years ago, just when your company’s growth and margins appeared to bring you into a comfort zone and the future looked bright, that the HVACR supply industry exploded with new equipment, new marketing ideas, new sales concepts and new pressure to conform and perform.

In addition, consolidation really got rolling. Many of the “little guys” could no longer hang in there and compete at the same level as the “big boys.” You heard the words over and over about “increased market share.” Brands were awarded and brands were pulled. And who would have believed that the corner hardware store would evolve into a home center and then into a multi-state billion dollar a year chain that could become your toughest competitor?

Yes, Darwin’s survival theory as applied to the HVACR supply industry uncovers several Dodo birds! But, all is not lost. The grim reaper hasn’t come for you just yet. And that’s good news!

Along the way, new attitudes developed that now more closely align with the low price “do it yourself” mentality. And you had to change! Make your parts counter a showroom. Give it the feel of self serve home center. Make your customer feel wanted!

Ah, the customer! We almost forgot him! That is of course until we pull out our accounts receivable report. Yes, then we remember.

Obviously, the above message was to draw your attention. Hopefully you’re still with us. As “outside observers” of the HVACR distribution industry we find that while distributors often say the customer is their focal point, the supply industry sometimes forgets the customers’ needs.

Now, we’re not here to point the finger at everybody and every program. Many manufacturers and distributors do a fine job of implementing dealer development programs that truly help their dealers. They have for years.

It's All About the Customer!

However, we have observed that some programs may be geared more to strengthen areas of your business rather than areas of dealer need. Your response is likely “Well of course, why do anything else?” The point is that your dealer may not find your programs useful. You then become frustrated thinking that your programs fall short because your dealers are indifferent and don’t become involved.

Realistically, you may not be providing programs that truly address your customer’s needs. So, now may be a good time to change that approach.

Bring to your dealers programs that solve their problems and you will likely build a relationship that allows everybody, you, your customers and your territory managers to win. We have seen distributors partner with their dealers, solve his problems and reap the rewards in every aspect of their distribution business.

That may not sound easy, but it can be done. What it really takes is a systematic approach that focuses on two main areas, Territory Manager education and dealer profitability.

Your Territory Managers and Your Dealer's Profits

This first area centers on bringing information and programs to dealers that focus on dealer profitability. All too often, your dealers, stressed from the low bid competition, spend their time shopping for the lowest possible price for every item they buy. The result is your TM’s get beat up every time they pay a visit to those customers.

What is the real problem? Usually it stems from dealers under pricing their service. “Service?” you ask. Yes service. You see, most dealers have an innate sense when pricing a heating or cooling system. They check the price of the equipment and materials and know approximately how long it takes their crew to complete the installation. It may not be scientific but they come up with a price that may be close to the actual number needed for that job. Besides, they also know what the market will bear for a similar comfort system.

Most dealers, however, fail to recognize that both the Service and Installation departments need to turn a profit. Generally what is overlooked is that the retail price for service often drives the dealer’s overall profitability. Many dealers fail to understand the true expense of running their service departments and have a difficult time managing their costs. They fail to recognize unapplied, non-billable time and the effect that has on overhead expense. They likely set their service rates based on a survey of their competition rather than on the needs of their operation. Certainly, dealers fail to realize that often their competitors don’t have a clue on how to set service rates either.

Of course, there are those HVACR companies that have the highest rates in town. Along with those high service rates they probably have the most customers, the largest staff and the nicest trucks.

The best that can be said about him by the other dealers is, “I can always beat his prices!” While that may be true, what may be overlooked is that the “high rate” guy may really understand his costs and the value of his services to the consumer. Thus his service fees may be more accurate for a truly profitable service operation.

The “high rate” company likely bills for service on a flat rate system. That billing method allows for higher labor rates and part markups without a negative response from the retail customer. His flat rate system also allows him to compensate for that three to four hours per day of unapplied, non-billable time per technician.

Territory Managers Need to Know

What your TM’s need to know is your “low rate” dealer places his business in jeopardy because his overhead expense “eats him alive!” If his installation work dips because of a drop in the local economy and his service work increases because his customers repair rather than replace, his march toward self destruction quickens with every service call. The next thing you know, you’ve placed his account on credit hold. Now you and your TM have a problem.

That is where your TM’s come in. Your territory managers should be educated on the benefits of dealers using a retail pricing system for service. They need to understand the challenges facing the dealers on the business management side, (remember most of your dealers were technicians, not businessmen with MBA’s). Your TM’s will need to understand the value of a well designed flat rate pricing system and the reasons for charging diagnostic fees. They need to understand the relationship between margin and markup. They need to be able to communicate that information to your dealers. Your TM’s also will need to understand the value to the retail consumer. That is that he/she is not always best served by the low price contractor.

Don't make Assumptions

Heed a word of caution here. Don’t get caught in the trap thinking that flat rate pricing is an old story and everyone is already using it. We know that is not true. Just think of the new HVACR dealers that have started up in the last five years that need to be educated. And while flat rate has been around for some time, many established dealers have failed to properly implement the program and have moved back to time and material pricing. Or perhaps they purchased software and never built their books at all! Certainly, many TM’s and many dealers don’t understand the true value of a properly implemented flat rate pricing system for service. They don’t necessarily understand the limitations or the negatives of time and materials pricing for service. Perhaps, they may not understand how to properly implement flat rate. Your TM’s education and his role with your dealers in this area will dictate the degree of success that your dealers will have.

The important point is that your business’ success will depend on building relationships through your TM’s with dealers that not only want to do their best technically, but also want to become the best business persons possible.

Real Benefits Achieved

How does moving your dealer to a properly designed and implemented flat rate pricing system help your distributorship? First, your dealer will become more profitable on every call. We all know that most dealers will pay their bills if the money is available. Imagine if all your dealers took their discounts each month! Second, his cash flow will improve because his flat rate system will allow him to collect for his work on the spot. Therefore his accounts receivable should drop. Third, it removes the dealers focus away from the price of every part he buys and directs it simply to developing inventory replenishment based on need not price.

Proper Training and Commitment

Proper territory manager training allows all of this to come together fairly easily and provides immediate rewards to your dealers and your distributorship. However, like any method of change it requires a commitment of everyone in your company to make it happen.

The best method to get everyone on board is to schedule a TM training class. Generally, it takes just a couple of hours. Your TM’s can then approach dealers as they make their rounds and talk about improving their dealers’ businesses. Often distributors will schedule two meetings. TM’s will be trained in the morning and then a dealer education class follows in the afternoon. This seems to be the best approach to make a positive change for all and the rewards to everyone can be astounding!