The end of the calendar year offers HVAC owners a chance to catch their breath and review the books. In fact, shoulder season is the best time of year to review and update your pricing across the board. Here’s why.
You have 12 months of data available to you. Most owners look at their books on a monthly basis, but the end of the year gives you the information you need to observe trends. It’s easy to get into the habit of paying expenses as they come in; now, at the end of December, you’ll be able to see which costs have been rising over the year and by how much. Equipment increases are pretty easy to manage– you simply pass on the higher price when you make a sale or a repair. But, factoring in insurance premium increases, the higher cost of fuel, vehicle maintenance, or marketing will help you determine if your hourly rates should be higher.
Most of your customers only need repair or a new unit every few years, so your price increases won’t be a shock to their system. The customers who are most likely to notice a price increase are your annual maintenance agreement customers. Even they, though, are usually billed a single charge per year (or every six months), so they will see a small percentage increase that will make sense to most of them, since almost all consumers are aware of the rising cost of goods and services over the past year.
This is a good time to remind you that drawing undue attention to a price increase isn’t a good idea. Customers may not balk at a reliable company charging 10% more for its maintenance agreement, but they will notice – and not appreciate – something like a fuel surcharge that shows up on their invoice.
Take a fresh look at profitability and consider making changes in the new year. Even if your revenue is healthy and growing, you may be slipping backwards on profitability. Your profit margins year over year are one of the key performance indicators for your business, so it’s critical to evaluate services or costs that might be eating into them. Improving efficiency in your back office and field operations is something that every employee can play a part in. In fact, they might be your best resource for uncovering systems or daily processes that could be streamlined.
Here’s why it matters.
Profitability is the most important number you should be tracking as a business owner. When you’re ready to sell your company, Seller’s Discretionary Earnings – your bottom line – what the multiple a buyer is willing to pay is based on. A higher multiple is what every seller is chasing and what differentiates the market value of a company from the simple calculation of the financial statements – tangible proof that the whole is greater than the sum of its parts.
Every dollar of profitability in your business will pay off between 2X and 8X when you sell. That makes getting your pricing right not only important now, but for the future when you’re preparing to sell and fielding offers.
For companies using a Customer Relationship Management system (CRM), changing the hourly rate for service and yearly rate for the maintenance agreement is a relatively simple and quick process. Doing the math at the end of the year will help you ensure that your business continues to thrive next year.
