Author: Brett Knox
July 11, 2023 - 4 MIN. READ
Today, HVAC contractors face increasing challenges in the demand for their services and upward price pressure on HVAC supplies, parts, and materials.
Pressures are coming from many angles. COVID-19-related delays still linger in the HVAC supply chain, with longer lead times becoming the new normal. And geopolitical influences are evolving daily. Trade tensions with China continue to tangle the process, and the war in Ukraine has had impacts as well, driving up steel and aluminum prices. Finally, regulatory changes, such as new efficiency standards and the R-22 coolant phase-out, will bear on price levels as well.
These factors have a direct impact on the pricing of essential HVAC components, leading to a decrease in profit margins.
Booming demand
The good news is demand for HVAC services is skyrocketing, presenting HVAC contractors with incredible opportunities. Projections indicate that the global HVAC services market will experience a remarkable growth rate of 5.8% in the upcoming years, reaching a staggering value of $367.5 billion by 2027.
Various factors contribute to this surge in demand. Firstly, there is a significant increase in new home construction and commercial development, particularly in the trend towards smaller, specialized structures. Additionally, green energy initiatives and the integration of smart technology are major drivers in HVAC industry demand.
For example, new-home construction has witnessed a remarkable increase of $10.8% compared to the previous year. Moreover, the COVID-19 pandemic has generated a higher demand for smaller commercial spaces that prioritize advanced ventilation systems.
Government policies, including tax incentives, have also played a crucial role in driving the adoption of green HVAC initiatives such as heat pump installations. Furthermore, the growing concerns surrounding climate change have led to an increased demand for HVAC units, even in regions where it was previously deemed unnecessary.
All these factors highlight the importance of addressing supply chain and cost issues to maximize HVAC business profit margins. However, achieving this requires HVAC contractors to adopt a strategic approach to procurement, supply chain management, and pricing.
Take the smart approach to cost reduction
When it comes to reducing costs in order to protect or increase HVAC business profits, it's important to approach the situation strategically. It's never wise to sacrifice quality for the sake of lower costs, as this can ultimately hurt the performance of your business and lead to customer dissatisfaction.
While it's important to focus on reducing office administration expenses and streamlining operations, it's crucial not to compromise on your ability to meet customer demand with high-quality services and products. Striking the right balance between cost reduction and maintaining service quality is key to maximizing your HVAC business profit margins.
Enhance Your Procurement Process
Revamp your procurement process to unlock valuable cost savings. Streamlining your supply chain strategy starts with optimizing your procurement methods:
- Consolidate your procurement efforts into one centralized location for improved efficiency.
- Invest in skilled procurement professionals who are up to date with industry trends and provide them with the necessary support to excel.
- Harness the power of technology by implementing a cutting-edge procurement platform.
- Say goodbye to outdated paper and Excel-based ordering systems by automating your processes.
- Categorize your major expenses to gain a clearer understanding of where your money is going.
- Establish a centralized repository for accurate and high-quality spending data.
- Drive strategic sourcing initiatives to secure competitive pricing without compromising service levels.
- Ensure purchasing compliance with new deals to maximize the benefits of your procurement efforts.
By reimagining your procurement process, you can unlock substantial savings and strengthen your HVAC business profit margins.
Optimize your HVAC supply chain strategies
Now is the perfect opportunity to evaluate the performance of your HVAC equipment suppliers with a fresh perspective. Give priority to nurturing relationships with suppliers who have a proven track record of reliability and success, while gradually moving away from underperforming ones.
Next open lines of communication with your top HVAC equipment suppliers to build a greater strategic partnership. From the initial stages of project planning to the execution of major projects, collaborate closely at every level.
Consider negotiating longer-term supply contracts in exchange for lower pricing or other beneficial concessions, such as complimentary warehousing services.
While optimization of your supply chain may seem like a time-consuming and costly endeavor, the benefits should prove worth the effort. But there is another, simpler way to secure better supplier deals without the hassle. But more on that later...
Exercise caution when considering price adjustments
Thoroughly assess your pricing strategy by understanding your gross and net margins within the local market. Take into account the level of quality and responsiveness that you offer to your customers and consider your reputation for delivering value.
Additionally, take a close look at your financial position. Evaluate whether you have strong reserves or not.
If you find it necessary to increase prices, it would be best to do so either before or after the season. Maintain open and transparent communication with your customers, explaining the reasons behind any price adjustments.
Secure better supplier deals the easy way
If you’re a small to mid-sized contractor, your buying power or negotiating power with your suppliers is based on how much you spend each year on equipment and materials. That’s why big contractors have an advantage because they simply buy more than you do each year, so they get bigger discounts.
One way to overcome this is to join a group purchasing program like Raiven. Companies like Raiven aggregate all the purchases of their members and negotiate with distributors and manufacturers based on this total purchasing power. This allows your company to buy equipment and supplies at deep discounts.
Benefits of a group purchasing program
- Members see discounts of 7% to 20% from suppliers you use today – Carrier, Ferguson, FedEx, Graybar, Grainger, Home Depot, Koch Filter, Lowe’s, Office Depot, Sunbelt Rentals, and more. These savings immediately cut costs and improve profits.
- Members see discounts of 15% to 50% on office supplies, vehicles, shipping, uniforms and polo shirts, cell phone plans, and more. These savings immediately improve your net profit % because your overhead expenses go down.
- AI-powered purchasing tools find where products are in-stock and at the lowest prices even when employees shop at Amazon or other non-preferred suppliers. This is a huge time-saver.
- Receive Supply chain alerts for price and product availability changes on frequently purchased items as well as price trends on key product categories, which helps you determine when to stock-up on certain items.
At Raiven, we specialize in serving HVAC contractors, offering them unbeatable prices on equipment, parts, and maintenance supplies. But that's not all – our purchasing platform ensures that your buying experience is seamless and efficient.
Raiven is your one stop to save time and money. Contact Raiven to learn what we can do for you.
