Staying profitable in the HVAC sales and distribution industry has been harder in the past five years than the previous ten. Heating and cooling system installations hit bottom four years ago and remain sluggish. System owners choose to repair rather than replace. The housing market continues to struggle, which affects new installations.
In a weak market, you may be left scratching your head about how to grow profits. One sure path is to increase margin on sales of products that are under priced. What are those products?
Where you may be leaving money on the table is on “incidental” purchases – items customers buy only one to three times a year and spend less than $500 a year on.
Customers who spend enough and buy an item often enough know the prices they are willing to pay. But a customer won’t be as price sensitive on items they are less familiar with. We call this the milk and doughnuts effect.
HVAC customers will readily spot a price change on Freon or a common copper tubing item, but probably won’t notice if you increase the margin on a replacement thermostat they only buy a couple of times a year.
Incidental purchases make up about one third of sales for most distributors. Even a five point margin increase on incidental purchases can have a profound impact on your bottom line. Consider this:
- The average business reports a meager five point difference between their average margin and margins on incidental sales.
- The most profitable HVAC companies show an average of 12 points difference, by comparison. They also show pre-tax earnings that are two to three times higher than their peers.
You may still be wary about asking for higher prices in this economy. That’s why Profit2 offers a unique methodology and service:
- Profit2 helps you substantially increase profitability without a significant financial investment and with minimal disruption of other initiatives
- Profit2 has special methods to overcoming the single biggest barrier to improving profitability: Sales Behavior
- We help you leverage the powerful pricing tools in their ERP system
You already know pricing and margin analysis is a must for distributors who want to maximize their profits by capitalizing the customers they already have. Profit2 has completed over 200 successful distributor pricing projects. Can we help you too?
