Monthly Archives: May 2016

A person with two paths to choose from, and one side has more money than the other.

Direct Costs | HVAC Pricing Series Part 3

Part 1 & 2 of the series covered Pricing Awareness and What is the Right Price. Part 3 will start to take a deeper look into how we can begin thinking about where your bottom line is before you can find the right price point for your products and services. To do this, there are two kinds of costs in any company: Direct Costs and Overhead Costs. Direct costs are the costs you have because you get a job, while overhead costs are the costs you have whether you get a job or not.

Direct costs happen because you actually get a job and you have to buy things to perform that job. These kinds of costs would include most, if not all of the following tasks. Each of these items should be written down and have a cost assigned to it so that there is a record of the materials used on the job. Writing down these amounts makes sure that you don’t forget anything and they act as a permanent record of what you estimated was needed on the job. Having that record helps you do a better estimation for the next job.

The six most common Direct Costs:

Materials:

For a typical HVAC company examples of these items could be furnace, coil, condenser, line set, thermostat, pad, whip, disconnect, wiring supplies, fluing supplies, brazing supplies, gas piping supplies, sheet metal supplies, grills and registers, drain supplies, repair parts, cleaning supplies. Freight costs to deliver these materials to your company or the job site are also included. The costs for each of these items are easily found from your invoices or receipts. Usually you have a very knowledgeable idea what the specific material costs for a specific job will be before the job is performed.

Subcontractors:

These costs are incurred when you hire another contractor to do part of the job. Examples of subcontractors are electricians, chimney sweeps, plumbers, cranes, core cutters and others. You will know before you set your price exactly what the cost will be for these subcontractors because they have bid the job and given you a price (or you can reasonably estimate their prices because of your experience.)

Permits:

These are the state, federal or local permits needed to perform the job legally and to code.

Labor:

These costs are the actual costs of the labor to perform the job. These costs are probably the hardest costs to estimate to be able to come up with the Right Price as they have the largest elements of the unknown. How long will it really take to do a specific job? Who will perform the labor on the job, the fast guy or the slow guy? Do we need a helper on the job? Will we run into unexpected problems such as rain, heat, breakdowns, illness, and customer issues? Most experienced HVAC professionals have a pretty good idea how to estimate the labor for any job based on the prior performance of their techs (or themselves) on similar jobs. So, based on experience determine the number of hours of labor to complete a job for each tech and multiply those hours times the labor rate of each tech. That labor rate should include the fringe benefits you pay such as taxes, FICA, health insurance, vacation, sick leave, etc. So if you pay a tech $10 per hour base rate and he also gets $5 per hour in benefits, that tech has a labor rate of $15 per hour. If it will take 20 hours to perform the job, then multiply 20 hours times $15 per hour to get a total labor cost of $300. When in doubt add a few hours to the job.

Specialty Equipment/Tool Rental or Purchase:

These items could include scissor lifts, fork trucks, unloading equipment, jack hammer rental, lifting devices and others. Oftentimes, an owner will include a portion of the replacement costs of the specialty equipment/tools if the company actually owns the items.

Sales Commission:

This is the money that is paid to your salespeople once the sale is made. It is only paid if there is a sale so it is considered a direct cost.

Once you have written down all your direct costs, add them all together to come up with a final dollar amount. Knowing your actual (or professionally estimated) direct costs is a key number in the mathematical formula used to determine the Right Price for your job. Obviously, the right price must cover the direct costs incurred to perform the job or you will lose money on the job.

Download cfm”s Direct Cost Worksheet to make figuring out your direct costs a little easier. In the next article, Overhead Costs | HVAC Pricing Series Part 4, I will cover overhead costs in more detail, and help you to better understand the complexity that they too add to your price planning. If you have any questions or comments about direct costs, let us know in the comment section below or contact us directly at 1-800-322-9675.

A person with two paths to choose from, and one side has more money than the other.

What Is The Right Price? | HVAC Pricing Series Part 2

In the previous article, “Pricing Awareness,” we discussed how difficult it is to know what price to set for any job you sell.  Will you get the job at that price?  Will you make a profit at that price?  Will you have any profit at that price?  Will you lose money at that price?  Did you forget any costs when setting that price?  The pricing fears go on and on. 

But in actuality, setting the Right Price for any job is really not that hard if you use some basic logic and knowledge to set that price.  So let’s look at the five basic factors that are required for setting the Right Price.

The Right Price is not necessarily the price that gets the job.  Huh?  That doesn’t make sense: if the price you set doesn’t get the job, was it really the Right Price?  This will make more sense when we look at the other factors that go into setting the Right Price for a job.  So, we will come back to this after we look at a few of those other factors.

The Right Price must satisfy the financial constraints of your company.  This is really the important factor for any business if it wants to be profitable.  So what are the financial constraints of your company?  First and foremost, you must recover your costs.  The Right Price must be high enough to cover both your direct costs and your overhead costs.  (We will further define both of those costs in a different article.)  Secondly, the Right Price must allow for some profit for your company.  Profit allows you to fund your future growth and it allows your company to be a great place to work for you, your employees and your customers.  So, the Right Price must be high enough to cover your profit as well as you costs.  The key to setting the Right Price is knowing exactly what the financial constraints of YOUR company really are. 

The Right Price is always determined using simple math.  This simple math can be easily taught and easily learned.  It can be repeated over and over so you will always come up with the Right Price for any job you do. 

There is only ONE Right Price for any job.  That Right Price will cover the financial constraints of your company including what you feel is the appropriate amount of profit at that given time.  And since it uses a simple mathematical formula based on those financial constraints, then there is only ONE right Price for YOUR JOB!

But here’s the rub: your financial constraints are not the financial constraints of your competitor(s), the other folks that are trying to get the same job.  Your competitor’s costs may be lower or higher.  He may not need or want as much profit as you.  He may not even know what his costs are on a job.  He may not even know if he is making money or losing money.  So, his price will NOT be your Right Price.  Therefore, the only rational, prudent way to set your Right Price is to base that Right Price on your company’s needs, costs and profit.

Which takes us back to the first basic factor in setting the Right Price: the Right Price is not necessarily the price that gets the job for your company.  Your competitor will get his fair share of the jobs, even if his prices are exactly the same as yours (or if they are higher or lower than yours.)  That is because people make choices based on lots of factors, with price being merely one of them.  The Right Price for your company must cover all your costs and your profit.  But that Right Price may not be the one that gets the job. 

Finally, the Right Price may change depending on the time of the year or the needs of your company.  First, your Right Price should always cover the costs of the job.  But, at different times of the year the needs of your company will change.  For instance, it is difficult to even find a job to bid on in the cold months of January and February.  Your company may consider bidding a job with a lower profit level in those months compared to the hot summer months when your techs are very busy.  In fact, you may decide to set your Right Price with no profit at all just to be able to keep your techs working.  Conversely, in the hot summer months your Right Price may increase because all your techs and all your competitors’ techs have plenty of work and the market will allow you to make more profit.  The point is that your Right Price can change based on the needs of your company, but it is YOU that is determining what that Right Price should be at any given time.

The important thing to remember is that the Right Price should always cover your costs and the Right Price should always be calculated using the same mathematical formula. 

In Part 3 of the series, “Direct Costs,” I will begin discussing the different types of costs and their affect on finding the right price.   If you have any questions or comments about finding the right price, leave them in comment section below or contact cfm directly at 1-800-322-9675.

This is the initial landing page you will see for cfm eStorefront as of May 2016

Getting Started | A cfm eStorefront User Guide

In today’s world time === money, and if you’re anything like me, you enjoy it when you can save time doing anything – especially when it’s work related.  Here at cfm, we have recognized that our customers needed an easier, simpler, more efficient way to handle the ordering of products.  The answer to this is our cfm eStorefront online shopping platform.  This is the 21st century, the digital age, a time where the internet can save us countless hours of time each year; but you already knew that right?  I know, why else would you be here reading this article on our blog.  Well, in truth, maybe you aren’t as comfortable in ushering in the new age of technology as others.  That is where tools like this article, our YouTube training video’s, and a handy little guy called ME come into play.  All of these tools are here to help you save time and work smarter not harder.

At the bottom of this article will be all of the links you need to get going right away on your own with the cfm eStorefront.  However, following this guide should help provide answers to the questions you may still yet have on how to get started.  I will also post link updates to this page as new parts of the guide are completed.  If I miss anything, feel free to leave me a comment below, tweet me @cfmValizan, or send me an email @ r.valizan@cfmkc.com.  So without further ado, let’s get started.

Requesting a cfm eStorefront Account

Our first step in getting started is requesting a new login account for the cfm eStorefront.  Not to be confused with creating a new cfm billing account – or wholesale account some call it – or our UPGnet accounts.  The account you are requesting will essentially become a bridge, linking the account you already have with cfm to your online purchases.

Where to go

There are many paths one can take to get started with their account request process, but the fastest and easiest is to use our cfm short-link method.  To request your cfm eStorefront account using the short-link method simply click here or enter “http://cfmkc.com/newaccount” into your browsers URL box as shown below.

This is an example image of the url box when navigating to access the cfm eStorefront account request page

Enter cfmkc.com/newaccount into your browsers URL box.

What information is necessary or required

Once we are at the signup page, we will be presented with a short form.  The most important information to be filled out on this form are:

  • Your name
  • An e-mail address you want your account information to be sent to
  • The company in which you which to link your cfm wholesale account with
  • The company’s phone number you work for (while not required this helps us associate your online account with your cfm account easier)
  • The address of the company you work for
  • A password question & answer which will help you recover your account should you lose or forget your password

The other fields are helpful information as well, but are not entirely necessary to begin the account request process.  Many customers will also place their cfm account # in the comment box.  This too is helpful in getting your request approved faster, but is not a requirement!  The example form I’ve provided below can give you a visual guide as to how to answer the forms questions.

This is a completed fillable form example for the cfm eStorefront account request page

Example of completed cfm eStorefront account request form.

Need more of a visual guidance?  Part 1 of the cfm YouTube Series, “cfm eStorefront Training Series” covers requesting an account — watch it @ cfmkc.com/ytlearnestore.

Part 1 - Getting Started | cfm eStorefront Training Series

Finishing up your request

Once you’ve filled out the form, just hit the <request button image> and you will see the confirmation window appear that your account request has been submitted successfully.  Most account requests are approved within minutes, but can take as long as 24 hours to process fully.  Once your request is approved you will receive an e-mail – at the address you provided in your request form – with your new account information and temporary password.  This email will also contain further instructions on:

  • How to change your temporary password
  • How to use the cfm eStorefront
  • Important contact information for getting your questions answered
  • How to request your free introductory training session

Scheduling your FREE Training Session

Wait, did I just say FREE?  Oh those evil words which are so often tied to gimmicks and lies.  We want our customers to feel comfortable being able to use the cfm eStorefront, which is why we offer our customers some of our time FOR FREE to assist them in learning to use our online shopping platform.  It’s just good customer service, something we strive to provide all our customers as being top notch.

To schedule a training session with me, simply send me an e-mail @ r.valizan@cfmkc.com with a couple times that will work best for your schedule.  Training is done remotely on your own computer, which is the best place to learn in my book.

Additional links