“Your margin is my opportunity.” Amazon founder Jeff Bezos
These 5 words are so simple, yet so powerful. Hidden inside of these 5 words is a meaning, a strategy. A reason why Amazon is and continues to be a giant of the internet.
You are probably thinking what the hell does Amazon have to do with my HVAC business? Books and shopping VS repairs and installations.
Amazon has figured out what a customer is worth to them. They know their average customer value over a year and the lifetime of the business. The great thing is the longer you stay in business the greater this number is. Amazon has a strategy to buy customers at a loss or break even. I’m not suggesting you practice this just yet.
Why do they do this? Because they know that once they become a customer, they buy more and more stuff through them. Forever.
“Understand customer value and take your business to the next level.”
There are two lessons that HVAC businesses can learn from Amazon.
Lesson 1 – Know your customer value on two levels
- Immediate value – what is the average customer worth to you if they proceed with the job? Some will be repairs only for a total charge of $150. Some will need a new system of replacement for several thousand dollars. Go ahead, work out the average customer value.
- Lifetime customer value – what is the average customer worth to you if over their lifetime? If you nurture them correctly, apart from death or moving out of town there is no real reason why you can’t continue to profit indefinitely from each customer for life. Maintenance plans, upgrades, moving to new homes in the area, repairs, referrals
Lesson 2 – Increasing customer value
Amazon originally hit the scene just selling books. Over time they added dvd’s, now they sell home and gardening products, cloud computing, children’s toys, televisions etc etc. They have thousands of different ways to keep selling you more stuff. The result? Amazon’s revenue in 2015 was $107 billion.
Increasing customer value for a HVAC business
How does a HVAC business increase customer value? There are many ways to do this. Some may or may not be relevant to your business.
- Increasing price – price is not normally the number 1 factor in a decision to buy. In fact, being too cheap may hurt your conversions as people can associate price with quality and customer care.
- Increasing the size of the first transaction – can you add an upsell or add a complimentary product or service? In a new install it might mean adding an extra point or selling them on a better remote control system. It might be adding a low cost maintenance plan to the deal.
- Increasing the frequency of repurchase – do you have a maintenance plan that you offer to all customers? At a pre determined time period, perform routine maintenance on the system of the customer. This is a great cash flow generator for businesses as the income is predictable for the life of the plan. Even on a small scale, having a few thousand dollars coming a month coming in for maintenance work might cover the rental of your facilities or pay the finance on your vehicles.
- Increasing the number of referrals – if your goal is a lifetime relationship with your customers where you nurture and care for them then referrals can make your business boom. Think of your ideal customer. How great would it be if each of your ideal customers referred just a few of their friends that went on to be just like your ideal customer. Then they referred just a few friends…
The lesson here is to think beyond that first transaction and see the much bigger picture. Let’s look at a practical example.
A practical example for a HVAC business
A lead comes in through your website. All up in advertising costs this lead has cost you $200.
You have a call out service fee of $99 (net loss $101)
You find the problem with the system, fix it using parts already in your van and charge $300 total for the call out fee and repair. You net $100. Then you either pay yourself (if you are lucky!) or the technician, plus pay for the parts and the cost of running the vehicle. The $100 profit has not gone very far.
Is $200 per lead cheap or expensive in this case? Expensive.
Let’s apply some increasing customer value principles to this.
The lead cost remains the same. ($200)
The call out fee remains the same ($99)
The same problem exists with the system of the customer. Instead of charging $300 you increase your price to $330. (+$130)
You talk to the customer about a maintenance plan for $250 and they decline the offer. You follow this up for 1 month and they sign on for the plan. They continue this for 5 years. (+$1250)
After 5 years their system really begins to struggle and you sell them a new system for $5,000 (+$5,000)
During the 5 years you have been discussing and following up referral opportunities with the customer and they refer you 1 friend, exactly like them.
This friend then refers you 1 friend over 5 years.
What is this worth?
$330 initial call out and repair
$1,250 maintenance plan value
$5,000 new system
=$6580 over 5 years
x 3 (2 referrals)
$19,740 in revenue from one $200 lead
Is $200 per lead cheap or expensive in this case? Cheap.
How many leads would you want if you could turn a $200 lead into $19,740 in revenue over 5 years? As many as you could get.
Are you applying these principles to your business?
By having your follow systems and programs in place you are able to squeeze more ROI out of a lead. You’ll be able to comfortably pay more to acquire a customer and your business will grow.