As the COVID-19 crisis continues to impact the trades, we bring in yet another expert of the industry to have a conversation with. For episode 12 of To The Point, we have the privilege and pleasure of speaking with Chris Lothschutz, Vice President of Finance Business Excellence for Lennox International.
At this point in time, it’s pretty safe to say that the HVAC industry is going to be down double digits for the foreseeable future. How long this lasts is up in the air, but the evidence and experts watching the industry lean towards this extending through Q2 and potentially for the rest of 2020. The effects of this situation are starting to really show up, and with retail all but completely closed down, it’s a tough time across the board for the industry as a whole. On the upside, we’re still an essential business, phones are still ringing, and homeowners are still letting us in their houses. Plus, there’s some exciting news coming out of the government in terms of assistance for the trades.
The CARES Act was successfully enacted, and there’s a program in the legislation that specifically applies to contractors and distributors in the IRS categorization that almost all dealers fall into. It’s called the Paycheck Protection Program (PPP), and in effect provides free, completely forgiven loans to any contractor based on their payroll. By taking your 2019 payroll, dividing it by 12 to get a monthly rate, and multiplying that number by 2.5, you’ll have the value of the loan that you are eligible to apply for.
2019 Monthly Payroll x 2.5=Free Forgiven Loan Amount
If you use 75% of the PPP loan towards payroll and health costs for your employees, the loan will be completely forgiven. That’s free money in the bank for contractors! Or, if you use the loan for other things specifically laid out in the program, it turns into a 2-year loan with only a 1% interest rate. No matter how you use it, it’s a great way to get some cash flow infused in your business. Plus, it’s pretty straightforward and doesn’t require a bunch of hoops or lawyers to get started.
It’s important to note that time is of the essence. The PPP has a fixed total dollar amount for the fund. Once the loans are approved and doled out, the well is dried, and it’s going fast. There are rumors of an increase in the funding for the program, but with no guarantee it will happen we encourage you to take a look as soon as possible. Don’t let this opportunity pass you by. It’s a chance to give you a safety net to maintain your employee base and come out of this situation in better shape.
Last year, the weather wasn’t great for the trades. 2020 was forecasted to be a huge improvement, and until COVID-19 we were projecting for huge growth in the trades. Now, cash is king, and generating profit is all that seems to matter. If you have associations with big box retailers, you’re seeing those consumer leads all but disappear, and need to figure out an exit strategy quickly.
The main thing to remember is that the best strategy during this crisis is to make decisions about today that will positively impact your business tomorrow. You want to avoid taking rash decisions that will put you at a disadvantage when the market picks back up.
The role that digital marketing is playing in this environment is huge. Chris mentions that Lennox is seeing some of their strongest and most successful dealers leveraging their market dollars. They’re changing their lead generation strategies with new campaigns revolving around home health and safety to take advantage of the current landscape. Digital is the fastest marketing media and has the greatest reach, and it’s critical to utilize right now. If you want to take a chunk of market share, right now is the time to do it. Customers are still searching online for HVAC services, and more than if ever. Cost per click is dropping, cost per lead is dropping—this is the time to ramp up digital marketing.
This is a tipping point for branding, and a real test of the strength of your brand. If you’re an HVAC dealer, your brand is the most important part of your business. It’s your total identity, how people find you, and your most valuable customer retention asset. As Chris points out, “your brand is like gold, and you have to protect it like Fort Knox”. To use Lennox as an example, they would have been celebrating their 125th anniversary in Las Vegas this year. That’s over a century of success, and it’s due to successful branding. They’ve made it through wars, through 9/11, and they’ll make it through COVID-19. That’s the power your brand has.
“Your brand is like gold, and you have to protect it like Fort Knox”
Even if you’re surviving right now, it’s impossible to predict the future. Applying for the PPP loan might make sense just to be on the safe side, or you might consider using the loan for other reasons besides payroll costs due to the great interest rate. It’s worth looking into regardless of your current financial situation.
While some contractors are quick to cut staff and redirect their marketing budget, we have to stress that those rushed decisions will put you at a disadvantage when things bounce back. You’ll have way more ground to cover, and the businesses that ramped up marketing and kept their crew will have a leg-up on everyone else. Let the other guy make the mistakes, and find a strategy that will set you up for success when things go back to normal.
Also to note, as profit generation is highly important right now, you’ve got to focus on getting the most out of your leads. It’s not just advice for now, either. Anytime you’re providing a service for a customer, it’s a chance to have a conversation with them and find out if they have other needs you can fulfill. If you’re servicing their air conditioner, you might find out they’ve also been thinking about an air purifier, for example. The only way to do this is by having a conversation, and genuinely caring about your customers.
We’re seeing the industry come together, even competitors, to come out of this significantly better than we came into it. Manufacturer support across the board has been phenomenal, and because the trades are deemed an essential business, we can continue to make moves and have a chance at success despite the circumstances. Just because this virus hit doesn’t mean business isn’t out there. In fact, search volume is increasing because people are home all day and using their systems more frequently.
When the dust settles and this crisis ends, are you going to come out better than your competition? Or are you making decisions that will put you at a disadvantage when we come through the other end of this tunnel?