"Simplify your life & your business and you will make more money. Buy from one good reliable, trusted supplier that will look out for you ... Virginia Air!"
The HVAC business is probably the only business that lets its salesmen decide what brand of equipment to sell. This decision is made based on what is best for the salesman NOT what is best for the company. For example: the manufacturer sells a unit to the contractor for $2,000 and takes $50-$100 of that money and gives it to the contractor's salesman potentially going against what is best for the company.
If there was a way to measure the amount of influence a contractor has with his supplier on a scale of 1 to 10 you would find that the contractor that buys the most has the most influence thus a "10" rating with the supplier. The contractor that buys the least has the least influence or ranks low, a "1".
If a contractor is doing $1,200,000 in sales he buys roughly $400,000 - $450,000 in material a year. If the contractor forms an alliance with one good, reliable, trustworthy supplier and buys 90% from that supplier, he is a "10". If the contractor splits the material purchases to multiple suppliers he is a "1" and has no influence. The more different suppliers a contractor buys from the more he reduces his profits and influence.
There are a number of things that cause this erosion of profits:
- Do you want someone in your shop to call five different suppliers, hold on the phone, write five different PO's or just do it one time?
- Do you want someone in your shop to stop what they are doing five times a day to unload a truck and check everything and put it to stock or do it just once?
- Do you want to process and verify 100 payable invoices a month and set up a credit pending on 5 to 10 invoices or just one credit? This is 4 or 5 times as much paperwork.
- Do you want to write 40 payables checks a month or 10 payable checks a month?
Remember every piece of paper that comes into your shop or goes out has to be checked. The greater the paper work the greater the chances for error. Every error decreases your profits.
Could you cut down on install call backs if your crews were intimately familiar with one brand of equipment or just vaguely familiar with 5 brands of equipment? Same for service tech's. Same for required parts stock. Same for your sheet metal shop.
Remember, when your crew gets to the job and has the wrong size plenum or the condensate comes out on the wrong side or the thermostat wiring is differently brand to brand, it costs you money! All of these things are the silent unseen thieves that are stealing your profits, and I have only mentioned a few here.
You have to set up and track credits pending on warranty parts, over charges labor claims, advertising claims, factory labor warranties and many others. Do you want to deal with one supplier where you have maximum influence or five suppliers where you have no influence?
During the year when you need help... a special promotion $$$, extra advertising, labor to resolve a job gone bad, installation or tech training etc. you'll have a much better chance if you are dealing with one supplier and you happen to be in the top 5% of their customers. It's all about leverage.
The more suppliers you deal with the more complicated your business becomes and the less money you will make. Don't forget the time it takes for all your employees to chat with 6 to 8 salesmen each week.
All these things added together cost the average contractor ($1.2M in Revenue) as much as $25,000 per year. If you are making 10% net profit, or $120,000 that is 20% of your net profit. Simplify your business & make more money!
Thanks for all you do and as always “Expect More From Us”!
Thanks,
Bruce Martin
Dealer Business Consultant
Value Added Distributors
(757) 469-1205
