Service-based value propositions that drive scalable growth

Selling new service agreements and equipment upgrades is a highly competitive challenge for Commercial HVAC Contractors. While the market has always been highly competitive, since the 2008 downturn, many sales teams often find themselves forced into price competition for their services. Sales leaders are challenged to help their teams differentiate their services to drive predictable revenue growth. 

Some of our best clients have focused on two key strategies to drive scalable sales growth:
1. Defined a value proposition valued by decision makers in their target markets.
2. Organized their sales processes and aligned operations to sell and deliver that value respectively.

Over the past 10 years consulting with over 250 Mechanical Contractors, we have found that the most innovative HVAC value proposition valued by most building owners and operators is the ability to measurably reduce building operating budgets. The challenge from a sales perspective has always been getting to a financial decision maker who controls these budgets. Traditionally, most sales teams have called on personnel responsible for day-to-day operations whose primary daily imperative is keeping systems running and complaints to a minimum.

But even this value proposition can be challenging in a rapidly growing economy. Some building owners and operators aren’t feeling a lot of pain right now, especially in the Commercial Real Estate industry. Occupancy and lease rates are up significantly since the last downturn and capital has been flowing more readily than at any time in the last decade. However, while the current economic expansion has been the rising tide that lifts all boats, anyone reading the economic tea leaves sees indications that the probability of a downturn in the near future is increasing. The question for mechanical sales leaders is, how will you differentiate in a contracting market? Will your sales methods and teams prevail? If construction and the capital funding new construction and project upgrades dry up, will service get you through the downturn? What can you be doing now to prepare? We are preparing our clients for this eventuality.

Downturns and their timing impact regions differently, but unless you’re in our nation’s capital, it will negatively impact the underlying commercial building economics. Falling occupancy and lease rates will dry up capital spending and make operators more cost-conscious. The same number of competitors (until the shakeout) will be chasing a shrinking service and upgrade in addition to shrinking construction opportunities. So, we are advising clients to renew their commitment to expanding their base to increase the health of their service business. Now more than ever is the time to help your hunters open new accounts and your account managers protect your base to offset revenue reduction in other segments of the business.

 

Case Study: How One Contractor Drove a $416,000 Controls Upgrade Using  BuildingAdvice
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"We have been committed to measurably reducing our client's building operating costs for almost 20 years now and have seen our contract base grow by 10x in that period. Through software automation and technical support, BuidlingAdvice has empowered our sales teams to confidently position our budget reducing services and helped operations ensure delivery of those savings. 

- Rick Cooke, VP

Solution: Take a fresh, Honest look at your service growth strategy and determine if your value proposition resonates with your customers and helps your sales team succeed.

To get started, assess how your customers and prospects see you versus your competitors.  

  • Why do clients work with you today?  
  • When you lose an opportunity, do you honestly understand why? 
  • Are the reasons customers work with you truly sustainable? Downturns breed a lot of new competitors that will drive down prices and margins. Will you overcome that?  
  • What new dynamics (for example real-time building analytics) will change industry dynamics and how will you adapt?  
  • Have you gained market share during this expansion (not just in revenue but accounts)?  
  • If you’re not meeting new client expansion targets in a robust economy, what is the likelihood you will be able to in a declining market?  
  • If you’re growing, how can you accelerate growth and prepare to take share from weaker competitors as the market turns? 

Our Approach: BuildingAdvice got its start in 2008 at the inception of the not so “Great Recession”. We built our applications, management strategies and sales methods at a time when vacancy rates were high, bank financing was scarce and lease rates were plummeting. While we focused our development efforts on increasing efficiency of both sales and engineering teams, it became readily apparent that engineers, by education and training as well as early stage tools, could already identify and correct sources of energy waste, especially in larger buildings and projects.  However, medium sized buildings that were typically targeted by service sales teams were underserved because they were ill-equipped to partner with clients in reducing operating budgets, especially energy utility budgets. So, we began to focus our software and program development efforts on enabling maintenance and project sales to incorporate energy and other operational cost savings into the value they deliver. 

Back then vacancy rates were increasing and lease rates were dropping. Tenant demand dried up and building owners lost buildings to banks. Investors were hit with capital calls to stay within their covenants.  Building operators were forced to transition from a top line, revenue focus to cutting costs. As difficult as it was, all industries were feeling pain.  

In parallel, contractors worked through their project backlogs and were forced to rely on their service business to get through lean times. Those with a more robust service business were able to take advantage of the changing economy. One consistent theme? The contractors that truly delivered measurable reductions in building operating costs were doing far better than those that didn’t. When pressed, the companies that didn’t deliver measurable operating cost reductions felt that things like reputation, training programs and other factors would be reasons customers did and would continue to business with them. Unfortunately for them, the market reeducated them pretty quickly. It was in this crucible that BuildingAdvice was created. 

Our time in the field quickly indicated that we needed to build a comprehensive, turnkey platform that enabled sales teams to differentiate their service offering by measurably reducing their customers’ building operating budgets. And we knew we needed sales teams to control their own destiny. Few had access to engineering resources, and those that did competed with other parts of the organization for these scarce resources. So, we knew the software tools not only had to automate sales processes to drive efficiency, they also needed to incorporate AI to replace the need for engineering resources in the sales process so sales teams could control their own destinies. And in the event an opportunity required engineering services, we needed to supply analyst support to help drive sales transactions. To that end we’ve implemented an evolving platform that includes:  

  • Management Consulting 
  • Software Applications 
  • Reporting and Dashboards 
  • Sales Processes, Training and Coaching Programs 
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"A core part of our value propostion to all of our clients is to measurably reduce their facility operating budgets, with an emphasis on energy costs reductions. It is so embedded in our culture that we included it in our company name. Today, I am thankful we made this company commitment because I can't even imagine competing without it."

- Dave Crosely, General Manager

Instead of competing on price, develop a value proposition that your prospects and customers will value today, and most importantly, in the future. Because Commercial HVACs can have the most impact on building operating budgets, and Financial Decision Makers value this, the best option for differentiation is committing your team to measurable reductions in building operating budgets.  

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Let’s unpack the above statement.  

  1. The single largest controllable operating cost in commercial buildings is energy. 
  2. The largest consumer (and often waster) of that energy are the HVAC and lighting systems, comprising 51% to 75% of the total energy consumed depending on building type, climate and age of building and infrastructure. 
  3. Taken together these two data points place the Mechanical HVAC industry in the pole position to work with clients to measurably reduce their energy costs. 
  4. In addition to energy, some other costs that you can impact include repair and maintenance costs, unbudgeted capital costs, by extending life of equipment and productivity loss from downtime and disruption. There are others. 
  5. Targeting financial decision makers doesn’t mean calling on the holy grail of financial decision makers, the CFO, it just means calling on someone that has a budget that could benefit from redirecting wasted spending to things that matter to them. 
  6. If you’re going to deliver financial value, you better have a sales process that efficiently educates prospects and clients, collects building data and conveys results in financial terms. 
  7. Start looking at alternatives to Simple Pay Back (SPB) to justify project upgrades and take advantage of programs like PACE and IRS Code 179e. 
  8. Getting operations involved early is wise. Their buy-in will help you to innovate additional services that could move the budget reduction needle through enhanced service options and continuous monitoring of results. 
  9. Your strategy can be as simple as introducing tools to the sales team and building case studies at the outset with a transition to a more organization wide approach over time. 
  10. Or you can make this company-wide and engage senior management in the process and leverage the transition as a catalyst to begin changing the culture to focus on client building data to deliver measurable outcomes to your clients.  

 

What are the primary elements of a building operating budget that a competent mechanical contractor can impact with a comprehensive PM Program? 

  • Lighting: Whether you have a lighting division or subcontract this out to 3rd parties, with LED upgrades, integrating lighting controls and schedules with mechanical systems, and even incorporating plug load management, will have a tremendous impact on energy consumption and will favorably impact ROI on proposed mechanical upgrades. 
  • Lost revenue: Systems failures or less than optimal performance can shut down many types of operations. From process cooling in manufacturing to maintaining environments within prescribed tolerances for medical and scientific equipment, sub optimal performance will have measurable financial impact. 
  • Lost productivity: Whole new bodies of research are documenting the impact of poor IAQ on employee performance in commercial facilities. Research is uncovering the measurable impacts IAQ can have on productivity, morale and employee retention.  With big data and correlation with occupant feedback, we will see even more strategic emphasis on this going forward from both employers and Commercial Real Estate.  
  • Repair Costs: Poor PM programs lead to equipment failure and system wide performance issues that lead to avoidable costs including material and labor costs, downtime impact on operations, and occupant discomfort that may drive a series of additional economic impacts. 
  • Energy costs: As energy will continue to be the single largest controllable operating cost in facilities, mechanical systems - the biggest consumer of that energy - will continue to be a major source of operating cost savings. While new buildings will increasingly incorporate state-of-the-art Building Automation and Analytics technology in their planning (thus driving down energy consumption), retrofit opportunities to drive lower energy consumption will continue to be a major source of operating budget reductions. 
  • Capital deployment: A comprehensive Preventative Maintenance program will forestall the need for equipment replacement by increasing the life expectancy of equipment and systems. This will enable a more predictable, financially based capital planning process that financial decision makers will value.  

 

While lowering building operating budgets is a component of an optimally performing facility, it is not an objective that stands on its own. It is important to facilitate discussions with clients that extracts their priorities for what, in some cases, could be competing priorities. Here are some objectives that should be explored:  

  • Lowering building operating budgets: Enough said. 
  • Occupant comfort: From temperature and humidity to ventilation and light levels, focusing on meeting occupants’ needs is becoming an even more critical component. Adding abilities to uncover sources of Particle Matter and Volatile Organic compounds that can impact health and productivity are becoming more valued by both CRE and employers 
  • Critical Systems: Ensuring/Assuring continuous uptime will be primary objective where facilities are fundamental infrastructure in creating and delivering value.  Health and life saving equipment and space in Medical Office Buildings and Hospitals will often need to operate within prescribed operating parameters.  In manufacturing, chilled water production may be a critical component in the process.  
  • Extending equipment life: The ability to extend the life of aging equipment forestalls the need for capital to replace it. Extending equipment life enables a more predictive capital planning process allowing scarce capital to be invested where the leadership feels it is needed but anticipates future mechanical requirements eliminating costly, disruptive emergencies.
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"We are committed to using our client's building data to guide them in reducing their operating budgets. Using BuidlingAdvice we have  been able to expand our service line of business by over $5MM at higher margins in the pst 12 months. I consider Jim and his team Trusted Advisers to our leadership team."

- Jon Fruetel, Principal

 

As you build out your sales program and its underlying value proposition(s), consider building economics to help refine how you position solutions to that market. 

  • Owner occupied facilities: Reductions in building operating budgets are of direct benefit to the owner. With no middle man, contractors may direct their business case and financial justification more directly to the owner, usually through a Facility Manager. 
  • Commercial leased facilities: This generally entails a less direct path to decision makers through a property management firm. Dealing with Property Managers will have its own set of challenges and dynamics.  
  • NNN vs Gross, Hybrids: If you are calling on commercially leased facilities, you need to understand how your value proposition will be viewed by decision makers. Generally (be careful here), Gross Leases ensure that savings from your services flow to the owner’s bottom line. With Triple net leases, tenants are paying for common charges so reductions to budgets like utilities will be to the benefit of tenants. There are also hybrids to these models. Sales teams, if calling on commercial real estate, should analyze their respective markets including key players to ensure your strategy aligns with your local market realities.  
  • The role of facilities in achieving corporate/ organization mission: Facilities will play a key role in any organization’s mission but in different ways.  Homing in on that mission and correlating an organization’s Key Performance Indicators (KPIs) to facility operations will increase the likelihood that your solutions will be seen in a different light. Here are some examples to consider:
    • Manufacturing: Numerous KPIs will be used but very basically; number of widgets produced per dollar of expense or per hour/day of operation will be the foundation. Uptime of critical systems (e.g. process cooling) will likely be the focal point. 
    • Senior living: Bed occupancy and $ per bed/month will be key indicators. Very cost conscious so measurable cost reductions may be looked at in these terms. 
    • Commercial Real Estate: Recognizing tenant economics both revenue and costs are evaluated on a cost per square foot basis. 

 

 Right in the wheel house of a Mechanical Service Contractor: 

  • A more robust PM that delivers more than a “drive by filter change” typically drives from 12-17% in measurable energy savings based on a sample over 250 buildings using SavingsTracker and BuildingLogiX.
  • In addition to standard maintenance - cleaning coils, tightening belts and filter changes, the following scope expansion has shown savings increases of up to 12% energy consumption savings: 
    • Thermostat calibration 
    • Ventilation inspection and adjustments
    • Set back adjustment review 
    • Setpoint review 
  • In addition to PM Scope enhancement, BOMA, through their BEEP program, identified 30 things FMs could do to reduce operating costs w/o capital. 21 of those recommendations are HVAC/Lighting based. So there are many things Mechanical Service Contractors can do to drive down costs without resorting to capital.  
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"As a Linc Franchise operating in the Gulf States Region, we have built our companies on the premise that we are best positioned to partner with our clients to reduce their cost of operations. That commitment has fueled extraordinary growth. BuidlingAdvice takes our game to another level, helping us to uncover new sources of potential savings and helping to ensure we deliver those savings."

- Jimmy Kaiser, Exec. VP Business Services

 

Having transitioned into this value proposition, Sales Leaders will need to acquire the tools necessary to get their teams up to speed. Sales automation and software based technical expertise will help sales run independently and control their own destiny. Some things to consider: 

  • Salespeople must be able to independently collect, leverage and deliver building intelligence that positions them and their proposed solutions credibly.  
  • To achieve this in a scalable, efficient way, sales can rely on little if any technical support. 
  • Client deliverable(s) should be concise, graphically based, and speak to financial decision makers. 
  • Service sales teams are not in the business of delivering studies, so complexity must be minimized to achieve scale. Analysis depth must be just credible enough to move the process along with integrity, but no more. 
  1. Benchmarking: Sales needs an “easy button” method of rapidly qualifying buildings potential energy savings that is fast, accurate and credible.  
  2. Sensor Based Assessment: Easily and rapidly deployed portable building analytics tools will help sales teams efficiently qualify and determine sources of wasted energy and potential sources of rapid return on investment from services and upgrades. 
  3. Equipment and Control upgrades: Incorporating myriad source of savings from upgrades into financially justified proposals enables service-based sales teams to proactively drive sales. The key is software automation and built in expertise to streamline the process and minimize the need for technical expertise. 
  4. Savings Verification:  Unsubstantiated claims are the bane of the industry. Verifying your claims is key to building credibility and a reputation for integrity in your market(s). 

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