#119 - Surviving and Thriving in HVAC with Rich Jordan

I'm John Wilson. Welcome to Owned and Operated. Twice a week we talk about home service businesses, and if you're a home service entrepreneur, then this is gonna be the show for you. We talk about our own business in residential plumbing, HVAC, and electric, and we also talk about business models that we just find interesting. Let's get into it. ServiceScalers is running a promo right now where if you sign up for a year of service, you get a free website, which is awesome. Uh, we just did this in one of our businesses and it really helped a lot. It was a brand new look, plus we got great SEO with it and PPC to help. So make sure you check out servicescalers.com, uh, promo code OWNED. Welcome back to Owned and Operated. Today I've got my friend Rich Jordan on. Uh, welcome, Rich.

Thanks for having me.

Yeah, dude, this will be good.

This is like no talk.

Yeah, yeah, yeah, good one. Yeah, Rich and I talk, uh, almost every day. Um, yeah, you're— I'm trying to remember the last time you were actually on it. Almost a year ago, probably. I think we talked about, uh, marketing or something at the time, and we recently re-kicked your your origin story ep, which was kind of funny to re-listen to. Um, we should probably say like, because that was a recent one, so if people just listen to it, you know, they're like, oh, Rich Jordan, $800,000 in sales. Do you want to like give a quick like 2 minutes on like what happened in the last couple years?

Yeah, yeah. So I guess that we did that origin story about 3 years ago.

It was in '21. Yeah, it was in '21.

It was like It's like spring, early spring of '21.

Yeah.

And, we're sitting here April or May of '24. So, yeah, since then. So, back then, I just had— we had the one company in New Jersey. We had bought it at $1 million in sales. And, when you and I talked, we were probably at run rate $1.6 or something like that. And, Since then, we've bought another platform company in New Hampshire. That company was doing $3.25 million when we took it over in spring of '22, so 2 years ago. And, we've done a couple little add-on customer list acquisitions and one significant acquisition in New Hampshire. So, 4 acquisitions in New Hampshire total. And, right now, we're on pace to do like $12 million in New Hampshire and $5 to $6 million in New Jersey. So $17 to $18 million this year.

Yeah.

So quite a lot of growth.

Yeah.

Since, yeah, we're at 80, about, I think we're at 80 employees right now. When you and I talked 3 years ago, we were probably at 12.

Yeah. Yeah, that's crazy. We, Sometimes I think about the, like, who I currently know who, uh, is like a— because there's all the OG names from like 20 years ago. And sometimes I just like think about who, who do we currently know that's going to be like an OG name? And I think, I think you'll be—

Yeah.

I think you'll be an OG name because like, yeah, 0 to almost $20 million in like 4 years is nuts. Right. And, um, and obviously you, just like me, are eyeballing a lot more than that, which makes— yeah, this, this will be interesting to see the next couple years. But I think it's fun to watch people's like wild transcendence, or like Jack moving from like, you know, under a million to 5 in like 20 months or something like that is like, all right, like this is cool.

And what's cool is, like, and I don't think it was true for the guys, you know, in the late '90s and early 2000s, is we have— we're like capturing all of it as it's happening. So yeah, you can go back to that interview from 3 years ago and see my thought process at an early stage versus— yeah, mature too now. So it's kind of cool.

Yeah, it is, it is wild. Um, sometimes I, I try not to, but I have an interview that I still have to re-listen to from ServiceTitan, and it was like late 2020. And like our, our big thing was we were like, we gotta break $5 million. Um, and like, you know, the next year I think we acquired 3 companies, like a few months later. So, uh, yeah, I don't know. It's true.

You felt like a baller because you're about to break $5 million.

Yeah, yeah, yeah. I, I'm sure I said things in there that like now I'd be like, oh my God.

But yeah, that's the tough part about doing these is sometimes you listen to old interviews of yourself and you're like, oh my God, you knew, you knew nothing.

You knew nothing, Jon Snow.

Oh man, a couple years I'll listen back to this one, I'll think the same thing.

Yeah, probably. All right, well today, uh, today we're, you know, we're— it's May 1st and Uh, we're talking about shoulder season, which I felt like we did okay, um, this year. And shoulder season, for those of you that like don't really know, it's like HVAC has a couple seasons where the temperature is too mild to really do anything productive, uh, as in you don't sell a ton of systems. So you tend to have to get very creative with how to keep things moving because you have install crews that rely on your comfort advisors to still sell stuff. So, um, in the spring, that's usually like, you know, March, April, sometimes February, like depending on how weird the season is. Um, May, again, depends. You know, it's 80 degrees right now in Ohio, so that does— that's not shoulder, that's 80 degrees, that's hot. Um, and then the other one is like September, uh, August, September is when it gets kind of weird. So, uh, so yeah, so we're— but the spring, you know, we talk about this a lot, spring Like shoulder season is the hardest one, like, because it's just, it's a long time. Whereas like you can still have ACs and stuff in August, September. Uh, a lot of the stuff that we've done really well we got from Rich. So I'm excited to talk to Rich about how he's helped mitigate his shoulder season and, and make it better. So, uh, you want to talk a little bit about the— I think a lot of what you did was last year, like you implemented a ton of stuff. last spring and it really carried you through 2 shoulder seasons now. So, you've proved it twice.

Yeah. And, I think it's maybe useful to kind of talk about what the shoulder season used to look like versus what it's looked like over the last year.

Yeah.

So, we used to, like you said, September, October, even November, first half of November, and really late August. So, Back half of August, first half of November, and everything in between would be weak. And then February, March, April, you know, would be, would be weak as well. And, and weak meaning like difficult to fill the service board for HVAC.

Yeah.

Certainly difficult to fill the board for like things like sales quotes for replacements and stuff like that, but But really showing it in HVAC service. And then after we've put a bunch of things in place, like we— and we really started putting things in place, I'd say like March of last year— we have not had on the HVAC service front, we haven't had what feels like a shoulder season in 12 months.

Mm-hmm.

So And that's, you know, like the team, like at one point I think it was like getting into November, the team was like, we haven't had a break. Good, good. That's what I was thinking. And really for us, I mean, a huge part of it is memberships. And, you know, for us, like memberships means like annual maintenances. We went on a big blitz to fill or to sell memberships in the spring of last year and we've continued to carry that through. One of those things was adjusting our membership to be more desirable to the customer and easier to sell.

Mm-hmm.

And then, also opening it up for the office to sell it Out of the office. A lot of companies and ours before, like, really the technicians are just the ones that kind of offer it in the field. You know, maybe it gets the customer a discount or whatever. And technician conversion on that for like best-in-class companies would be like 40%. Yeah, that's best in class. Most companies would be 10% or less. Yeah, right. We do a pretty good job. We're, and we're at 25 or 30% in the field.

Yeah.

But my office crushes it. I also sell, as John well knows, I also sell, you know, 200 a month.

Yeah, that's wild. Yeah, we had a competition. Yeah, we had a competition for a couple months of like who could sell the most and I had to stop playing. I was like, this isn't fun anymore.

No, that's a huge part of it. Yeah, you guys kill it. Overall revenue growth and the sources of mitigation is memberships.

Um, yeah, memberships, uh, memberships are like— I used to hear the metric of $1,000 to $1 million, um, which obviously we don't— we don't— I don't know anyone that actually lives up to that membership or that, uh, that metric. But, um, we Like, that's been a huge part of our growth too, especially in HVAC. Like, HVAC is gonna 2.5 times last year, and one of the biggest things we did was like hone in on memberships. Um, and that's— that'll put HVAC like 8 figures, like low, low 10s, which is kind of crazy to us from $4 million last year. And like, much of the work was like How do you— like you said, you didn't explicitly say it, but I'm going to repeat back. Like, if there's jobs on the service guys, then almost everything else will be taken care of. Like, if you can keep the service guys full, you can keep the sales guys full and keep the installers full. And the way you keep service guys full is memberships.

Yeah, and I think, I think people get it wrong. Like, people not in the industry, or maybe people who haven't added memberships, get it wrong. They think about Oh, HVAC's a great business to be in because you get these recurring maintenances. It's recurring revenue. It's MRR.

Yeah. Yeah.

It's like, look, it doesn't make a big dent. I mean, like maybe less than 5% of my revenue comes from my monthly memberships.

Yeah. I think we're like 2%.

I can't run my company on monthly membership revenue. It's almost like negligible, but it's the recurring opportunity, right? It's the recurring like customer interaction, customer visits. Because, and maybe we can, you know, this will be kind of freestyling and some napkin math happening, but maybe we could talk through this a little bit, John. So like if you, and if you're doing it, if you're doing things correctly, so like my dispatcher, my call center manager, they know Like, we want to stack the board. And, for us, what stacking the board means is we have basically a bedrock of membership maintenances that get booked on a certain day on any given day. So, we might have 33% of the board stressed out for a long time is booking maintenances.

Yeah.

We can throttle that up and down based on the season. how much service we're expecting to come in. And then of the overall calls that are booked, um, so say we have 100 calls booked on the board, we want for the— for today, we want 33% of those to be for equipment that is aged, right? So like equipment that's 10 years or older.

Mm-hmm.

We want at least 1/3 of the board to be that because we know at a certain percentage that aged equipment is going to flip to replacement.

Yeah.

Right. So, for us, the Nextdoor benchmark is 60% of those flip to replacement. That's never really been true for us. It's more like 1/3. So, 33% of the board is aged equipment and then 1/3 of that is going to flip to replacement. So, 10% of the calls on any given day if you're stacking the board correctly are going to flip to replacement.

Yeah.

So, now you can start to really think about and forecast Where, like, those revenue opportunities and the different, you know, closing rates and all that stuff. So, um, so yeah, like keeping the board full and then strategically stacking it with each equipment.

Yeah.

If you have those monthly— if you have those, like, homeowners who are members with you, you have all their equipment data because it's not like just— it wasn't just an inbound call. And like, yeah, you have a recurring relationship with them, so you have the equipment data, you know how old their stuff is, you You can kind of play the shell game of making sure you don't have too much aged equipment on today and none on tomorrow and all that stuff. So yeah, for us, that's like the whole game. That's the varsity level of maintenance.

Yeah, I think I agree. Something that we've struggled with, and you know this, we were talking about this last night, But something that we've struggled with with HVAC service is like staffing it. And the reason that staffing is hard isn't because of recruitment. Like, we don't, we don't really have a recruitment problem. Um, we, we struggle to make that department profitable on its own. So like, we— you have enough. So like, we're going into peak season and one of our concerns is like, hey, we probably need like 11, 12 HVAC service guys. Right now we have 6, and, uh, we've bumped up to 9, 10 during like peak peaks, uh, and we should probably be at 8 right now. But, um, but the problem is we don't— you're at 12?

Probably 13 to 14.

Yeah, yeah, yeah. So, um, but yeah, it's just getting the guys— it's sort of like getting them to pay for themselves. Because I think like as you're talking through this, I'm thinking about All the different things that had to happen for all that to work out the way it did. And not like work out, like obviously you did it, but it was like, yeah, memberships for sure, but like you just dove into aged equipment, you just dove into like effective dispatching. And to do all that, your guys have to know how to flip a system and your guys have to know how to offer options effectively. And like, like you said, that's varsity-level dispatching. And to me, that was varsity-level everything. Like everything that you just described was like Not what a $3 million company is doing, right?

So it's hard to do.

Yeah, yeah, it is. It's hard to do. And, and it, uh, it takes— yeah, it takes like focus. And, um, but yeah, I'd say it's— it was more than just dispatch because obviously dispatch, or it's more than just memberships. Obviously memberships was a really big part of it, but like their proactive planning of like when to schedule them seemed to be a big part of it. Like, hey, how do we schedule in the down season? That's one thing that we did really effectively this year. Uh, we didn't have a slow season. Like, we actually only got slow for 2 weeks in HVAC this year, which, like, that's insane. Um, and it just— we just got out of it. We were slow for the back half of April, and then literally we went into this week and sold, like, I, I don't even know. We're like $70 grand in HVAC today, and that's been the last few days. Um, but like the, you know, the last 2 weeks we didn't sell anything basically in HVAC, but we only had 2 slow weeks, and I'm convinced it's because we pushed on, um, we pushed on lead flow. Now I was, I was talking to somebody, um, from Logan Heating and Cooling down in Dayton, and she was awesome, and she's the president there, and Uh, they're a pretty big company, um, like about twice our size and almost all HVAC. And I just asked because I was like, hey, like, like, I feel like, like, we did the stuff you just described, right? Like, our memberships killed it, and our, um, uh, just like, we were intentional with dispatch. Like, our service guys never missed a beat. Now, maybe we didn't have it. service guys because we missed options. So we totally missed on that part. Um, but like on the dispatching and like setting them up for success part, we did well. We just didn't do well once we got there, which that's our big project now. But anyways, one of the things I asked is like, I can— like HVAC, I'm only dealing with this for 2 weeks and like it was hard. Like it was a real challenge. And this is the thing that HVAC gets so much flack about. Um, but how do you deal with this when your HVAC department's $50 million? Like, how, how do you withstand the shock of that?

Yeah.

And, uh, it was really interesting because what she said, which really like hit home for me in another project I'm working on in, in a different part of the business, is she said that they got really good at dealing like A lot of their business growth came from the proactive buyer, which I think is really interesting because most of HVAC is based off the uncomfortable buyer. They're too hot, too cold. I have an emergency, so I'm going to buy. That's kind of a paradigm shift. We're working on a project that involves that same philosophy over in plumbing right now. Um, we're like, how do we get in front of like the discerning proactive buyer? Because we think there's like— that's a larger TAM than the people with active water leaks is the people that might, you know, want this solution. Um, so how are you thinking about that with HVAC sales? Thanks for checking out Owned and Operated. Wherever it is that you listen to the show, if you could take a second and give us a 5-star review, it helps other people find Find our stuff on the internet.

HVAC sales is hard, I think. You know, like we certainly, you know, we we do provide like a repair, renovate, replace option on all of our like service calls and maintenance calls. So, and that renovate option is typically like. Hey, you could do this, but you could also renovate your system, prevent certain issues, whatever, get more life out of your system if you go with this option, which is significantly more than a basic repair. So, we do generate some decent revenue that way.

Okay.

Plumbing, and I think this is what you're referencing, we're thinking a lot about water quality right now, water quality for drinking water and also water quality for protecting equipment, scale and stuff like that. And, we think that's going to help out. We've never really put a lot of emphasis behind that, so that's something that we're just now—

Dialing in.

Yeah. I mean, I think we could do a better job around that. We do really well on maintenances and we turn that into to higher ticket revenue and flipping to replacement. But proactive buyer is an interesting concept that we might not be leveraging enough. Did she go into detail as to what she really meant?

She did. Yeah, she did.

Yep.

So we'll dive into it. So what she, what she was talking about was like this time of year, if someone's actively shopping or like the last couple of weeks, right, it's like 60 degrees, nothing interesting is happening in HVAC. So the people that are calling And it was sort of driving me nuts, right? Like, um, because the schedule was full. Like, our— we were full on opportunities, um, but our close rate was down. So we're trying to figure it out. And, uh, her, her feedback was the type of people that are calling in marketed leads this time of year are proactive buyers. They're people that probably don't have an existing problem and they are wanting to get ahead of it, or they're wanting to find a discount, or they're, you know, they're— they want to be rewarded for thinking ahead was the phrase that, uh, that she used, which I thought that was— I thought that was really good. And, um, now I, I don't have it dialed in on how to put that into our business, but, you know, it's a lot of the stuff that you see other competitors doing, like the BOGO, the, the half off this, the $2,000 this.

Yeah.

I mean, pick a thing. Now I do think You know, I remember reading, uh, did you ever read HVAC Spells Wealth by Ron Smith?

I've not read that one.

That's interesting. Uh, you should. But it's like, Ron Smith's an OG. Like, he's one of the OGs. And, um, it was, uh, that's where I got the metric, 1,000 clubs per million. Um, Years ago. So before I knew about CertainPath and before I knew about Nexstar, I knew about Ron Smith. And Ron Smith wrote this book called HVAC Spells Wealth, and he literally lays out the HVAC business model. Like, this is it. Like, this is, this is how you do it. And, um, I need to re-kick it because it probably talks about this exact problem, but he was running $20 million companies back in the '90s. Like residential HVAC service replacement. Like, he's no— he's an OG.

Off of a whiteboard.

Yeah, yeah, yeah, yeah, dude, he's, he's legit. Uh, so what he talked about was, you know, setting up a partnership, and he's like, look, we, we succeeded during slow time because we proactively, 6 months out, went to our vendors and started working on big deals and big promotions that we could both win. Because like manufacturers need to move equipment during slow time too. Like No one wins in April in HVAC. So the goal is, how can you start— like, what promotion can you get to just for like 30 days? Like, hey, hey Train, hey Lennox, hey whatever, I need an extra 30% or 20% off this equipment because I'm about to do this. Like, how can you help me help you?

Like, this month, I'm not gonna hold you to it for 30 days.

30 days. Yep, give me 30 days, give me a promotion that's gonna work, that I can help you move equipment and we can move equipment. And, um, and that was something that he talked about in a book that I read 8 years ago. And now it just hasn't really been as relevant because HVAC just has been like a smaller part of our business. But now, um, I'm gonna recrack that baby open and, uh, dive into like that section again because I think That was one of the things that she mentioned, and I was just like, man, I remember reading that in like 2016, that exact like solution. But yes, proactively going to your vendor and working out like a deal just for that month. So we retroactively went and did it, and we're just like, hey, we need some help moving equipment. I know, I know I'm in the middle of it, but what can you do? And Dan, who's Great, he listens to the show. And, and Train and Ferguson came together and gave us something to, to help out. So, uh, and that's going to help us move more systems, which is going to help them and help us and help everybody. But now we know, okay, like, I need to be talking about August, September, October promotion in June. So in a couple weeks, I need to start like working proactively and really like, how do we move, you know, half a million dollars of units, uh, each month ahead of time. So that's something that we're, we're trying to think a lot about to get ahead of the next one. Because I think the— we nailed the lead flow section of like our service guys like never had a slowdown. There wasn't a minute.

Yeah.

They, they just have consistently run. It's honestly been one of our best recruiting tools. Like, hey, we, we don't slow down. That's like not a thing that we experience.

Um, but it's the replacement, it's the replacement quotes and the sales closing on replacements that has slowed down for us. That's where we have felt the slowdown. It's like services pumping, they're flipping the leads, but they're not closing, and the market leads have come down.

Yeah.

In the same time.

Yeah.

And close rates are even on those lesser amount