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It’s a Myth!

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What myth am I talking about? This one: HVAC contractors must lower PMA prices to remain competitive. 

Too often contractors feel compelled to cut their preventive maintenance contract prices in orderto remain competitive. Actually, contractors can protect their pricing and gross margins by adding measurable energy reduction services to their current offering.

What Makes You Different?

In today’s hyper-competitive environment, yesterday’s service differentiation model has been blown up by the commercial real estate industry. When rents drop and vacancy rates increase, the building owners’ bean counters take over and most decisions are numbers-driven.

If they want to keep their jobs, your customers have to cut costs. Unfortunately, they’re scrutinizing their HVAC service costs, especially their Preventive Maintenance Agreements (PMAs).

While reputation, relationships, and shiny trucks are nice, the new reality is that contractors have to either cut their prices and margins, or find a new way to differentiate their offering.

Converting your PMA to an Energy Savings Agreement (ESA), delivering energy waste reduction and measurable utility bill reduction to a customer, is true differentiation. If you can prove that your service produces measurable energy savings in excess of the cost of your ESA, you can actually increase the price for your services instead of cutting the price with the traditional PMA.

It’s simple: add measurable energy savings to equipment protection. Your competitors’ traditional PMA won’t stand up your ESA.

An HVACR Contractor’s Birthright?

Energy utility bills are the single largest controllable operating cost in any building; in a typical commercial office building, HVACR and lighting comprise 75 percent of the total utility bill, and that has finally caught the attention of most financial decision makers.

So if the systems you install, maintain and repair are wasting energy, who should building owners turn to correct the problem? Who is most qualified? The HVACR industry is. It’s our birthright.

Real Numbers

Taking a look at the impact of an ESA program on energy spending in a typical office building illustrates just how effective it can be. A typical 100,000 square foot building that isn’t running efficiently could easily be spending $3 per square foot, per year, on energy. An effective ESA program should drive $30,000 to $60,000 in annual savings by identifying and correcting sources of waste with low- and/or no-cost operational measures, requiring no capital investment.

The ESA itself could cost as little as $12,000 annually, just slightly greater than the “old” PMA. At $18,000 to $48,000 potential net, energy services offer a pretty healthy return on investment in this environment. Spread across an entire property portfolio, these types of savings will substantially impact the financial performance of that portfolio!

Adding Energy Services

ESAs commit to identify and reduce HVACR-based energy waste as a necessary part of providing preventative maintenance. A systemized energy services program should:

  1. Conduct an Energy Benchmark to baseline energy usage and performance as compared to peer buildings (competitors) in local markets.
  2. Identify low- and no-cost solutions to eliminate waste through operational adjustments.
  3. Uncover savings opportunities with longer-term return on investment through retrofitting and equipment replacement.
  4. Include continuous monitoring of energy use and waste as part of the service.

Are Contractors Successful With ESA’s?

By and large, HVACR contractors are successful with ESAs. As in any industry transition, there are challenges. Successful contractors are hard to profile initially. Some common traits of the more successful contractors are: 1) Management/ownership is committed to the transition, engages in strategy development, and holds teams accountable; 2) An established service base can be “mined” for opportunities; and, 3) Salespeople are willing to “hunt” for business.

Retaining current contracts and securing new customers has never been more relevant for an increasingly crowded commercial HVACR market, and only the most compelling offerings stand out. The ultimate differentiator is offering energy services as part of a PMA.

Jim Crowder

Posted In: ACCA Now, Building Performance

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