Just in Case You Think You’re Normal

It’s been a while since I last posted to my blog.  The end of 2009 was hectic!  First, my desktop computer hard drive decided to start decomposing on me, so I had to scramble and get a new desktop (and wow, what a machine!  1 Terabyte HDD, the newest Intel chip, so fast that when I enter data, I get the answer YESTERDAY!  Thanks to Chris Long at Computer Troubleshooters in Phoenix for putting it together for me.)

I then decided it was time to go ahead and get a new laptop as well, so I got the latest Lenovo Think Pad.  The thing is so fast and powerful, it can launch and guide a rocket to Alpha Centauri!

Both have Windows 7 (in my opinion, a VAST improvement over XP and a huge improvement over Vista).  However, there is no upgrade path from XP to W7 (there is from Vista to W7), so I had to install all my software again, etc, and that took a few weeks.

Anyway, I’m back for the year, and ready to go.

So here’s my first blog post for 2010.  You ready for this?

When you were a little kid, did you ever wonder if you were “normal” compared to your classmates?  Maybe some were taller than you—a lot taller.  Or smarter. Or better looking.  Or better athletes. Most kids, at some point, wonder how they compare to everyone else. It’s normal.

We never outgrow that tendency.  Even as adults, we wonder, “Am I normal?”  We look at others, the houses they have, the cars they drive, their appearance, and we wonder, “Is that the way it is ‘spozed to be?  ‘Cause I ain’t that!”

Every five years, the US Department of Commerce, in cooperation with the Census Bureau, undertakes a massive study of business in the United States.  They look at dozens of industries, including Plumbing and HVAC. The last survey was done in 2007, and the data just recently became available. I will report to you what the data showed for the average US HVAC contractor in 2007 (adjusting for inflation since 2007) so you can see if you are “normal.”  (By the way, being normal is not necessarily a good thing.  How much would people jeer at you if you put on the side of your trucks, “ABC Heating— Man, Are We NORMAL!”

The average HVAC shop had 10.64 employees in 2007.  (I wonder what 0.64 people looks like?)  Half the shops are bigger than that, half are smaller.  (And we are talking about roughly 100,000 shops.)  A breakdown by size shows this:  1-4 people (58,039 shops); 5-9 people (19,295 shops); 10-19 people (12,242 shops); 20-49 people (7,638 shops), and over 50 people, all the rest (3,255 shops).  There are a ton of small shops out there, and only a relative handful of “mega houses.”  If we graphed this data, we’d have a sharply dropping line that ran from a high on the left to a low on the right.

Yet the sales data is completely different. If we look at the total sales racked up by each size bucket, we find that the curve would have a hump in it, like a camel’s back.  The 1-4 man shops account for only 10.5% of the sales (but are 58% of the shops), while the 4-9 man shops account for 13%; the 10-19 man shops rack up 17% of the sales; the 20-49 man shops tally 23% of the sales; and the rest of the family brings in 36.5%.

The average payroll per shop was $495,293 (which amounts to about $46,550 per employee).  Of that, 69% went to direct labor.  Fringe benefits came to $148,158 per shop (30% of pay).

The average shop in 2007 had $1,737,275 in sales.  This amounts to a throughput average of $163,247, a marked increase over 2002 (which one would expect considering the 2006 change to 13 SEER as the minimum efficiency standard).  Equipment and material ate up 37% of this and subs about 9%.  The average shop spent $60,488 per employee at the supply house to get equipment and materials.

Gross margins averaged around 46% in 2007.  (So if the average dealer wanted to make 12% net profit, he’d need to divide costs by 0.42.)

Sadly, the average shop only spent about $11,105 on advertising (less than 1% of sales!).  The data did not indicate whether this was before or after co-op dollars, so I’ll assume it was net (after co-op).  Even at that, there is not enough going towards advertising to sustain the average shop’s hunger for leads.

I don’t have the net profit figure for 2007, as the way the Government reported the data made it very murky to extract, but I would imagine that if it followed historical trends, it was below 3%.

Now here is what worries me— this data was all compiled before the Great Recession of 2008-2010 hit.  I suspect the numbers have gone south across the board, but we won’t know for a while.

Make sure your tray tables are in their upright and locked positions, that your seat backs are fully up, and that you have securely fastened your seatbelts. I think 2010 may be a very turbulent year for the economy in general and our trade in particular.

One thing is certain— the definition of “normal” is going to change, and those who are below normal will probably become fossils in the bedrock of our industry.  Does that make you sit up and start to want to manage your operation better?