The HVAC market is forecasted to grow at a projected compound annual growth rate (CAGR) of 3.9%, with a prediction to reach $370 billion by 2030. But in reality, the HVAC and plumbing industry is changing rapidly, with operators facing new challenges like never before. Whether it’s rising costs, the uncertain economy, increasing competition, or the workforce shortage, there’s no doubt the HVAC and plumbing market is evolving. So how do you adapt? That’s the key question.
My take is that we can’t predict the future, but we can adjust based on the facts on the field. That’s why now is the time for industry operators to focus on strategies that elevate growth, relationships, and longevity. Here are three ways to tackle today’s market.
1. Diversify Service Offerings
With the rising costs of customer acquisition and market competitiveness, it is increasingly challenging to build a successful, resilient trade business by just offering one service — especially if it’s a seasonal specialty. While one-service shops were the norm historically, things have changed in the market. The contractor’s relationship with the customer has never been more valuable, and offering multiple trades allows operators to keep relationships within the four walls of the company – without referring valuable leads (or the potential to lose a customer entirely) to the competition.
While one-service shops were the norm historically, things have changed in the market
By adding more services to your HVAC and plumbing line-up, you become the one-stop, go-to source for essential home services in your market. For the long-term sustainability of the business, it is crucial to ultimately offer the essential three services: electrical, plumbing/sewer, and HVAC. Additionally, when you provide a variety of services your business will experience less seasonal or cyclical highs & lows because it’s well-rounded, diverse, and, ultimately, healthy.
2. Build Scale through Investment
It’s a fact: The home services market is highly fragmented, with over 100,000 contracting businesses active in the United States. It also continues to churn out profits — making it a quality investment for home services investors and private equity sponsors. The fragmented market dynamic is an ideal opportunity for consolidation – and there is more investment capital flowing into the market than ever before.
Owners with ambitions to grow can be aggressive with tuck-in acquisitions to offer differentiated services
Nationally, scaled Platforms backed by investors or large franchisors service ~20% of the market in a metro area. The benefits of scale are significant: substantial purchasing power (especially on equipment), robust digital/traditional marketing capabilities, programmatic recruiting/training functions, breadth of service offerings, and robust balance sheet to fund growth and investment – just to name a few. However, not every investor is the same. Many employ business practices inconsistent with the culture of founder/owner-backed businesses, which smart entrepreneurs/operators can use to their advantage. Owners with ambitions to grow can be aggressive with tuck-in acquisitions to offer differentiated services and build breadth/new skills in their businesses. Alternatively, businesses struggling to make it on their own or with owners approaching retirement, can partner with larger service providers so they can keep practicing their trade without having to run the day-to-day business – just be careful with selecting the right investor to protect your people and legacy.
3. React in Real Time
One thing the HVAC and plumbing industry has proven over the last few years is its resilience – especially for the best operators. No matter what the economic climate is, homeowners still need to protect and stay comfortable in their most valuable asset. That should provide a sense of job security to HVAC and plumbing professionals — but also motivate you to go the extra mile to attract and retain business.
Just because the HVAC and plumbing industry has shown signs of being recession-resistant (for now) does not mean it can’t be impacted by the economy. That’s why it’s crucial to manage the business daily – especially pricing and the components of gross margin. The best operators review cost inputs with their teams weekly and adjust mid-month, which ultimately helps the business maintain its health and profitability.
As we head into the back half of 2024, it will be interesting to see how the rest of the year plays out for the industry, and I continue to be optimistic about a bounce back after a tough 2023. We will have to wait and see-but with the strategies above, businesses can position for success no matter what happens in the future.