HVAC Full Blast

Welcome to HVAC Full Blast, where you get industry inputs for real results. Today, we're diving into the state of the industry's labor challenges. Hiring, retention, and compensation strategies are on the table. Join Mary Carter from Trane and Stephen Ross from Sandler as they share their experiences and discuss the dynamics of the evolving marketplace. Let's get started.

Are you doing it?

I don't know. I don't even remember what's it called again. All right, here we go.

Here we go. All right. Welcome back, HVAC Full Blast. I'm Mary Carter, he's Stephen Ross, and we're back.

We're back.

So good. Good to be chatting And I feel like when we first started this, we were both kind of like, oh my gosh, what are we gonna talk about? And now every time we meet, we're like, I've got an idea. I've got an idea. Like there's plenty going on.

Oh yeah. Oh yeah.

I mean we I think the rate of change in our industry is dramatically different than it was when I first got into it. So constant change, lots of stuff to talk about for sure.

I totally agree.

Someone who's kind of always been in distribution sales, like gone are the days where I just have a catalog and a list of features and benefits. And I just like churn and burn widgets, right? Is so much more to it now, which is fun. That's why we do it, right?

Yeah, so twenty twenty five, when we started the year, a little uncertain, like what were the changes gonna be? And boy, have there been a lot. So as we kind of hit the second half of the year, you have a pretty unique position in that you see big parts of the country and kind of what's going on regionally. Like what are some of the things that you've seen?

One thing that always kind of stops me in my tracks is the way we're talking about unemployment, job retention, hiring practices.

I've got too many employees. I don't hear that one as much. I don't have enough employees. Hear that one a lot.

I wish I could hire more people. I wish I could do more jobs if I had more people. Can't keep an office person. There's just a lot. And the unemployment rate has become such an indicator in the news as to what's going on with the economy. So maybe as I'm maturing a little bit and paying attention to the news, I'm a little more keyed in than when I was younger and looking for jobs myself.

But one thing that I always come back to, you know, whenever I was looking for a job is, you know, usually, thankfully in my career when I had a job and when I needed to go make more money. And so it's curious to me to hear from all my customers, or a lot of customers, I shouldn't say everybody, but, hey, I'm having a hard time hiring. And in my mind, it kind of sets the light bulb off of like, well, what do you pay your people? And then going down that rabbit hole, and how do you determine that in the first place? And so you've actually owned a heating and air company and have had influence over these decisions. So, I mean, if you just could crack that open, how do you determine what to pay somebody? I don't think I've ever really sat in that seat.

Yeah, I think, I mean, pay scales, I mean, you have kind of the big industry problems, which you hear things like the average age of a heating and air technician just keeps going up and up and up because there's not enough younger people coming into the profession. So we hear that, we hear nationwide the shortages of technicians, like how many short are we as an industry? And it's tens of thousands. So there's clearly an imbalance there. And then so you got the big picture, and then you got the little picture, which sometimes is, Hey, I'm at a small heating and air company, we've got twelve employees.

How do we compete with some of these bigger companies in terms of health insurance or benefits? Where do we go to find employees? How do we get a technician? So I think it's, I mean, you got a lot of different angles to come at that problem, but certainly figuring out how to pay employees is a big piece of that.

Have you had any dealers get really creative?

I've seen a lot of kind of incentive programs and a lot of spiffs and inherently with sales roles. I think what's enticing to me about sales roles is the opportunity for those is kind of as big as the company allows it to be, right? So that's why I like a sales role. But truth be told, it's kind of a guarded practice that people get a little bit shy to talk about, and yet we still hear the feedback of, I need more employees. I've got to find more employees. So they kind of go hand in hand, but one is hiding behind a curtain right now.

Yeah, yeah. Well, there's a couple ways to view that. And I think part of this is we have to figure out what's our risk tolerance as a business owner and how are you going to manage that risk? And so with more risk, maybe more reward, but also if we're not managing that risk and it gets out of control, that's bad.

So a lot of times, how much you pay an employee, I had the good fortune of having a business partner where we could bounce ideas. Mean, I don't know how I would've made these decisions if it was just me owning the business by myself.

But sometimes we'd have a new employee that we're interviewing or a potential employee, and they're like, Hey, I want to make this. And it maybe is more than we were thinking we would pay. And so then we've got to make a decision, Okay, do we hire that employee at that rate, knowing that sooner or later all the other technicians find out about it? There's no way to prevent that from happening.

Sooner or later everybody's going to find out about it, you're to end up raising everybody's pay.

And so what then, how do you structure that? I think what we learned is maybe the mantra that you've heard before, which is hire slowly and fire quick.

If you're going to pay somebody a ton of money to come work for you, they better be able to live up to what they're producing. And if they're not, well, you got to end that in a hurry. I think that was one of our main lessons. And it's really hard to fire a technician when you're in the middle of the shortage and going, Man, we don't have enough people. But I think that was one of those lessons learned that the longer we were in business, the more we saw the downside of keeping somebody around who shouldn't be on the team. And that could have been for multiple reasons, but you got to pull the trigger quickly if you're going to let somebody go, especially if you're paying them a ton of money just to be there and they're not producing. So that was one lesson learned.

Yeah.

And then you got to think about the culture of the organization, right? And is that a good fit? And oftentimes that's kind of like a gut feeling, right?

You kinda know off the bat, but what what would be things that you'd be hearing maybe from a candidate that would say, you know what? We should pay that person, you know, this amount. Like, you know, what what kind of is the worthiness barometer, if you will, on, you know what, they're worth it?

Yeah. I think you've got a lot of moving parts. So you've got your marketing budget, how much are you spending on marketing and how many leads are coming in and how's your sales team doing converting those leads?

And then I was looking at things like what's our lead time? I mean, if a salesperson in June fifteenth sells a job, are we able to put it in the next day? Are we booked out two or three weeks? And what's the effect of that on that salesperson's closing ratio?

You could say, Hey, this guy had a tough June. He only closed at thirty percent. Well, man, it's hard to close more than thirty percent if you're booked out three or four weeks. Sometimes it's looking at, A, what's the capacity of the organization? Is it really set up to where we need somebody full time? Or is it like, well, we only need somebody six months out of the year when we're really busy? And how do you keep them busy the rest of the year?

In our case, my partner and I had a year twenty twenty two, I think in revenue, the total company, we did like five point seven million dollars and maybe two million dollars of that was install.

And but we were booked out a lot of the summer and our install crews weren't that great. I mean, on an elementary school scale, I would say we were like C plus in terms of our quality with our install crews.

We were paying those guys, I would consider pretty average pay. We certainly weren't near the top of the market. We were a small company, we had about thirty five employees or so, so we weren't competing with the companies out there that had one hundred employees or so. So that kind of our little niche of the world, we were pretty average in terms of pay.

And my partner and I sat down and we just looked at, okay, let's say we hired to where we really could keep everybody busy and get to customers quickly, what does that look like? And really what we needed was another install crew full time, but we also needed to raise the quality of our install crews. I mean, we had lots of callbacks and so on. So when we look at the, what's the cost of not paying installers well, well, for us, there's pretty high cost.

There's both the callbacks, that's a high cost, and then the opportunity lost, my sales team's having trouble closing things because they're booked out a couple of weeks. And so we were paying installers, I'm going to shoot from the hip a little bit here, but at the end of the year, those guys probably made sixty five thousand seventy thousand dollars a year as a lead installer.

And we said, okay, how do we get the best? We don't need to hire one hundred installers, but if I need three lead installers that are just rock stars, what is it going to cost? Well, let's say we'd set a seventy grand a year, we paid them one hundred grand a year. So times three, that's an extra thirty thousand a head, times three is ninety thousand dollars Okay. So if I wanna add ninety thousand dollars in labor cost to my installs, we're doing two million dollars of install.

How much more can my installs how many more installs can we do? And so we actually decided to put together a comp package for our lead installers where they could make six figures.

And it was bonus based, it was hourly with bonuses, and those bonuses were based on callbacks, like the fewer the callbacks, the bigger the bonuses and so on. So we went at it that way. And so the next year, we had three install teams instead of two, and I would say our install quality, we were about a B plus, A minus. And we went from five point seven million in a year to eight point three, which is pretty good growth in one year.

So that was, and it was really all out of the HVAC install department. Our service department didn't grow. We did a little plumbing, a little electrical, those grew some, but it was that growth was specifically install. So I think in that case, we had to be willing to say, okay, what's it costing us to not pay the top of the market? And then the gamble is, okay, we're going to pay it, but now we've to see results. But we knew we had the marketing team in place, we knew we had the sales team in place. So it was a calculated risk, but it was still a risk.

And then as those revenue levels rise, you're able to keep adding to the bench of maybe not necessarily people in marketing, maybe it's more program dollars, but spend and salespeople, like everything rises now all of a sudden, right?

Yeah. Yeah.

Yeah.

Love the philosophy of looking at close rate versus capacity rather than just looking at close rate and saying, you know, oh, sales isn't doing their job and, you know, they're out there not talking what I want them to talk about.

Very easy to play the blame game rather than zooming out and saying, what's our capacity here? I think that's a really key note to consider. I mean, we do it in a manufacturing level, right?

We'd love to produce as many units as we can as possible, but at the end of the day, we got a square footage in a factory and that's all we can stand up.

So looking at capacity is a huge piece of the equation.

I think it's a little harder.

It's maybe easier with installers. I will say a couple of things happened. One is we had some days where, let's say, it's the spring and we can't keep three install crews busy all week long.

Those guys were happy to take a day off. I mean, they would rotate around. We would plan to give some guys days off on Mondays or Fridays, so they had some three day weekends.

And obviously, they're not getting paid when they're not there, but they made enough money during the busy season that they were actually okay with that.

Then they were fresher. So when they hit the summertime the next summer, they weren't coming into summer exhausted. They were coming into summer going, all right, we're ready to work and make some money because they were only really working four day weeks through some of the slow months. So it really provided some pretty good benefits all around. Our install department improved dramatically, and it was a dramatic pay increase for sure, but we saw some pretty far reaching benefits from just that one initiative. So that was definitely worth tackling.

One of the other things that and maybe you've seen this too where a heating and air company sells to somebody else and the new owner comes in and they instantly raise the price twenty percent and nothing bad happens. Have you noticed that before?

Oh, it's like magic, right? We just come in, news price book, and everyone just lives on their day. No, of course we've seen that. That's not how it goes. It's a big upheaval.

Yeah. But what's crazy is the upheaval is, it's psychological. It's in the heads of the technicians. It's in the heads of the salespeople, right? But from the consumer standpoint, it doesn't make a big difference. I mean, it can certainly when you talk about installs and big prices, but if you're charging four fifty dollars for a repair, instead of charging four fifty dollars you charge four ninety dollars I mean, is that really gonna make or break that homeowner doing that repair? That's a ten percent price increase, right?

Did that make a big difference? Probably not. And so while we go, Oh my gosh, ten percent price increase, that was enormous. On the buying side, was more than I would maybe would have paid last year, but I get it.

And I think one of the things is we have less, I mean, the economics professors would call that pricing elasticity, right? How sensitive are we to pricing? We are more sensitive than our customers are. We think small price increases are monstrous and that the homeowners don't necessarily see it that way.

So I think the other thing is if you are going, Oh my gosh, I'm having trouble finding technicians.

Well, what if you added, and I'm going to make up a ridiculous number, what if you pay them ten dollars an hour more or fifteen dollars an hour more or twenty dollars an hour more? And you go, well, wait, I can't do that because I won't make any money. Well, you can do that. You just have to raise your pricing. And I think that's what we see as sales coaches, this is me putting my sales coaching hat on is if you're like, Well, hey, there's a shortage of technicians. This is just supply and demand.

When demand is higher than supply, what happens? Pricing increases.

So if you, as a heating and air contractor, you don't keep up with those price what happens? Well, your rock stars are going to leave and go somewhere else. And the only guys that are going to stay are the guys that aren't that good. And now you're left with a company full of guys that aren't that good that couldn't leave. And so your quality as a company goes down, and that's a little bit of a death spiral.

So I think we have to be nimble enough to say, Hey, it might be time not just to increase my price book because the equipment's more expensive or the parts and supplies are more expensive, but you might need to update your price book in terms of your flat rate or your labor rate throughout the year as well as your labor gets more expensive. Because if you're not keeping up with that price increase, you're gonna lose the labor war for sure.

I think it's zooming out a little bit.

I like that. I think that makes a ton of sense. I think where that thinking kind of maybe pulls at the hamstring is homeowners in general are pretty out of touch with what they think a system is going to cost.

Think I've asked this to lots of classes that I've been at, but how much does the average homeowner think a new system costs? Not even should cost, but what do they think it costs? And usually I get a response of five thousand dollars And if I could sit down with all my realtor friends and tell them to please stop telling people to budget five thousand dollars for heating and air conditioning, I would. Yeah.

Because I think that's where they're getting that, but that's just a hunch. But, you know, so we've got the homeowner consumer who doesn't live in the HVAC world, who's not up to speed on what a real new system costs and is capable of and featured benefits, all those things. And so inherently, there's like the fear that no matter what I show them, even if it's my single stage low offering, I'm afraid that I'm already coming in too high and therefore I drive, drive, drive down to the bottom. And like just getting over that initial fear jump off point is only going to make you stronger as a sales organization because at some point, the prices rose.

Right? The technology rose, the refrigerant changed, the insides changed, you've got competitive advantages.

Everything came up except your price. Like no wonder your quality tanked, right? Talking hypothetically to a business owner here. So I think kind of taking that hard look at what can my market handle in terms of price, what's realistic, and what do I need to be able to handle in terms of price to keep the quality and the level of excellence around that I want?

Those are two big, like you said, zoomed out exercises that will really make or break your year.

Yeah, yeah. I think other interesting thing, I mean, when I was in college, we differentiated macroeconomics from microeconomics, right? Like the big picture from the small picture, and those were two different classes.

If we don't look at both of those when you're running a heating and air company, sometimes you get very focused in on something and you lose the big picture. I think labor is one of those things that and even with customers, the same thing's true.

I don't, if the whole market, let's say the whole heating and air market contracted one year, and let's say it was a big number like five percent. Well, that's enormous if you're in the manufacturing space and so on. But if you're running a heating and air company, does it mean you're going to have a little bit of a slower year? Maybe, but there's lots of heating and air companies that even in a year where the market contracts or slows down, they excel, they thrive, they carve their niche out.

From the macroeconomic side, you might go, Oh my gosh, consumer spending's down or consumer confidence is low.

Is that realistic? Yeah. That's really what's going on. But if you've got a heating and air company with thirty employees and you're doing five hundred, six hundred installs a year, whatever that comes out to, you could still get five hundred installs out of your market even if the whole market contracts. You just got to be better at finding your niche and going and getting them.

From a pricing standpoint, it's okay to say, Hey, we're going to shift the culture of the company a little bit and go after that higher tier customers because they're still out there. There's still going to be people with money, there's still people making money, there's still people getting raises, there's still people getting bonuses, and those people want to live comfortably in nice houses. And so you just got to go find them. I mean, you just got to get better at it.

With labor and hiring, it's risky, and the more you pay, the more risk you're taking on as a business owner, and so you've got to pay attention to it and you better be able to capitalize on that risk. If you have to raise what you're paying in order to get top talent, you've got to raise what you're charging to keep that going.

Absolutely. Those two things go hand in hand.

So how do I go about you know, I'm I'm gonna go I I'm changing my business mindset. I'm gonna go after that higher end customer. That's that's what I'm doing. But how do I find top tier talent?

Like, what does what does that search process look like? Where do I even start? Know, that's I think where I've seen more ads recently for job searching services for companies to advertise on. And it's a really interesting ad, in my opinion.

Like, wow. That's a really niche platform to be putting onto major advertising circuits, but it's there.

Yeah. I think as we grew, I mean, when we were small, we didn't even have an HR person. And then finally we grew to the point where we could have an HR person and really probably half of her job was recruiting.

But I didn't want to delegate that just to her and make her responsible for that because we've got a lot of moving parts. So to some extent, you have to say, Okay, well, who's going to do the recruiting and where's the effort coming from, and where are we going to spend that effort?

This just non HVAC, what do we at Sandler tell sales managers? We tell sales managers they need to allocate probably fifteen percent to twenty percent of their time to be recruiting, even when they don't have an open spot to hire. You need to have your feelers out in the market and who are the top performers and who's out there. If you don't know, then when you do have an open spot, how are you going to go recruit somebody?

Are you just going to wait until you get a bunch of applications in and you pick the best one? Or will you say, Oh, I got an open spot. I know who I want to fill that spot. Let me go get that guy or that woman, whoever that is.

I think we need to adopt that mentality a little bit in the heating and air industry. We put that on our service managers. I had a plumbing service manager, heating and air service manager, electrical service manager.

Part of their job description is they've got to go to local tech colleges.

We did career fairs and get out there and do it and go meet people. Because if we don't, then when we have an open spot we got to fill, we're just dependent on Indeed sending us resumes, that's a terrible way to hire.

So you got to be proactive. So what do I, as a business owner, have to do? I have to recognize, Hey, if I want ten percent of my service manager's time to be in recruiting, that's four or five hours a week.

That's a big commitment. We as a business need to adjust to where he's got four or five hours a week to put into recruiting and talking to people and picking up the phone and calling guys he worked with five years ago and just getting the word out there that, hey, we're hiring and we're growing.

It's culture. We say that a lot, what does culture mean? Well, culture means you got to plan for it, you got to make time for it, make space for it, pay for it. And so I think you're always recruiting, always networking.

Yeah, I agree. I think that when you empower your employees to have that time to do it, I think they do do it. It's not like always just a checkbox activity. I think people genuinely like having a sense of pride in where they work and whenever you can score a referral or you know, help a family member or get a connection with another, you know, that's a good feeling.

That's a really good feeling. I know personally I've helped people, you know, get to that interview. Now they got to do the interview, right? I don't get them the job, but, And it's always such a rewarding feeling when we get to catch up and say, hey, I met them and we're thinking about it.

And sometimes it goes great and sometimes it doesn't, like it's always guaranteed. But anyway, it's a good feeling. It's a nice feeling.

And along those lines, having pride where you're working and how you're recruiting and referring, Trane has a pretty intriguing program with the trade warriors.

And it's incredibly unique. Have you come across that in your markets at all?

Yeah. In fact, I'm in South Carolina. We have a pretty large military presence here. We've got Fort Jackson outside of Columbia.

We've got bases along the coast. So we've an Air Force base as well. So lots of veterans in our area, lots of people retire to South Carolina out of the military. So it's a huge opportunity.

Trade warriors is a good opportunity, but just veterans in general was another huge opportunity for us of people who are trained, have good skill sets. They may not have the exact skill set that we're looking for, but they're good with tools, good with their hands, they're good at running a process. So yeah, it's a huge recruiting avenue here for sure.

Yeah. And well, the program is really built around taking a person who is now the position to exit the military and preparing them for a career in HVAC, specifically on the technician side of the house. But who's to say that that person doesn't grow and become more within your organization? But the reason why I say specifically the technician side is because we'll actually train them with a curriculum that leaves them licensed and able to work on systems day one after they graduate the program, which is a huge advantage to anyone who is looking for technicians to hit the ground running.

We need to have them started up, ready to go. Maybe they own a few of own tools already, and they know how to use them. So it's an incredible program. Small investment from the dealer upfront, but working with your trained account manager, there's lots of good programs to help you find those recruits, bring them into your organization.

And in general, what we've really found is that's somebody that really wants to be there. Right? You know, they they had a paycheck in their military environment and now they're transitioning out and they still want a paycheck. So that's a good thing. That's that's something that we we love being able to create an avenue where we can give back to service members who literally have served us.

I think there's two other avenues that are related to that. One, again, I think this goes back to networking a little bit and just being willing to kind of get out of your chair a little bit, drive down the street, go meet somebody. But our local chamber of commerce was very integrated with the military community as well. And so just having people at the fort who, if somebody said, Man, I'm getting out, I don't know what to do, say, Hey, call Steven. That just personal connection sometimes goes a long, long way.

The other group that fits right in with that is that most, I think every state has a workforce development board that gives grants for training. And so if you don't know about that in your state, that is something to absolutely go find out because there's federal money that gets handed to the states. The states then divvy it up and can allocate it how they see fit.

A lot of times in theory, let's say there's a manufacturing plant shutting down and those people know how to make cameras. Well, it's shutting down, those people are going to lose their jobs. We've got to retrain those folks for what jobs are out there in the marketplace. And so that's where our workforce development board comes in and provides those training grants. So if you've got a program, we use that at our company, and we weren't a big company, but to say, Hey, we'll take some of those folks that are getting laid off and retrain them for our industry. Will you give us some money to do that? We were able to get some grant money that way.

I think both of those were really key for us in terms of finding talent, maybe not skilled in our industry, but talent that we could train and they could learn pretty quickly and get on board. So that was a big help for us.

I really respect the idea of recruiting is not necessarily just HR's job. That really is on all of us to be lenses and voices for the company and put it out there, what it is that we do and our culture, who we are. I just think that that's such a nice takeaway. And again, I keep coming back to just looking at close rate versus capacity.

Make the lanes available for your teams to do well. And when you bring up the level of maybe what they're able to earn, they will do it. That's a great way to create some incentive and money's not everyone's motivator, but at the end of the day, we are human beings and incentive does a lot to get these bodies in motion, right?

Yeah. And I think too, I mean, just the old fashioned hiring a recruiter, again, it's an expense.

And my business partner was very key on minimizing expenses. And so we did not waste any money at all. He was laser focused on let's not waste money.

So in order to get a recruiter, I would have to have a pretty good business case for, Hey, here's what this is going to cost us, but here's the upside.

But if you know, Hey, we need this whole plugged. If we don't plug it, we're going to lose this amount of money. If we do fill it with somebody good, here's the upside. Then having a business case enables you to say, hey, yes, let's hire a recruiter or no, the case isn't there to hire a recruiter. So I think it's not just, Hey, hire a recruiter for every position you've got, but there are some key positions where you need to make sure you have good people in those seats. It can't just be the best person that showed up for an interview on Wednesday. It's got to be somebody who's really good.

Then sometimes that's worth saying, okay, let's engage a recruiter.

Definitely. I think someone maybe your leadership level positions or somewhere where maybe you're trying to bring in somebody new for a new culture or a new take, right? That can be really key. And a recruiter can help you with sorting through all the noise that's going to come through your way. You're busy enough. And if you're allocating the four to five to how many hours a week that you have to do this task, I don't have time to reach ChatGBT resumes.

That's just not how I'm gonna be a successful hiring manager if I've gotta sift through people that did the AI kinda generated response. So that is a good use of a recruiter to say, this is a specific criteria that we have. I need somebody specialized in this.

Go out and go hunting for me. Like that a lot.

Lots of ways to look at hiring practices.

There's a lot to consider and take in under consideration.

But going back to the beginning of really assessing the lanes that you have available, the budget that's available, the goal growth that you have, what's in the pipeline, what could be in the pipeline.

It's not necessarily all just, let's throw something at the wall, see what sticks.

It can be logical and it just takes a little bit of time even just whiteboarding some big picture numbers and saying, what do we wanna do?

Yeah, and I think what we said at the beginning, which is you hire slowly, but you gotta fire fast. If somebody's not a fit, I heard a really good explanation of why sometimes we don't fire quickly, which is our own ego. If I think, hey, this guy's gonna work out and be a great fit, and I hire him, then if he's not a great fit, that means I did a bad job of hiring. And so sometimes we're slow to fire because we think, Well, man, how did I miss it that bad? I can't be like, Let's give this guy another shot or Let's go for another month. But I think sometimes what that means is that we know it's wrong, we're just delaying pulling the trigger.

So getting that person out is huge. I can say with lots of experience, when I've waited to let somebody go who was clearly in the wrong seat, boy, the waiting was way worse than it would have been just let them go immediately.

Most of the time it's better for the person in that seat too. If they're in a seat that they're not a good fit, they know they're not a good fit, they're miserable, we're miserable.

And so releasing them to the workforce to be reallocated somewhere else is sometimes the nicest thing to do.

Yeah, we call those culture vultures.

Culture vultures, I like it.

Because they're just draining you, you know? It's just a constant takeaway.

Well, that's about all I had on that one. Unless you have anything to add, Stephen, I think we've got a lot to sort of mull over here.

Yeah. Sounds good.

Excellent. Alrighty.

Good talking to you, Mary.

Always. And thanks for tuning in, and we'll see you next time.

Alright. Thanks.