Owning a company that is affected by seasonal fluctuations in customer demand is very tough. I’ve worked with many, including tax practices, building and remodeling, automotive services, government contractors, exterior design, and various retail companies.
Let’s eavesdrop on the actual conversation the HVAC company had with a customer. It sounded like this:
HVAC guy: “The new unit will cost $13,400. That includes everything.”
Homeowner: “I wasn’t expecting this. I may just go for a repair instead.”
HVAC guy: “Well, I could see what we could do to give you a better price. We want to keep our installation guys working.”
Homeowner: “That would be nice, thank you. Let’s talk in 24 hours.”
HVAC guy, 24 hours later: “We called our distributor, we looked at our numbers and talked to our guys and we can do the whole thing for $10,600. That’s a reduction of $2800.”
Homeowner: “That sounds good, when you can install it?”
What goes through your mind when you read this conversation? I’ve got a bunch of questions!
#1. Was $13,400 a real price?
#2. Would you have stayed with the $13,400 price in July when your installation crews are already working over time?
#3. How can I trust you?
The owner was uncomfortable when I asked him these questions. He justified the $13,400 price as one that would make them some profit. But he also knew that if a homeowner had questioned that price in July, he would have found a way to lower it. And then he acknowledged how serious questions of trust arise.
Once you’ve invested in an industry subject to seasonal revenue fluctuations, you have to face the facts and plan to deal with the revenue ups and downs.
My thinking is this: if you ignore it until the low season is at your doorstep, it’s too late. You’ll be begging people to buy, you’ll be laying workers off, and you’ll start the whole thing again year after year. The sooner you plan and the more consistently you execute the plan, the less you’ll need to beg for work.
1) You could accept the seasonal fluctuations and adjust all compensation accordingly. Employee compensation would fluctuate seasonally to retain jobs. This reinforces roller coaster revenue and profit. It hurts company value and owner wealth.
2) You could plan for seasonal layoffs. You’d live with the low revenue periods by reducing employee-related expenditures. This causes a lot of turmoil. The costs of laying off and rehiring may take a large chunk out of the savings.
3) You could have different prices for different seasons. If you’re transparent about this, you improve your reputation for trustworthiness. Customers who have the ‘bad luck’ to need your services during the high season might not be happy.
4) You could expand your line of products and services to include several that are not related to seasons. You could put a special emphasis on marketing these other offerings, and use bundling or packages to increase sales. The key would be that delivery of the products and services only takes place during the low season. You could increase revenue, reduce employee churn, and improve your reputation for trustworthiness.
Is Depth of Your Niche Keeping You Stuck?
One primary trait of business owners is their passion for their niche. They turn this passion into a business, they go very deep, and they love providing it to their buyers. It becomes their identity. They’re proud to say, “We are a tax firm.” “We are heating and cooling specialists.”
When faced with the need to expand, they’re stuck. Nothing seems to be the right fit. They don’t have the drive for these other options. They’re so immersed in their passion that the other options get shoved to the back seat.
I do have to sometimes shake up the owners when I consult with companies suffering from seasonal fluctuations. I ask them to estimate what the value of the company is. They either haven’t thought about it or they wildly overstate it.
Why company value? Company value is important for lines of credit, bank or other financing; for estate planning purposes; and for exiting at some time. The two most important factors contributing to company value are growth and earnings. If there is little to no revenue growth, year over year, and there is little to no earnings every year, the company’s value is severely compromised.
Accepting seasonal revenue fluctuations as the “way things are in this business” is a point of view that fails the value test. Why resign yourself to it?
Option #4 above—expanding offerings that can be delivered in off-season periods—is possible for every company. You need imagination, the willingness to discover options, and a commitment to them equal to your original passion.
Are you ready for that? If you think it’s time to stop begging for business, let’s get a conversation started. 703-801-0345.