My Path to Home Performance Contracting
Successful home performance businesses fall into one of three business models: the whole-house contractor model, where most of the work is done in-house; the general contractor model, where the diagnostics is done in-house and most of the work is subcontracted; and the consultant model, where the diagnostics is done by a consultant who writes a spec for the owner to use to shop for the work.We fall generally into the first category; we do the diagnostics and shell work in-house and subcontract out the HVAC installations. We do our own building performance-related repairs and improvements, such as installing fans and ventilation systems; reconfiguring flue connectors; tuning ovens to reduce carbon monoxide (CO) emissions; and installing passive dampers to relieve worst-case depressurization problems.
How We Got There
My partner, Frank LaSala, and I started EnTherm in 1980 as residential retrofit insulators. In 1982,we diversified into the installation of replacement windows and doors. In 1987, I purchased a blower door and used it to test and air seal several hundred apartments units as subcontractors to Synertec Systems, a local energy consulting company. From 1987 to 1992, our blower door sat mostly unused.We knew that the technology was powerful and useful in diagnosing buildings, but we could not find a way to market it in the private sector and make money with it.
Finally, in the early 1990s, we started incorporating duct sealing and attic air sealing into our jobs. Still we were not routinely doing pre- and post-blower door testing or combustion health and safety testing. Occasionally,we would have a request for an energy audit.We would perform the audit and include blower door testing, CO testing of the furnace and water heater, and, where appropriate, duct pressure testing and room pressure diagnostics. Our blower door and our infrared camera were used mainly as diagnostic tools to locate air leak sites and check on the quality of our insulation and air sealing work. However,we were still operating our company as a specialty trade contractor, offering insulation along with window and door replacement. On rare occasions, customers would buy a package of services, but mostly we were selling single services.
For the first 20 years,we operated as a cash business.We marketed through yellow pages and mass media, and our customers came to us, either through referral or in response to our marketing, having already made the decision to purchase. In 2000, our average attic or wall insulation sale was in the $2,500–$3,500 range, well within the reach of most homeowners’ own resources.Although window sales were generally larger—$5,000–$8,000 for a houseful of windows—our customers obtained their own financing. Altogether, our company’s sales volume was in the range of $1.2–$1.5 million.
Until 2000,my partner and I did virtually all the selling, because we believed that insulation was a technical sale and we were uncomfortable with the idea of trusting the estimating and selling to “professional” home improvement salespeople. By then, the two of us were working five days a week from 7:30 am until 9 or 10 in the evening, and Saturdays from 9 am until midafternoon, selling our services.We were starting to burn out.When my partner met a professional salesman at a social event, our psychological barrier was broken, and we hired him. He showed us that it was possible to sell insulation professionally at a reasonable profit. We hired two other salespeople that year, neither of whom came from the home improvement industry. Instead, both were former customers.We did not know it at the time, but the transformation of our sales force from two overworked owners to a professional sales staff set the stage for the dramatic growth that Home Performance with Energy Star was soon to bring about.
The breakthrough in our transformation from retrofit insulation and window contractor to home performance contractor came in early 2001, when NYSERDA launched its Home Performance with Energy Star program, which featured significant consumer incentives in the form of 4.99% unsecured loans. We were perfectly positioned to take advantage of the new program. EnTherm already offered multiple shell services—we lacked only HVAC—and we had hardly any learning curve with regard to home performance technology. We already owned several blower doors, Monoxors, and combustion analyzers. I trained the salespeople and got them certified by the Building Performance Institute (BPI), and they started selling whole-house projects almost immediately.
Marketing Our Transformation
Although some customer leads came directly from the NYSERDA marketing, most of our business came from our traditional marketing channels; that is, they came from existing customer inquiries about insulation and windows, referrals, yellow pages, and media ads. The major difference was that we were able to transform those cash-based insulationonly and windows-only leads into multiphase whole-house packages with low monthly loan payments financed through the loan program of NYSERDA. Instead of walking out of the house with a $3,000–$4,000 insulation project, we were selling $10,000–$20,000 projects consisting of attic and wall insulation along with window replacement, and often furnace upgrades.
The Importance of Financing
The key to upselling the job, or turning a lead for a single service into a multiphase whole-house project, is financing. We go on appointments where homeowners are expecting to buy attic insulation for $2,500-$3,500 in cash and we sell them multiphase projects including attic and wall insulation, replacement windows and furnace upgrades. These projects can cost $15,000–$20,000.What sells the projects is the availability of financing with monthly payments that are manageable for the owners.When the projected savings from the improvements are factored into the equation, the selling process becomes even easier. If you are traditionally a cash-based business, as we were until Home Performance with Energy Star, your business will have to undergo a cultural change when you transition to a financing model.The cultural change operates at both ends of the business. At the front end, there is a bureaucratic process to obtaining the financing—credit applications must be taken and submitted along with documentation in the form of paycheck stubs and other proof of income. Financing agreements must be signed before contracts can be processed.At the back end, cash flow can be severely affected.This is particularly true when you are working within the confines of a program that requires that $20,000 worth of work be completed and signed off on before you realize a dime of income.
The Production Cycle
Multiphase projects create multiphase logistical production problems. In a single-service contracting business, whether it is shell or HVAC, scheduling is relatively linear; jobs are scheduled as they come in.The scheduling of a whole-house project may involve insulation, windows,HVAC, and even landscaping or basement waterproofing to solve building moisture problems. Insulation materials are on hand, but windows have to be measured and ordered, a process that can take up to five weeks for delivery. If the HVAC work is subcontracted, the contractor must be lined up. Coordinating the project so as to have the minimal impact on cash flow becomes a priority, and this must be done within the general workload for each department.
The job coordination requirements created by whole-house building performance work created a new position at EnTherm: that of general production manager.This position is responsible for coordinating the scheduling of the work, communicating with HVAC and other subcontractors, and scheduling the posttests to close out the projects. While it adds some overhead to the cost of production, the production manager also facilitates the timely completion of projects and minimizes cash flow problems.
The transition from shell contractor with owners selling the work to building performance contractor using a professional sales force also brought changes in the way quality control was monitored and managed. Quality control must permeate all phases of the sales-production cycle.When my partner and I were doing the selling, the communication between sales and production was relatively trouble-free, since we sold from a technical, production- oriented background.The transition to a professional sales force initially brought breakdowns in that communication. For example, contracts would be turned in for processing with incomplete drawings, missing information, or ambiguous contract language.We addressed these problems by instituting regular technical training sessions.We also created a contractprocessing checklist, which covered all the information that production required to interpret the contracts properly. This checklist would be reviewed before contracts were accepted for processing.We also created our own best practices for the critical insulation and air sealing work, and required all insulation field technicians to attend weekly Saturday morning training.We created checklists for crew chiefs to fill out as jobs progressed, and instituted weekly production meetings to review the previous week’s production issues.The focus of these processes has not been to find fault or to place blame, but to continuously improve performance.
The Bottom Line
The transformation of EnTherm, Incorporated, from shell contractor to building performance contractor has been a challenging and exhilarating experience.The challenge has been to transform our business model from a cash-based retrofit shell contractor offering single services to a building performance contractor offering whole-house solutions to building problems, using financing to make the work possible.The exhilaration comes from the knowledge that we are doing the right thing, treating buildings properly so that our customers know that their houses will be safe, comfortable, and more energy efficient when we complete our work for them.What is clear to us is that there is no going back to the old ways of doing business, and that this new industry is the future.
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