New commercial construction has slowed along with the economy, forcing many contractors to look for new business opportunities in different HVAC markets to keep their businesses profitable. While government projects may provide a bright spot in the coming months, the gains are not expected to make up for all the lost business in the private new construction sector.
To subsidize their new construction business, many commercial contractors are seeking out planned replacement contracts. Currently the planned replacement market for rooftop units is estimated to be worth $15 billion, based on the ARI industry shipment of three-phase packaged rooftop units between 1995 and 1999, units which are currently at or near the end of their projected life span.
In addition to the size of the potential replacement market, there are several other benefits for contractors to incorporate planned replacement projects into their portfolio, such as:
Planned replacement is attractive to building owners and organizations because it can help them reduce operational costs. Today’s HVAC equipment is approximately 40 percent more efficient than equipment sold in the early 1990s, which can allow businesses to realize immediate cost savings from lower energy bills by installing higher-efficiency equipment.
Because older equipment is more prone to breaking down, repair costs are also generally higher and more frequent with an older system. Spending money to patch an older system – whether it’s for a $1500 condenser coil or a $500 blower motor, plus labor costs – adds up over time and doesn’t improve operational efficiency.
Replacing older equipment can also help improve the comfort and air quality of a space. Proper sizing and duct design can eliminate hot and cold spots, while humidity control equipment and high-efficiency filters can help minimize mold growth and the volatile organic compounds (VOCs) that can trigger health concerns. Enhanced comfort and air quality allows facility managers to provide a better customer experience for their patrons, which can mean higher customer satisfaction and increased sales.
Finally, planned replacement can reduce the chance of unplanned downtime that is extremely disruptive to a customer’s business.
There are three steps to helping contractors maximize their chances of success in finding and winning planned replacement contracts. They are:
There are three categories for planned replacement leads: current customers with existing service and maintenance contracts, existing customers contacted during service calls and new customers with whom there is no existing relationship.
The first group, current customers with existing service and maintenance contracts, provides the best prospects for planned replacement. Existing relationships with these customers will simplify the selling process and decrease the likelihood of a multiple-bid process. Also, knowledge of the customer’s business needs and the condition of their equipment makes it easier to select the best solution for the client.
The average lifespan of a commercial HVAC unit is approximately 15 years. If the customer’s equipment is approximately 15 years old, planned replacement provides a great opportunity for performance and reliability improvements. If the equipment is somewhat newer, it may still be a good candidate but further analysis is needed, which begins with a customer needs assessment (described below in Step 3).
Even though a unit is near the end of its useful life, the customer may have more pressing business needs than HVAC replacement, or the contractor may not be able to offer them an attractive proposition. That’s why it’s important to assess the equipment, the building and the customer.
An equipment survey provides an objective view of the replacement potential. Performed annually, these surveys take into consideration the physical state of the customer’s equipment, whether utility bills are unnecessarily high because of poor energy efficiency and any pattern of year-over-year repair expenditures or service spikes.
A building survey is performed to determine if there were any changes to the building structure, its usage or the internal configuration that may have changed the load requirements since the old equipment was installed. A building survey can also identify any problems with the condition of the building that may cause difficulty in replacement (such as structural issues). Understanding building issues can help determine the best solutions for that customer.
A customer needs assessment explores both a customer’s business needs and their current HVAC performance levels. The survey assesses how long the building owners plan to stay in their current location, any planned changes to the building layout and whether they are experiencing any employee or customer comfort issues.
Because of the huge value of the planned replacement market, HVAC manufacturers must do everything they can to position their contractors to take advantage of these opportunities. If you are a contractor, ask your manufacturer if they will provide you with:
Right now, it’s estimated that 55 percent of the commercial rooftop unit market is replacement, based on the JP Morgan June 25, 2009 HVAC Review and Outlook report.If you’d like more information about taking advantage of the $15 billion planned replacement market, please contact your Lennox sales representative. You’ll find the phone number of your nearest Lennox representative at www.lennoxcommercial.com.
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