What is light commercial and why your HVAC business should care
Does your HVAC business slow down in different seasons? Do you have techs without enough work on occasion? If so, offering light commercial HVAC equipment and repair services could be the solution. So, what is light commercial HVAC? By light commercial, we mean 3 to 25 ton, three phase split systems and rooftop units for restaurants, retail strip centers, office buildings, gyms and more. Light commercial can also be assisted living or condo complexes as well as other applications that some view as residential but are truly commercial buildings.
Light commercial is an excellent expansion opportunity for residential contractors as the need for repair or replacement of a business unit always has a sense of urgency as no heat or cool means no customers for any restaurant or retail business. By starting with smaller light commercial projects and gradually expanding to larger projects, you can gain steady business. Discover how you can grow your bottom line by diversifying your service offering through light commercial HVAC.
Benefits of expanding to light commercial HVAC
A primary advantage of expanding to light commercial is that it can make your service offering more dynamic. Phil London, a contractor in Davie, Florida, has been working in the light commercial market for about 35 years.
“I call it the bridge between residential and commercial,” London said.
“True light commercial really expands on the term HVAC. It’s not only heating and cooling. It’s ventilation, it’s air quality, it’s energy management. It really encompasses our industry.”
By becoming more dynamic in your service offering, your business can grow in a number of ways.
New income streams by diversifying your services
Offering light commercial HVAC services can allow you to gain new types of customers and, therefore, new income streams throughout every season. “The field offers a great opportunity to expand business for any contractor,” London said. Many contractors need to expand their view of what the light commercial HVAC definition entails to take advantage of these opportunities. London’s firm does a lot of work for condominium complexes. This sounds like it doesn’t meet the light commercial HVAC definition, but London points out the water-source heat pumps installed during construction were considered commercial units. There are plenty of other types of equipment used in residential applications that fall in the definition of light commercial. Diversifying your service offering to include ductless systems, VRF, ERVs, fresh air ventilators and indoor air quality solutions can help you expand into the light commercial HVAC market.
“There is a tremendous amount of work available to you,” London said. “Why pass that up?”
There are plenty of clients in any town that meet the light commercial HVAC definition. Tersh Blissett, a contractor in Savannah, Georgia, started out on the residential side and now runs a commercial firm expanding its light commercial segment. In order to find new customers, Blissett recommends visiting the local industrial or office park because some of these provide hundreds of acres of potential light commercial HVAC clients.
“There are so many businesses behind businesses,” he said. “You don’t even realize they’re back there.”
Blissett also recommends establishing a relationship with a local property management company. Besides helping you grow the residential service side of your business, they provide a lot of light commercial HVAC work. Unlike residential where few homeowners truly put money away for HVAC upgrades or repairs, many property management groups, ownership groups include upgrades, repairs and maintenance costs into their yearly budget so the funds are allocated specifically for HVAC. London agrees that light commercial opportunities are all around for most contractors, regardless of whether they currently limit themselves to residential or commercial clients.
Pro Tip: Few contractors are heavily involved in light commercial as most are either residential who do a little light commercial or are large commercial who handle just a little light commercial. This means there is less competition in this space which can increase margins and, if done right, can separate you from the other competitors.
Make the most of your existing equipment and licenses
The assumption that contractors need to buy new equipment or seek additional certifications or licenses in order to offer light commercial service is not always the case. Blissett said light commercial HVAC systems can get down to less than five tons. This means many residential contractors have both the necessary skills and licensing to work on units that meet the light commercial HVAC definition. Blissett agrees light commercial HVAC is a good add-on to either residential or commercial business. With that said, it takes a different mindset than either residential or heavy commercial.
“It’s a mindset of its own,” Tersh said. “Once you’ve figured it out, you can make a lot of money and build a lot of relationships.”
With these relationships and trust, you potentially will receive recommendations from \friends and fellow business owners on the quality of work you did. With that trust you will also have opportunities to capitalize on high margin add on solutions like indoor air quality and energy management solutions.
Pro Tip: If you’re already offering smart home products to grow your residential service business, consider offering it on the light commercial side as well. There is a significant increase in demand for products such as, connected devices, filtration, ventilation, purification and humidity control in light commercial much like the residential market over the last few years
Opportunities for ongoing maintenance work
HVAC contractors who offer light commercial service in addition to residential or commercial service enjoy repeat business. Blissett works with a lot of fast-food restaurants. His firm is the local preferred provider for light commercial HVAC services for several national chains. Providing light commercial HVAC services to these operations opens up a range of opportunities, such as providing appliance maintenance.
“If you can be that one stop shops for you, where they call you for their HVAC, refrigeration and appliances, then they are loyal to you,” Blissett said.
Pro Tip: Is your HVAC business selling service contracts to your customers on service calls? If not, you’re missing an opportunity to increase revenue. Learn why service contracts matter to your HVAC business.
What to consider before expanding to light commercial HVAC
As with any area of the HVAC business, contractors considering entering the light commercial HVAC market need to take several factors into consideration. Here are some unique differences of working in the light commercial HVAC industry:
HVAC equipment. London said contractors need to understand how light commercial HVAC equipment works and how it impacts building occupants. There are usually more people in a light commercial building during the day than in any house. Also, in most of these buildings, the occupants can’t just throw open the windows if it gets too hot or too stuffy. Plus, businesses cannot stay open if the cooling or heating is not working, or if the air quality is too poor.
“Air conditioning is critical in those applications,” London said.
Government regulations. There are specific rules local governments put in place for buildings designated as light commercial. London said contractors need proper training and education on these codes and requirements for projects that meet the light commercial HVAC definition. Programs from sources like the Air Conditioning Contractors of America can help avoid missteps when starting in light commercial HVAC. Get involved with your local HVAC contractor association to stay updated with industry trends.
Bidding requirements. It’s normal for small businesses to face a certain level of financial risk when bidding a job. According to Blissett, some small businesses fail because they operate on low margins. Contractors need to use caution when setting terms to avoid running a high balance of accounts receivable. These small business owners should try to control costs as much as possible. To avoid financial problems, Blissett said contractors need to know their numbers and submit realistic bids for light commercial HVAC jobs.
“It can hurt you if you’re not on top of it,” Blissett said.
To limit your financial risk, partner with a commercial financing group that specializes in the HVAC industry. Look for one that allows you to get paid 100% up front to increase cash flow and remain in good credit standing with your distributor. Another option is to take advantage of contractor management software that helps you build professional, accurate proposals that take into account the material cost, mark up as well as labor. This can help to ensure you are bidding enough on the project and then clearing what you need to once the project is complete in order to stay profitable.
Customer expectations. Contractors entering light commercial HVAC must also be prepared for the demands of their new clients. A homeowner who loses air conditioning on a Friday night might accept going without it until Monday morning. A restaurant owner absolutely cannot. Blissett said most of his light commercial HVAC customers have his cell phone number.
“They know if we get a call at nine o’clock on a Friday night, we’re going to have a guy out there,” Blissett said.
The upside of the higher expectations of light commercial HVAC customers is that they understand the needs of a business and are willing to pay for the extra attention. Light commercial HVAC customers want to avoid paying fees for after-hours or emergency work, of course, and so they often sign maintenance contracts. Blissett said this helps fill up his company’s schedule. For example, a tech might perform a maintenance check on a system and find that while it is still operating, a cylinoid valve needs replacement.
“We never slow down because there is always something to do with a commercial client,” Tersh said.
Pro Tip: Technology advancements have made it possible to monitor an HVAC system remotely, so you can identify a possible problem before it happens. Offering to install this type of technology for your light commercial customers can be a selling point. Learn more about smart leak detection.
Tax incentives. Another reason for HVAC contractors to get into the light commercial market are changes in the Federal tax laws that have added incentives for business owners to invest in HVAC. Specifically, the Tax Cuts and Jobs Act of 2017 amended Section 179 of the Internal Revenue Code. This allows businesses to deduct up to $1 million of the total cost of an HVAC purchase for the first year the system is used up to a maximum purchase price of $2.5 million. More recently, the Federal stimulus bill expanded the deduction to include qualified improvement property, meaning expansions and renovations. These tax benefits will begin to phase out in 2023, so 2020 is the perfect time to offer commercial customers some energy-efficiency upgrades.
Light commercial HVAC fills the gap between residential and commercial HVAC. While there are some differences that should be taken into consideration before offering this type of service, expanding to light commercial HVAC can open the door to more business.
“You should get into it,” London said. “Light commercial HVAC definitely offers a lot of opportunity.”
Looking for other ways to boost your bottom line? Explore business tips to see how to grow your business with smart home technology, benefits of joining the PHCC, and more resources for heating and cooling professionals.