Let’s start building your budget! 

Step 1: Market Place Evaluation 

You need to understand how much revenue is possible in your market because it allows you to project sales for that year. If you know you are selling 5000 units and the market sells 500,000 total units each year, then you can draw the easy conclusion that you own only 1% of the marketplace. This may seem low but if you are selling each unit for $500 dollars then you are still making $2500000. But how did we arrive at these numbers and how did we determine what your market can yield? This can be done by: 

1. Networking with other companies in your industry to gain mutual benefit. 
2. Looking at consumer/industry/business reports. 
3. Extra figures from Census data or other large-scale surveys.
4. Best: using data from all three!

Today we will look at the 3rd point, drawing numbers from your city’s Census data. Since home services are based on homeownership, the census is quite reliable once we combine this with the average life of the equipment. Therefore, with these two numbers, we can predict when many homes will need new furnaces. 

The marketplace evaluation is based on numbers pulled from the census for our area. This can be found simply by searching for “Location” census on Google. Use the most recent census in your calculations. Most smaller markets will be simply the CMA or Economic Region. Any larger locations are going to be separated by the three areas and are found on the Census sites. When calculating dwellings, you add up the types of dwellings which your business tends to service. If you serve significantly more apartment complexes, then you would want to include them. If that is the case, then adjustments would need to be made in the next section regarding types of units in these units. 

When calculating the type of equipment, we use a best guess estimate on what percentage of the dwellings listed above would have each of the following units located in the dwelling. I use 85% for furnaces and 80% for air conditioners due to the dynamics of the residential units we service. If your organization services more apartment dwellings, you may want to adjust to reflect more sleeve units or air handlers.

The average life of equipment has been calculated using various sites for our area. This may change based on where you are located. For instance, if your business operates on the seaboard, Air conditioners may have a significantly shorter average life. If your area uses more heat pumps than air conditioners, then that may affect the Avg Life. In situations where there isn’t any published average life expectancy, we have used an educated guess based on our experience. These numbers are used to determine the volume of equipment replaced on average in your market annually.

Average pricing of equipment is based on our knowledge of our industry in our market. These numbers can be adjusted to match your market. Keep in mind both those competitors that are high and low priced when calculating the pricing. These numbers are used to determine the potential revenue from each product type sold annually in your market. 

The market share is the total amount of revenue in your market based on a percentage of the market. Market dominance is achieved at nearly 30% of the annual potential market. It is very difficult to grow beyond that. A market player is typically at 8%. In most markets, you will get a single market-dominant player and 2-3 market players. Use these numbers to compare my current installation revenue against the Market Share numbers here. If I am below the desired level then I know there is room to move. I also use these numbers to calculate growth projections into our Budget.

(More Coming Soon)