What is a coinciding purchase?

Leverage your offerings to clients by understanding their purchasing journey and needs.

Coinciding purchases

In this lesson we use the example of a HVAC business to illustrate how you might approach coinciding purchases, however the messages are universal to trades business whether you are in landscaping, plumbing, renovations, baking, hairdressing, or otherwise.

When a client buys something from you, they are far less likely to buy that same product again in the near future. This is very true for furnace purchases, since the life of the average furnace is 12-15 years, you are often going to deal with a client once maybe twice in their lifetime. However, keeping with HVAC equipment, you could also sell them an AC, a water heater, or a heat pump. We can even consider HVAC accessories like thermostats, air filtration products, and even something small like a condensate pump as another purchase that a client could make. Do you see where this is going? 

Now imagine adding a whole new division to your company. The ability to offer more products means you can simply make more sales with the same client at the point of purchase. When considering compound growth, you can increase revenue in three different ways: more clients, more purchases, or increased prices. Therefore, we can link coinciding purchases with one way to create compound growth. If we boil it down to a single statement: add a new home service that adds more products to sell to clients.

Let’s explore that single statement a little more, what does it mean to add a new home service to your company, and what should you be looking out for?

Once you have offered almost all of your own industry’s services and products, your only option is to diversify your product offering. There are a few ways you can go about doing this, adding a feature to your current products, adding a whole new service, or acquiring a new business. 

Examples of coinciding purchases

Adding a feature to current products

This could literally be new equipment, but it could also be something like a warranty, a guarantee, or a package deal. An example of a package deal would be a combination furnace, AC, water heater, and filtration upgrade all in one simple offer. Creating a membership maintenance program would also fall under this category. Suddenly, every maintenance call is a chance to sell a membership. If you have a different kind of service business, could you introduce a loyalty program to your clients each time they buy from you?

Adding Home Services 

If you are already doing HVAC, offering plumbing or electrical services and products is not a far step. As an owner, you should be seeking tradespeople with differing red-seal tickets, a gas tech with their plumbing seal, is an asset that can be used to start your plumbing services. Also, be on the look for other trade companies closing the door or unhappy managers within those companies are great to bring in and start your new department with. Consider adding a new home service to your trades company today: 

• Plumbing
• Electrical
• Duct Cleaning
• Renovations
• Pool Heaters

Even something like landscaping services should be something you could consider. But how do we know which one to add? The best way is to track the odd calls you get asking for services you do not offer or have your sales team ask probing questions about other home services clients might be interested in. 

Acquiring a new business 

What makes this different from adding a home service is the client lists that come with your acquisition. Let’s go through a few examples to see what you should be looking for.   

Scenario 1: Purchasing another HVAC company.

HVAC Company A is worth $4,000,000 and has a client list of 8000 clients. HVAC Company B is worth $1,000,000 and has a client list of 2000 clients. 

Analyzing the acquisition of B is simple. The combined HVAC company is now worth $5 million and now has 10,000 clients in total. However, the amount of revenue you can generate from these clients is diminished because they already made the purchase of the big-ticket items an HVAC company sells. Remember the average consumer buys a furnace only once or twice in their life. In this scenario, you are only looking at a 25% increase in sales that this client list could yield. We are only adding $1,000,000 to potential revenue.   

Scenario 2: Purchasing another home service company.

HVAC Company A is worth $4,000,000 and has 8000 clients.

Plumbing Company B is worth $1,000,000 and has 2000 clients.

When A purchases B, the numbers look much better than in scenario 1. Since B’s client list has not purchased an HVAC product line before the chances of making a coinciding purchase go way up. While there will be some client bleed-off, we can place a value on each client from each company, A’s clients can purchase plumbing services and B’s clients can purchase HVAC. The value of each client is around $500 dollars per year when purchases are averaged out. The final revenue numbers look like this: $9,500,000 of potential revenue. The ability to overlap the client pools by offering two home services has a multiplicative effect instead of the additive effect as we saw in Sc.1.

Therefore, when you buy a company, you are better off buying a related trade than the same trade. 

Pros and cons

The benefits of coinciding purchases are that you gain access to a new set of clients and a new business where cross purchases can occur. You have a set of new clients that can purchase from your existing business, and you have a new line of service that your existing clients can purchase from in addition to any purchases that would normally take place without the acquisition.

It’s important to bear in mind that you can estimate your potential revenues based on your closing rate.

Be aware that some of your clients may change their mind and prefer to seek business elsewhere. This can be considered to be the natural bleed-off that happens with change.

A Business: The Scale vs the Pantheon 

Imagine if your business sold a single product, like VCRs, CDS, Car phones, or oil furnaces. Where would that business be today? Nowhere, because they are out of business. If you built your company on a single service, you have built a scale, its focal point hinges on the success of one thing. If that one thing suffers, your business topples, just like if you put too much weight on only one side of a scale. No one builds something on the tip of a triangle. But, if you provide multiple home services, like the ones we listed above, then not only will you benefit from the coinciding purchasing effect, but when one division of your company suffers then your company is still able to operate. 

When you establish yourself in three home services, you become the triangle, or better yet a pantheon, with strong pillars that support your company when one fails to do so otherwise.