How to Determine An HVAC Marketing Budget

Introduction

Assuming you don’t have unlimited budget to spend on marketing efforts, you’ll need to come up with a budget for your HVAC business.

It’s the most common question we get from our clients and friends in the industry.

We have a different approach when it comes to developing a budget that leverages the number of households in your market, the number of households you have served in the past 12 months, capacity, and cost per booked jobs.

Let’s dive in!

Start With Your Total Addressable Market - Here’s How to Calculate It

Step 1: Write down the counties / zip codes that your business serves.

Step 2: Google the number of households in those specific areas:

For example, a simple Google search tells me that there are 66,478 households in Chittenden County, Vermont.

According to the United States EPA, about 66% of US households used central air conditioning in 2020 and according to Energy.gov, 3 million HVAC systems are replaced annually.

Given that there are 123.6 million US households (2020), about 2.4% of those are in the market for a replacement in any given year.

So, if the number of households you serve is 66,478, you could estimate that 1,595 home are in the market for replacements each year.

That’s about 133 homes per month.

If your average ticket for a replacement is $7,000, that’s a total addressable market of $931,000 per month if you had 100% market-share.

In our experience, an HVAC business could expect to have between 15-20% market-share, but for larger businesses, we’ve seen that number up over 30%.

That’s why it’s important to factor in capacity and capacity potential to see how much of the market you’re prepared to serve.

Capacity Plays a Critical Role in Your HVAC Marketing Budget

How many HVAC installations is your team(s) capable of doing each month?

Capacity can be dialed up or dialed down, but in our experience, we see it gradually build as demand continues to grow and operational efficiencies are gained.

You may even want to capture too much demand with your marketing campaigns to see if it’s available as a test of whether or not to expand your teams.

Based on your trucks and crews today, how many installs could you handle in a 30-day period?

If your total addressable market is 1,000 households per month, but you can only service 30 per month, that will dramatically impact how you approach your marketing budget.

Work Off of Cost per Booked Job

You could look at your total marketing budget for any given month and the number of jobs you performed to get your cost per booked job.

If you spent $150,000 total on marketing, and performed 150 jobs, you could generally interpret your cost per booked job as $1,000.

If you factor in your capacity, and know you need 30 jobs per month, you could use the rough math to start with a marketing budget of $30,000.

It’s not a bad place to start, but it may cause you to overspend on inefficient marketing channels.

As we’ve written before, ~21% of Google PPC leads turn into booked jobs and ~24% of organic Google leads turn into booked jobs.

Those numbers can be drastically improved with better lead handling processes and training, so be careful to use a broad stroak analysis.

The average cost per booked job from organic leads is around $155 versus PPC and Facebook leads which cost around $375.

The Formula for Determining Your HVAC Marketing Budget

Come up with your total addressable market by Googling the number of households in your service area.

Let’s just say that number is 200,000.

Take 2.4% of that number, which is a rough estimate of the % of homes likely to be in-market for an HVAC replacement for a given year.

That’s 4,800 for the year (200,000 x 2.4%), or 400 households per month.

Take 15% of the monthly number - that’s likely to be your market-share but varies based on a lot of factors.

That leaves us with 60 households.

Pro-Tip: How to Calculate Your Current Market-Share

Use your CRM data to look at how many households you did service, maintenance or replacement work in a given month. Divide that number by the % of in-market households (total households in service area x 2.4% divided by 12 for a monthly average). That will give you a more accurate estimate of your market-share.

But to keep things simple, let’s get back to the example with 60 households.

If your average ticket is $7,000, that’s a total addressable market of $420,000 per month (which will fluctuate based on new home construction, population changes, seasons).

Next, calculate your average cost per booked job from current marketing spend.

That would be your total marketing spend / the # of jobs you booked in a given month.

Let’s say the result is a $500 cost per booked job (but you now have benchmarks and should be measuring lead to revenue to help you lower those numbers).

Now you can set a new goal and work backwards to see how much additional marketing investment it would take.

If you have capacity to shoot for 20% market-share, that would be an additional 20 households (5% x 400) per month.

You would need to spend $10,000 (# of new households goal (20) x Avg. Cost per booked job ($500)) in order to get 20 new customers based on current marketing performance.

You can (and should) look for ways to lower your cost per booked job, but this progression should help you develop a methodology grounded in data when it comes to marketing your business.

How to Pick the Right Channels for HVAC Marketing

There are 3 distinct ways we see marketing channels influence demand:

(1) Demand Capture - someone already wants a service you offer, you just need to get your company in front of them at the right time

Channels: Google and Bing PPC, Organic Search, Google Guaranteed

(2) Demand Channeling - people aren’t raising their hands saying they want your service, but they’re thinking about it and need an extra push

Channels: Facebook Advertising, YouTube Advertising, TV Advertising, Direct Mail, Blog Post, E-mail Newsletter, SMS Marketing, Billboards, Radio

(3) Demand Creation - a lot of marketers misspeak about demand creation. We aren’t trying to create demand for HVAC systems because that already exists. However, we may try to create demand for more efficient units, heat pumps, air purifiers, etc. Creating demand is a lot harder and usually means a product didn’t previously exist.

E.g. you can’t create demand for vehicles (it exists) but you would need to create demand for electric vehicles (new category).

Channels: Facebook Advertising, YouTube Advertising, TV Advertising, Direct Mail, Blog Post, E-mail Newsletter, SMS Marketing, Billboards, Radio

The channels for 2 + 3 are the same, but the content is likely going to be different. It’s much harder (and more expensive) to create demand than it is to channel it or create it.

For that reason, we always advise clients to spend money on demand capture like Google Guaranteed, Google PPC, Bing PPC and Organic search first.

We also think website optimizations should be part of a marketing budget, as well as conversion tools like chat and online schedulers.

Frankly, if you don’t know how well your leads convert to revenue, you are probably going to over-spend on all your marketing channels until that gets fixed.

But if you have invested in your website, are giving your customers options to convert on the site and have a trained team following up and converting those leads, you should maximize demand capture channels.

Ask your providers for impression-share metrics (by campaign, not total spend) to see how much more you can spend on search engines and Google Guaranteed for a specific service.

If that bucket is filled but you have more budget and want more customers, then start to think about demand channeling with Facebook, YouTube and traditional advertising channels.

The Chicken or The Egg Problem With HVAC Marketing Budgets

A lot of HVAC businesses wonder if they need to brand first, get reviews, then go capture demand.

In our experience, demand capture is the lowest hanging fruit and brings the most immediate results.

Shoot, 74% of the revenue generated by Bing PPC was from new customers. We wrote about that here.

So yes, you can generate revenue from new customers with search engines.

However, if you are competing with someone with a competent search, video, display website, and review strategy, you will be at a disadvantage.

Conversely, if you have those strategies nailed down but want to expand, I generally recommend starting with more budget in demand capture, then going into channeling demand.

In the end, if you don’t have a good website, and recent 4 or 5 star reviews, no marketing strategy will overcome that.

Conclusion

Budgeting is a nuanced conversation that your providers should be able to help you with, but if you have a sense for your total addressable market, market-share and capacity, you should be able to develop a budget aligned with your goals.

Start with your total addressable market and measure your market-share, set a goal and use your current cost per booked job to up your spend (or decrease it if you lost capacity or want to remove a territory).

We will talk more about reducing cost per booked job in the future, but make sure you understand how well your teams convert leads to revenue.

Start with low-hanging fruit like PPC, organic and website optimizations, then build toward wider content strategy (we will have plenty more on this).

As always, if you have questions or feedback, please don’t hesitate to reach out to me at Jon@SearchlightAdvertising.com.