If you’ve been working in the HVAC industry for a while, you’ve probably heard that the cost to acquire a new residential customer is between $200 to $300. Where did that new customer acquisition cost come from? Contractors need to work with real numbers to plan for their business, not just something your buddy’s dad’s cousin mentioned to your sister’s husband.
To help business owners understand the actual cost to acquire a new customer, we commissioned a study to uncover the real costs that HVAC contractors face when attracting new residential business. In this post, we’ll share what we learned.
What Is The Cost Of Acquiring A New Residential Customer In The HVAC Industry?
The new customer acquisition cost for a residential HVAC customer is $350, according to Decision Analyst, in the 2019 study commissioned by JB Warranties.
Around 13.3 million U.S. owner-occupied residential homes will need HVAC system service within the next year. Of that population, almost 40 percent have home warranties or existing contractor relationships, leaving the pool of potential new customers at 7.93 million. Divide the $2.78 billion that the HVAC industry spends to attract new customers each year by the pool of potential new customers, and you get an average estimated spend of $350 per new customer.
Why Is The Average Industry Cost To Acquire A New HVAC Residential Customer Important?
Of course, there are obvious reasons why you should know the typical new customer acquisition cost. You need this information to help you budget for your HVAC sales and marketing efforts. Let’s look at a couple of other reasons to keep tabs on this number.
To Assess the Health of Your Sales & Marketing Efforts
If your cost to acquire new customers is way above the HVAC industry average, ask yourself, “why?” Is it due to the location where you operate, or does the cost point to an issue in your marketing or sales efforts?
Look at your conversion rates on your latest campaign compared to cost. Has it generated a good return on marketing investment (lots of qualified leads)?
Maybe your team is closing too few deals? If your marketing efforts are attracting lots of qualified leads, but very few closed opportunities, your cost per new customer goes up. You may be looking at a sales training issue, a pricing problem or another issue that potential customers think is missing in your offer or service delivery.
To Get Your Company Focused on Customer Retention
Another incredibly important reason to be aware of the industry average cost to acquire new residential customers is this; to remind you why you need to retain customers. It costs much less to retain business than to generate net new business.
Decision Analyst found that residential consumers will spend an average of $400 per service call. If you spend $350 to acquire a new customer who needs a service call, most of that sale goes to cover your acquisition costs. You still want to attract new customers, but this point illustrates why it’s so important to nurture your existing relationships. The better your retention rates, the better your profit.
How to Calculate Your New Customer Acquisition Cost (CAC)
If you’d like to compare your customer acquisition costs to the findings from Decision Analyst, here’s a simple equation to help you calculate your CAC.
CAC = Total sales and marketing costs ÷ number of customers acquired
Like to see how you might use it in your favorite spreadsheet program?
Now you can benchmark your CAC against the HVAC industry standard.
If you want to go “next level” in improving your sales and marketing spend, learn about optimizing your customer lifetime value (LTV) and getting a nice CAC/LTV ratio for your company. That means you can make more money than you’re spending on sales and marketing. Who doesn’t want that?
Conclusion? Balance Acquisition with Retention
You can never stop your sales and marketing efforts to gain new customers. Even your most loyal customers move on due to circumstance or choice. A robust acquisition strategy helps you replace lost business. However, what really keeps you on the right path to earning more revenue is customer loyalty.
When it comes to repeat business, you don’t have to spend as much to draw these customers back in. But you do need to work on building great relationships that make them want to come back for more.
Our tips for retaining your best residential HVAC customers include:
- Routine communication about your business or new services
- Holiday and special occasion cards
- Special customers-only offers and deals
- HVAC extended warranty programs for contractors to ensure customers have peace of mind about their equipment and service
Learn more about the benefits of offering extended HVAC warranties to your customers, then register for JB Warranties’ .
National Account Manager