HVAC Distributors: Projecting Online Revenue

A man with a hard hat testing the pressure of an air unit

No industry is immune to digital pressure. 

HVAC distributors are providing an increasingly compelling digital experience. The industry average is miles ahead of where it was 5 years ago.

It’s still important to justify the investment in digital. 

This article looks at:

  1. Growth projections for the HVAC industry from 2020 to 2021
  2. Digital stats from other distributors
  3. Opportunities in the industry (Internet of Things (IoT), environmentally friendly products, and work-from-home).
  4. 6 takeaways on best-case scenarios, timing, and internal efficiencies.

HVAC Industry: Revenue-Relevant Statistics (2020 - 2021):

  1. The projected growth of the residential HVAC marketplace is 5% (Statista).
  2. Carrier and Carrier products represent 17% of the entire marketplace in the U.S. (Statista).
  3. The projected growth of the commercial HVAC marketplace is 3.5% (Statista).
  4. Compound Annual Revenue Growth (CAGR) for Residential for 2021 is 6% (Grandview Research)
  5. Each year, 3 million Residential HVAC units are replaced. This is the Residential replacement market size in the US (Grandview Research).

How do these projections apply to you? Let’s be honest; there are lots of external factors that will impact your individual revenue projections. For example:

  • Major pressure on the supply chain resulting in product unavailability, fewer completed units coming out the factories, unpredictable delivery timeframes and lower levels of quality assurance. 
  • Drops in Ductless sales in the last 2 years due to other online sources selling cheaper Chinese- or Japanese-made products.
  • Flooded markets as manufacturer-sponsored funding takes up more space.
  • Price increases that will cause shifts in certain categories.

For these reasons, it may be more accurate to measure online as a whole instead of divided by category. As you create baselines and benchmarks, it will become easier to get more into the weeds.

For example, even if you project a 0% change for commercial sales, an improved customer experience is still likely to have a positive impact on revenue from that category.

Digital Stats for Other HVAC Companies

  • Distributor Corporation of New England (DCNE) doubled digital revenue in year 1 of their digital transformation.
  • Watsco’s HVAC equipment distribution business grew its eCommerce sales by 17% last year to $1.4 billion. They did this by updating their digital systems. Note that Watsco's total sales increased 4.9% for 2020. Overall, eCommerce grew 3.5 times faster than total sales and now represents 29.1% of all revenue, compared with 24.6% in 2018 (Digital Commerce 360).
  • Temperature Equipment Corporation (TEC), the largest, most experienced sales force in the Midwest, underwent a significant digital transformation. They were just acquired by Watsco.
  • Behler-Young shifted nearly all support work to an online digital environment significantly reducing internal cost for support staff.

Opportunities in the Industry:

IOT is not going away. Does your shop offer the latest line of Wi-Fi-enabled products and can you properly train your channel partners to install them in customers’ homes and buildings?

Do your customer interface teams know how to speak to the Wi-Fi-enabled products and teach your channel partners how to demonstrate the value of automation to customers?

Environmental considerations: Are your teams researching and possibly stocking products to help reduce your customers’ energy consumption and carbon footprint?

COVID: as the work-from-home environment keeps its foothold, so also does the residential demand for cost-effective units to keep the work-at-home workforce comfortable - make this translate to your customers' needs for more efficient and safer air handling needs.

6 Takeaways

  1. We believe the Watsco numbers are a best case projection growing online sales 17% from 2019 to 2020 with 29% of all sales coming to Watsco’s digital presence. Watsco has been at this for a long time and has strong internal infrastructure tools.
  2. It’s important to understand the value of differentiable product data. Your product data can be kept proprietary.
  3. If your Marketing Technology Stack is fueling only 4-5% of revenue from online orders, new tools and MarTechStack can help it grow to 25% for example, without cannibalizing other channels.
  4. Drive internal efficiencies. If your teams are doing way too much manual order management and not leveraging available means of process automation, you should consider new tools. Focus on increasing employee utilization, improving customer communications, and eliminating costly errors (extending credit when it should not have been, inability to read orders clearly, catching backorders sooner, etc.).
  5. Give it a full 12 months in order to see a representative number set and try to factor in administrative cost savings. The trick to accounting for manual labor efficiencies is to repurpose manual tasks with revenue-generating/supporting tasks and deliverables.

    The first year is about internal adoption, adjusting, decreasing manual intervention, increasing customer self-serve, and reducing stress on counter staff, inside sales, and customer service.

Overall, your reality, internal capacities, logistics, and customer readiness will greatly affect your potential for quick growth.

Read the HVAC 2021 Digital Report