One out of every four cars purchased in 2020 was a lease. Almost half of the country pays a monthly cable bill. Add in Netflix, Spotify, and the occasional gym membership, and it becomes apparent that the American consumer is comfortable paying a recurring monthly bill.
Can that translate to the HVAC industry? HVAC manufacturer Johnson Controls and its York brand believe so, and they have pilot program data to prove it. They have launched a 10-year residential HVAC leasing program called Ultimate Home Comfort. The program provides homeowners with a fully installed HVAC system with no money down. The consumer also gets a factory-backed 10-year parts and labor coverage along with 10 years of service repair and annual maintenance. They get this for a monthly payment that starts at $165, depending on what additions they choose.
This has been a three-year project for the company. They tested it in a top-three market to better understand the challenges it might present and what in fact consumers wanted. The results were better than anticipated. Johnson Controls estimated that about 25% of homeowners would choose this option. They recommended their contractors offer both solutions at the kitchen table — with the leasing option being the first one given. In fact, when the data came in, 50% of homeowners chose the leasing option over other financing options.
“That was a startling number for us,” said Tim Brusseau, Ducted Systems sales director for Ultimate Home Comfort, Johnson Controls. “But it is great for the homeowner in that it takes everything off the table for the next 10 years. You do not pay for maintenance, and if something breaks, you do not pay. It is peace of mind for the cost of a cell phone bill.”
The company launched it to its contractor base on April 1, 2021, and more than 500 contractors have already signed up. Even better news for contractors is leasing is increasing sales price and margins for those offering it. In fact, on leasing equipment, contractors are increasing their margins by around 7-11%.
“And contractors and the consumer get an alert when it is time for maintenance. Contractors don’t need to manage that,” Brusseau said.
Would this be right for your business? It is definitely worth a look. You certainly should not stick with the old way of selling if the only reason you are doing so is because that is how it has always been done. Leasing is a way to plan revenue projections and service for the next 10 years.
Here are the details. If a homeowner chooses the leasing option, they then choose one of four levels. The difference among them is efficiency levels and — obviously — price. At that point, contractors can do their add-ons. Through the app that contractors use, they can increase the price up to $5,000 for items like humidifiers, air cleaners, etc. When an item is added, the monthly price is adjusted.
It is also within that app that homeowners can start an application, see the price sheet, and prequalify. If the homeowner moves before the 10 years are completed, they pay off the system and the new owner gets all the maintenance and repair benefits.
And how does this story end? After the 10-year lease, the homeowner has four options. They can get an entire new system and sign another 10-year lease. The second option is to extend the lease two additional years. That lease still covers the maintenance but not the parts and labor. They also have the option of paying a residual and owning the equipment. The final option is not to renew and not pay the residual, but that leaves them open to Fundient Capital coming and pulling out their equipment, so that is not very practical.
“The monthly payment never changes and the customers know the residual on day one,” Brusseau said. “It is a way to purchase new systems without pulling $7,000 to $10,000 out of your savings account.”
Like it or not, this is where consumer purchases are going. If you can increase margins and lock in a customer for 10 years, it is probably worth considering. You’ll definitely want to do it before your competitor does.