By Walt Crandall
Summary: More and more, traditional residential water treatment dealers are exploring the idea of entering the commercial RO market. Many are discouraged by the amount of resources and work involved. The following provides reasons for how they can make the experience well worth it.
The concept of penetrating the commercial reverse osmosis (RO) market has intrigued water treatment dealers for years. The reality in the form of results has been less than encouraging. The key, non-existent factors are fairly straightforward—knowledgeable personnel and planning.
On the personnel issue, a dedicated individual is needed to run that segment of the business. This person can be groomed from inside or hired through industry sources. Owners/operators aren’t good choices even though they may have the knowledge. They have too many other responsibilities with the day-to-day operation of the business to give a commercial RO division the time and effort it requires to be successful.
Know your audience
Planning is where an astute water treatment dealer can excel. Focusing on target markets is the first step. Key opportunities include the printing industry, water jet cutting, machine tool shops, spot-free rinse for car washes, spot-free rinse for automobile dealers and vehicle fleet operators, and auto detailing shops. These all need low total dissolved solids (TDS) water for fountain solutions, cooler solutions and spot-free cars—both on the lot and leaving the wash. The most immediate step is to devise a direct mail campaign to the above listed businesses, with a follow-up phone campaign to assure receipt of the mailing, explanation of capabilities, and questioning the client as to their current water treatment equipment and needs. Also, make certain you are under the commercial listing segments under “Water treatment” in the municipal yellow pages. One or two transactions per annual quarter will more than pay for a brief listing.
When devising a plan, give serious thought to the economic potential. There will be three main areas of income: 1) the initial sale of the equipment; 2) the preventative maintenance contract, and 3) the out-of-warranty service on your systems or others in your geographic market.
When quoting new systems, margin issues must be addressed. My experience has shown that for commercial RO jobs, a good business rule is to expect a net margin of 25-to-35 percent. These margin numbers will be strictly on the equipment costs. Installation and parts should be addressed separately as discussed later in the article. This means that at a cost of goods of $10,000, a 35 percent margin yields a selling price of $15,385. At a 25 percent margin, the selling price would be $13,333. Should you try and exceed these margins, the results are usually predictable—lots of quotes with no successful conclusions. In an industry where compensation is highly oriented to results and production, this will drive away talented sales people who are difficult to replace.
Determine the workload
When pricing these jobs, the other key is to evaluate in terms of materials and man-days of labor for the installation costs. In the above examples, let us assume a selling price of $15,385. In evaluating the job site, determine that the installation will require two men for 1.5 days. This, of course, equals three man-days. Bill it accordingly using your normal rate as an addition to the quotation. Also, add the cost of materials.
Another key source of revenue is preventative maintenance (PM) programs. These contracts aren’t only profitable, but desirable for customer satisfaction. Typical PM contracts should be oriented from monthly to quarterly as a general rule. Frequency of service is a function of unit size, volume of water used per shift or day, etc. Most clients maintain their commercial RO systems in the “fix on failure” mode, which means that the client requests or performs no maintenance until the system fails. Failure is either due to a determination of poor water quality or a lack of water. This often isn’t confided at the time of sale. Average service rates, depending upon geographical locations, are $75 for trip time plus parts and hourly rates of $65 to $95. These costs are incurred by the customer out of warranty.
You also need to access one or more vendors. Some of these specialize in the printing industry, for instance, and can be quite helpful. Others will be most helpful in spot-free rinse, machine tooling solutions, etc. Make certain that a vendor guarantees you they will not quote a job “direct” once they can identify a prospective client. When you’re bringing added value to the table—via support, installation, ongoing service, warranty work, night calls, etc.—you don’t need your vendor to quote the client a comparable net price before factoring the above referenced costs.
Prevent big problems
By far, the most challenging prospect for water treatment dealers desiring to enter the commercial RO market is that bigger jobs pose the potential for bigger problems. There are three keys to making this a non-factor. One is the addition of a sales and technically competent individual to run the commercial group, as previously mentioned. Second, you must have a segment of your installation or service staff comfortable with working on two-inch plumbing, larger RO systems and 220 volt (V) power—both single and three phase. The third and most important aspect of entering this segment of the industry is realizing the venture’s scope.
The most common problems are based upon shortfalls in pre-treatment or volume of water available. Pre-treatment problems are typically chlorine breakthrough or insufficient feed water volume during pump/motor start up. Typically, of course, the chlorine breakthrough will ruin the membranes in as little as 30 days. The insufficient feed water volume and pressure will cause the pump to “short cycle,” turning on and off until failure. Prefiltration is a combination of original design parameters and periodic maintenance. Neglect of either of these will normally cause maintenance problems.
How much water?
Perhaps the biggest problem is a lack of understanding on the part of dealers and clients of the volume of water they need and when. If someone calls and says they want 1,000 gallons of RO water in a day, this should pose multiple questions. For instance, how many hours per day? How many dispensing sites? Is it uniform or all done at once? Uniform would mean 1,000 gallons of RO water across 24 hours. This would technically mean slightly less than 42 gallons per hour or approximately 0.7 gallons per minute; however, in most applications, this is never the case. Water demand is normally at a much higher flow rate, such as 50 gallons or more in a 15 to 20 minute period. The most feasible solution is storage; these are provided for and referred to as demand spikes.
Additional suggestions would be to solicit high-quality consultants within the industry. Their depth of experience can only prove beneficial to you. Also, make sure to cultivate specifying architects and engineers. This is long-term work but once you’re there, the results will be positive.
A sample form is included with this article (see Figure 1). It should be filled out completely for all your commercial RO business. Using the aforementioned tips, you’ll move into a profitable and stimulating dimension of the industry.
To summarize, you need to plan. Plan your markets, hire or train a key individual to head up the group, focus on key markets, gather installation and technical support for your jobs, use realistic margins, and get all the information about the job before you tackle it. The experience can be educational and profitable.
About the author
Walt Crandall has been in the water improvement industry since 1972. His experience includes retail sales as well as several national sales and marketing positions. He is currently the president of Bright Waters, of Reynoldsburg, Ohio, a consulting company founded in 1986, and president of the Commercial Reverse Osmosis Group for Commers, The Water Company, of Blaine, Minn. He has contributed his time and energy to training water treatment professionals. He can be reached at (614) 759-1150 or email: email@example.com