HVAC Business Profit Margins: 8 Ways to Improve Profitability
Owning an HVAC business can be very profitable—and expensive. If you’re not paying close attention to your profit margins, high operating costs and inefficiencies can quickly eat into your profits.
Use this guide to determine your HVAC business profit margins, learn how to make more revenue per job, and where to cut costs so you can run and grow a successful HVAC company.
1. Set a profit margin goal
Figure out what profit margin will help you sustain and grow your company. Running an HVAC business is costly, so start by setting a modest goal to avoid making drastic changes to your operations.
Aim to improve your gross margin by 5–10% percent. For example, if your current gross profit margin is 18%, you might set your goal for 25%.
There is no industry standard profit margin for HVAC companies. A healthy profit margin for your HVAC business depends on many factors, including:
- Your growth goals. Are you happy as a solopreneur? Or do you have plans to grow into a large team with multiple offices? Your profit margin goal should depend on how much you want to invest in more skilled technicians, new equipment, and marketing.
- Your service area. If the cost of living and average HVAC salary are higher in your area, you’ll have higher labor costs. Average HVAC service prices in your area will also affect the prices you set and the revenue you can make.
- Whether you offer residential HVAC, commercial, or both. While commercial jobs are worth more and can bring lots of revenue, they require more expensive equipment, longer labor hours, and sometimes more technicians.
What is the average HVAC profit margin?
Rather than looking at other HVAC businesses, focus on finding a profit margin that makes sense for your business’s goals.
Figure out how much annual profit you need to pay competitive wages, buy and maintain quality equipment, market your services, and operate your business the way you want to.
2. Reduce business expenses where you can
It’s expensive to run an HVAC company, so many HVAC business owners struggle to make high profit margins. Your labor, material, and overhead costs can eat into your revenue fast if you don’t manage those expenses carefully.
Here’s what you can do to trim down operating expenses and bring your profit margins up:
- Check which of your HVAC marketing strategies are earning you customers—and cut back on the rest
- Negotiate with your suppliers for better deals on parts you purchase
- Calculate the HVAC parts markup you need to turn a higher profit on parts replacements and repairs
- Improve your HVAC dispatching so your techs spend less time on the road and use less fuel
- Find more affordable options for phone bills, business insurance, and HVAC software subscriptions
- Calculate your labor costs more accurately by tracking employee time with digital timesheets
- Automate office paperwork, payment collection, and customer communications so you can free up time for you and your team to do more profitable work
3. Raise your service prices
Increasing your prices can help you profit more from your HVAC services. You might feel afraid of losing customers—but if you keep your pricing competitive and prove your services are worth the money, you’ll keep your best customers and make more revenue per job.
Here’s what you should do before increasing your HVAC service pricing:
- Find out what your competitors are charging. Phone your top competitors to get a quote on their HVAC repairs, installation, and maintenance services. This will help you understand the HVAC market in your area and charge competitive prices.
- Charge a premium for special services. Test the waters by increasing or adding fees to your priority service and same-day service. Premiums can offset the time and money that last-minute calls take to schedule and prepare for.
- Review your pricing annually. Adjust your prices to keep up with the rate of inflation every year. Annual price increases should be in your HVAC business plan.
- Talk to your customers. Communicate price increases to customers so no one is surprised when their HVAC maintenance bills go up. Explain that price increases are necessary for you to keep delivering the high-quality work that customers can’t get elsewhere.
To figure out how high you should raise your prices, add all your costs and desired profit margin into a service price calculator. This can help you set prices that meet your goals for operating profit margins on every type of job.
4. Sell more HVAC maintenance contracts
Take home more profit consistently by selling more HVAC service contracts. Routine HVAC maintenance brings you recurring revenue—that’s guaranteed income on a monthly, quarterly, or annual basis that can improve your gross profit margin.
Here’s how to improve your profit margins with HVAC maintenance contracts:
- Add a sales pitch for HVAC maintenance to your installation checklist so you remember to offer it to every customer
- Communicate the long-term value that HVAC maintenance contracts provide—like reducing utility bills and saving money on preventing costly repairs
- Set up recurring billing so you get paid automatically for maintenance on a regular basis
5. Create flexible quotes
Increase your chances of getting HVAC installation estimates approved by giving customers multiple furnace or air conditioner options.
Creating itemized quotes with product options lets customers choose the equipment that best fits their needs and budget.
Here’s an example of a quote, made in Jobber, that offers three furnace options for an installation:
You can also add optional line items to sell a maintenance package that’ll keep the customer’s new HVAC system healthy.
6. Collect customer tips
Build tip collection into your payment process so customers can easily reward you for hard work. Tips don’t just give your bottom line a boost—they motivate you and your team to deliver great HVAC service that brings in more lifelong customers.
To make your tip collection process seamless and stress-free for your customers and team, accept debit and credit card payments through an HVAC-friendly payment processor like Jobber.
7. Earn trust and referrals from your customers
Look to your existing customers as a source for more repeat business and new business that can grow your profit margins. Happy customers are your best advocates.
Use these tips to increase revenue from existing customers:
- Show customers you appreciate their business with a thank-you note after every HVAC service call and installation
- Send a feedback survey after every job to check in with customer satisfaction
- Keep in touch and reconnect with one-off customers, even if they aren’t actively hiring you for work. Send marketing emails with home maintenance tips to help customers improve their home air quality
- Start a customer referral program that incentivizes customers to recommend your business to friends and family
8. Increase team efficiency
Poor time management, messy dispatching, and other inefficiencies can hurt profitability for even the most skilled HVAC teams.
When your field and office staff work together like a well-oiled machine, you can complete more jobs in less time, grow revenue, and get closer to your profit margin goals.
Use these tips to work more efficiently in the field and from the office:
- Use quality control checklists to keep service technicians and installers on track. HVAC installation checklists and inspection checklists help field workers complete jobs quickly and accurately.
- Create team schedules faster. Use a drag and drop calendar that lets you easily shift around installs and emergency service calls—and fit more jobs in a week.
- Dispatch HVAC technicians automatically. Save your dispatchers from routing jobs manually so they can focus on better scheduling and customer service. Route optimization software can automatically create the fastest and most fuel-efficient driving routes for crews.
- Communicate with customers faster. Cut down the time you spend emailing and calling customers. Automate as much of your communication as you can, like quote follow-up emails and appointment reminder emails for service calls.
- Speed up invoicing and payment collection. Learn how to write an invoice that’s accurate, professional, and easy to read. Then, create a schedule for payment reminder emails to quickly follow up on outstanding invoices.
Want to go even deeper on this topic? Learn 3 profit boosting strategies for your business on the Masters of Home Service Podcast.