The key to thriving in your HVAC business is to learn the art of balancing your expenses and profits.
You are seeing your business grow with more customers, high-paying projects, modern tools, and employees. But are you still not happy with the amount of profit your business is making?
It is probably because your profit margin is not much above the expense margin. In this way, most of the money you earn is just recovering your operating expenses with a little profit.
If you are new to this growing industry and find your HVAC profit margins unsatisfactory, you might need some tips to work on it. Below are the eight crucial ways to maximize your HVAC business profit margin.
8 Best Ways to Improve HVAC Business Profit Margin
A low-profit margin will deteriorate your motivation to work hard for your HVAC business. You might settle down for a while and wonder why your hard work isn’t paying off.
You will cross-check every aspect of your business operation, from quality service to customer support. But still, the problem lies in your strategies for deciding profit margin.
So, here are a few of the best ways for you to improve your HVAC profit margin without making many changes to your business operations:
1. Make the estimation right
A solid estimate will define a rich profit margin for your HVAC business. Poor estimation is one of the many reasons contractors lose money on their HVAC jobs. If you bid too low and some unforeseen expense comes up, it will probably dilute your profit.
A crucial factor that leads to poor estimation is a lack of knowledge on what might impact the service costs. Therefore, it becomes essential for HVAC contractors to assume the cost overruns and unforeseen difficulties that might intervene in their service execution.
The best way to prevent your profit margin from experiencing adverse effects due to such difficulties is by keeping some room for surprises in your price estimation. This will eventually help your HVAC business maintain the decided profit margin, even with the sudden cost overruns.
2. Determine every bit of the cost
The average net profit for HVAC companies is around 2.5% to 3.5%. But, some companies are closing their profit margin to nearly 10%. So, if you want to be one of them, some changes are practically essential for your HVAC business.
You must calculate the overhead charges, labor costs, job tracking costs and determine net/gross profit for every department of your company. If you are unaware of these statistical figures, then it is time you should settle down and work on obtaining them.
Breaking down the numbers and calculating them based on departmental expenses will help you figure out which areas need better estimation to improve the profit margin. The overhead charges should be reasonable so that the general company expenses are covered without hurting your accounts.
3. Improve your pricing strategy
Raising your prices becomes important at some point in time. It is because if you don’t, your HVAC services will be beneficial only to the customers looking for cheaper price tags, while the quality-seekers might not consider you.
You need to raise your prices and, simultaneously, be capable of explaining the value you are adding to the services over your competitors. You must determine if you are running a healthy HVAC company. And for that, you must take note of some positive signs, which include:
- Your business must have a good number of repeat customers.
- Your brand should be listed in at least 2nd or 3rd position in local searches on Google.
- Your ratings on Google, Yelp, and other online directories should be higher.
- Your referral growth should be consistent.
If your business is showing such signs, then you probably don’t have to worry about maintaining a low price to beat the competition. Instead, you can raise your price as HVAC customers are often ready to pay for quality services.
Following that, you must also talk to your sales team and HVAC price estimators to discuss whether your company must raise the prices or not. Take their advice on this, and train them on how to pitch customers and convert leads after the prices are raised. It will help you turn around more customers and improve your profit margin.
4. Charge for a faster response
Imagine a scenario where your HVAC technician visits the customer’s residence to check the air conditioning system. After determining the problem, your technician finds out that they don’t have the necessary spare part or tools to fix the problem at the site.
They will call your office, and your staff will check the list of spare parts or tools and will find them unavailable at the time. You will instruct the team to place a purchase order which will take around three days to be delivered to your company.
The customer will be unhappy with your service and will look for another HVAC company to get the job done. You lost a good opportunity of earning money, but you still have to pay the technician to arrange the visit.
Therefore, it is advised for you to use your resources wisely and keep track of what spare parts, replacement systems, and tools you have in stock or not before taking up any project. The best way to implement that is by maintaining a digital sheet of all equipment or spare parts that comes in and goes out of your company.
In this way, you will be able to charge your customers upfront for having the parts in stock to repair their system in a short period of time. Customers would agree to pay more for faster services than waiting a couple of days to get the job done. Hence, this will eventually add up to your profit margin.
5. Spend more on marketing
Most HVAC businesses rely solely on referrals, which is not the right approach to get more projects or profits. You need digital marketing to some extent because you need loyal customers in order to spread positive word of mouth and acquire them, you need different forms of marketing.
When you spend on marketing to acquire leads, you can add it to your overhead charges as well. Hence, this will increase the profit margins by a percent or two. More projects imply better profits and a higher growth rate on annual terms. So, you must invest in several digital marketing measures to market your new price estimate with higher profit margins.
Hence, this will skyrocket your revenue in a very short span of time! But make sure that you analyze the cost of acquiring new customers. It will help you decide which marketing or advertising methods will work for you.
6. Offer replacement against the repair request
Certain types of customers want to just repair their old HVAC system to get it through a particular season. Such HVAC systems that are completely in failing condition are demanding replacements.
So, this is the time when you can increase your profit margin by upselling replacement services. You can let them know that their HVAC system is worsening, and it will cost a lot to just repair it. Instead, they can consider replacing it at a minimal additional cost.
This approach usually works, and you get to do a replacement instead of a repair, which gives you a better profit margin, as you are also selling off a spare appliance to your customer. Moreover, there are no surprise expenses with replacement jobs, as they just need clean installation.
If the customer doesn’t agree, you shouldn’t force them rigorously and give them time to think. If the service date is due in two days, you can take a follow-up from the client in a day to pitch them the offer again. If they agree, then proceed with the replacement, else, you must have already marked a profitable margin in your repair costs as well.
7. Keep reviewing your projects
Make it a habit to review your projects while they are in progress and even after completion. Take note of every tiny aspect that went wrong in the entire execution of a particular project. Don’t just move ahead to the next HVAC job without analyzing the previous one.
Analyzing your business on both fronts will help you determine the root cause of any possible mistakes, surprise cost overruns, and unforeseen expenses in executing the particular job. You can work on rectifying those mistakes that triggered higher operational costs for your company.
Hence, this way, you won’t have to compromise on your profit margin and get the maximum amount you expected.
8. Analyze the market
The HVAC market changes frequently, and most contractors anticipate this change and adapt to it to maintain the profit cycle. HVAC technologies keep changing over time, for which the installation, maintenance, repair, and replacement techniques will eventually change as well.
By staying ahead with the technology trends and market changes, you will be able to train your employees and staff members to catch up. With better services for trending technologies or market demands, you will be able to make better price estimations with higher profit margins.
Imagine there is a new innovative technique for implementing a repair solution to an HVAC system. It is a costly yet definite practice that will speed up the job execution. So, it is evident that you will be pricing your customers with higher estimates as you are offering value to your service.
If you are still sticking to the older methods, then you will be left behind in the competition, and the profit margin will succumb.
Frequently Asked Questions
What is considered a good profit margin for HVAC businesses?
The average profit margin is below 4%, but you can eventually take it near to 10% or more if you are following strategic and smart business management techniques. As stated above, you need to make some changes to your existing business operations and way of handling projects.
All of the above ways are helpful for making the rightful changes to your business operations. You might have to spare some of your business time to make all of the necessary analyses in order to implement these changes. Hence, you can achieve an 8% to 10% of profit margin, which is stated as good in the HVAC industry.
Can you be rich with an HVAC business?
Service jobs are highly demanding in the United States, and they always will be. So, if you are an HVAC contractor or a business owner, you can definitely be rich if you approach it with good operational practices and impactful marketing ideologies.
It will definitely take time for you to set up your profit pace, but eventually you will be right on track with accurate price estimation and profit margin.
Where do the HVAC technicians earn the most money?
The HVAC technicians, contractors, and businesses working in Florida earn the most money in the United States. The average hourly wage for the technicians in Florida is around $21.85, and the average yearly salary is around $45,450. You can conclude the estimations and profits that the companies and contractors make in Florida.
Running an HVAC field business demands you to be very much agile and adaptive to new technologies and market changes. Your profit margin is a big aspect of keeping your business running smoothly. If your business is not making profits, then you probably cannot sustain it by just recovering the operational expenses.
Suppose you are starting a new HVAC business and are not concerned about your profit margin at present. Don’t make that mistake.
You should start keeping track of your profit margin right from the start. In this way, you will never lose track of winning profits for your business.
For businesses that are already established in the industry, you must run a constant analysis of what is forcing your operational expenses to rise gradually. Find a way to minimize it, and have an additional margin window to accommodate any surprise costs to avoid adverse effects on your profit margin.
If you want to manage your HVAC business operations smoothly, you can choose the best HVAC software for your business.