Apply These 5 Secret Techniques to Improve HVAC Profit Margins  

Have you ever observed a sushi chef? They meticulously craft each roll, adding a perfect balance of rice and fish. Their every movement is delicate and organized. They don’t throw extra rice or soy sauce and do not ignore the customer’s preferences.   

You’ll think this is some kind of clickbait, as I clicked on a blog about improving HVAC profit margins. However, sushi chefs can tell HVAC business owners a lot.   

Like sushi chefs, for HVAC business owners, it’s not just about delivering the service; you have to fine-tune your business strategies to improve profit margins.   

If you are stuck or want to improve HVAC profit margins, stick with us for the next 10-15 minutes. Like sushi chef secret techniques, we’ll discuss 5 simple and effective methods to improve your HVAC business’s bottom line.  

What’s a Good Profit Margin for HVAC Business?  

How can one know what they’re actually looking at in terms of profit margins? Does your profit margin need to be improved, or is it good?   

According to Energy.gov, successful HVAC businesses typically have a net profit margin of 12%. Generally, an HVAC business’s average profit margin ranges between 5-20%. The thing is, your business will be more profitable as a service provider if you are more aggressive with your profit margins.   

The key point to add here is that you should use gross profit margins to assess performance in each service (e.g., HVAC installation, maintenance, service and repair, new construction, etc.). On the other hand, you should use net profit margins to assess performance throughout the entire business.  

Speaking of gross and net profit margins, let’s see how you can calculate HVAC profit margins.    

How to Calculate HVAC Profit Margins?  

Determining your HVAC profit margins is necessary to know your company’s financial situation.   

First, figure out how much money you have made overall from sales and services. Then, deduct all of your charges. This includes labor, supplies, overhead, and other running expenses. You’ll get a gross profit.    

The profit margin is a percentage obtained by dividing gross profit by total revenue and then multiplying the result by 100.   

For instance, a business with $500,000 in revenue and $450,000 in expenses would make $50,000 in gross profit. $50,000 divided by $500,000 yields a profit margin of 0.10, or 10%.   

5 Secret Techniques to Improve HVAC Profit Margins  

Finding out how pyramids were built can be a secret; however, when it comes to improving HVAC profit margins, take a look at these small changes that can make a huge difference in your bottom line.   

1. Understand Your Cash Flow Problems  

If you’re among the 82% of businesses that struggle with cash flow, your HVAC profit margins are probably affected. When more money is leaving your company than entering it, it is difficult to turn a profit.   

There are several reasons why your HVAC company’s cash flow can be problematic. First, the HVAC sector is a seasonal venture. Budgeting appropriately is crucial since you will have more business in the summer and winter and less in the spring and fall.   

Late invoices are another factor in negative cash flow. Late payments result from late invoices! Unfortunately, many clients like to act as though they “forgot” to pay.    

If your company frequently faces this issue, you can use invoicing software that automate payments. Customers can pay around the clock through the software, and they can’t forget, as they’ll get automated payment reminders.   

We have a detailed guide to cash flow problems and what you can do about them. You can check it out here.   

2. Improve Business Efficiency   

For HVAC companies, inefficient practices are a major financial drain. Time is money, and wasting it on tasks that take longer than necessary might negatively impact your profit margins.   

Nobody would blame you for lacking the patience to sit down every three months and do a comprehensive audit of your business to determine its average HVAC profit margin.   

So, what to do about it?   

Well, you have to understand the overall numbers. We know this may sound crazy, but this is the only way to improve your business efficiency.   

By auditing and reviewing your HVAC business practices and resources, you can find small adjustments that eventually boost your profit margins.   

3. Increase team efficiency  

Even the best HVAC teams might lose money because of inefficient time management, disorganized dispatching, and other issues. Since labor costs are a major expense for an HVAC business, low team productivity will negatively impact your profit.   

Automated schedule and dispatch software is a perfect solution and can assist in manual dispatching issues and increase team productivity.   

Route optimization software like Jobber can automatically generate your team’s quickest and most fuel-efficient driving routes. Automating your calendar can boost team morale and increase profitability.   

4. Offer More HVAC Contracts  

Usually, you only visit your clients when their HVAC system is malfunctioning. After entering their house and resolving the problem, your technician departs. The next time that customer needs a repair, which could be years from now, they might think of your company.   

Regular HVAC maintenance generates recurring revenue, which may increase your gross profit margin. Because these services are planned, you can schedule entire maintenance days rather than waiting for calls.   

5. Ask for Referrals  

Many individuals use online reviews to determine contractors’ dependability rather than asking friends and family for recommendations.  

One of the best ways to increase profit margins from referrals is to start a referral program that rewards clients for referring friends and family.   

In addition, you can stay in contact with old customers. Even if they aren’t employing you, you can still stay in contact and get back in touch with them. To provide value, you can send them a newsletter regarding home maintenance.   

Final Thoughts   

We don’t want to be the spoilers, but HVAC profit margins aren’t going to improve overnight. However, applying these techniques can surely lessen the time. In the long run, you need to adopt strategies that can bring consistent cash flow to increase your profit margins.   

If you aren’t a number nerd like us and don’t want to calculate profit manually, you can always get help from an expert, and Tangent Consulting is just the partner you need.     

We have years of experience as a CFO, business coach, and tax consultant for HVAC businesses. With us, you don’t need to hire an accountant or business coach separately; you can get both in one place.                   

PS If you are reading this, it means you can have access to our free consultation for your HVAC business. Avail this for free today before we change our mind 😉   

FAQs  

How much capital do I need to start an HVAC company?  

Generally, you need around $5,000 to $20,000 to start an HVAC company, depending on your location, equipment needs, and licensing requirements.  

Does a low profit margin mean a low return on equity?  

A low profit margin can still yield a good return on equity if your business has high turnover or low operating costs relative to equity.  

What’s a reliable HVAC business software?  

Jobber and ServiceTitan are two popular HVAC business software programs. Both provide scheduling, invoicing, customer management, and other features.