An HVAC company can bring in millions a year and still struggle to cover payroll. The cause is usually the same. The owner is watching revenue, and revenue doesn't tell you whether a job made money.
Austin Wendel founded Accounting for Trades, a bookkeeping firm that works only with HVAC, plumbing, and electrical business owners. On a recent episode of Out of the Truck, the HVAC business podcast hosted by Sarah Gonzales, he walked through the numbers he wants every owner to know. Here's what stood out.
Gross Profit by Job Is the First Number to Watch
Gross profit by job is what's left of a job's price after the direct costs of doing it. That means equipment, materials, the technician's labor, and anything else you wouldn't have spent without that job. "My absolute favorite number for an owner to know is gross profit by job," Wendel said.
A simple example shows why it matters. Say you sell a $10,000 install. The equipment and materials cost $4,000, and the crew's labor costs $1,500. Your gross profit is $4,500, or 45%. That 45% still has to pay for the office, the trucks, insurance, marketing, and your own salary before any of it becomes profit.
Once you know that number for every job, you can see which work pays and which work only keeps the trucks busy.
Healthy HVAC Margins Differ by Job Type
Installs, service calls, and maintenance don't earn the same margin, and they shouldn't. On the episode, Wendel put his rough targets at 45 to 50% gross margin on installs, 55 to 70% on service, and about 50% blended across the business.
An owner who only tracks the blended number can miss an underpriced service department, because a strong month of installs hides it. Tracking each job type on its own shows where the money comes from.
Why Overhead Creeps Up Between $1 Million and $2 Million
The stretch between $1 million and $2 million in revenue is where many owners feel the squeeze. Growth brings more trucks, more office staff, more software, and bigger insurance bills. Each one makes sense when you add it. Together, they can grow faster than gross profit, and the owner ends up working harder for the same take-home pay.
Checking overhead against gross profit every month catches the creep while it's still small enough to fix.
Know Your Survival Number Before You Go Out on Your Own
For technicians thinking about a shop of their own, Wendel's advice starts before the first job. Have a survival number, which is six to twelve months of runway to cover the business and your household while the work builds. He also says to get your household on board first, because the early months rarely go to plan.
Whoever Answers the Phones Becomes Your Sales Team
Many owners think of sales as something that happens at the kitchen table. Wendel points out that it starts earlier. The person who answers the phone decides whether a call becomes a booked job, so that person is part of the sales team whether or not anyone calls them that.
Hear the Full Conversation
Wendel also covers when to hire a bookkeeper, why accounting software belongs in the business from day one, and the story of a bookkeeper who stole $12,000 in a single month. The full episode on HVAC profit margins has the video, a chapter list, and the complete transcript.
If hiring is what's holding your margins back, the conversation with Derrick Conyers on building your own technician pipeline is a good one to watch next.