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The true cost of running an hvac business

By Chris Elmore May 14, 2015 The true cost of running an hvac business
Is the owner getting rich?

How many times has a technician said, “I think the owner is getting rich!”?   There’s an interesting perception that business owners must be raking in the cash.   Is that true?  RELATED – 11 Things to Know About Commission Based Pay for Service Techs

Well I have the answer and I’m going to share it with you.  

How Much Does The Owner Really Make?

Let’s look at the business model for a residential HVAC service company as an example.  This example will work for your plumbing or electrical business as well. 

Pull a dollar bill from your pocket. That dollar represents a dollar of HVAC business revenue.  You are going to be using that dollar in this exercise.

So where does the money go?

Can you answer the following questions with precision?

  1. For every dollar the company makes do you know how much goes into technician wages?
  2. Do you know how much goes into paying for equipment, fuel, vehicles, and advertising?
  3. How much of the dollar do you think the owner of the company keeps?

It’s interesting that when I do this exercise with technicians, most techs think that the owner keeps up to half the money brought in! Which would mean that if the company does one million dollars, the owner would get to take home up to $500,000.00 a year.  However, that is far from the truth.

The True Cost of Running an HVAC Business

Now we are going to look at the true cost of running a typical residential HVAC business.  We are going to do this by breaking down every penny of the dollar.

  • 20 cents goes to paying technician wages – A lot more than you thought right?
  • 35 cents goes to materials and equipment
  • 10 cents goes to office staff and any managers
  • 10 cents goes to advertising
  • 9 cents goes to vehicle fuel for the field/office vehicles and maintenance
  • 5 cents goes to rent, utilities, office supplies, and equipment
  • 5 cents goes to insurance and employee benefits

I’m no mathematician but I believe that leaves 6 cents.

At 6% profit, on a million dollar company the business owner gets to keep $60,000.00 if every thing goes well.

Keep in mind that this doesn’t take into consideration the risk of running a business.  Nor does it take into consideration the years of non-profit that it takes to grow a business.

While 6% profits or less is normal, it is not the goal.  Our goal at Service Excellence Training is to keep our clients at a 15% net margin at minimum. We do this through ongoing front line training as well as business consulting to maximize opportunities.

As a technician this should hopefully answer your question if you are getting your fair share of the pie.

Question: Would you like your business to more profitable? 

Check out this guide to Super Simple Financials, or download this Free Infographic now.

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