HVAC Profit margin Calculator

HVAC Profit Margin Calculator

HVAC business owners strive to turn a profit, while setting prices appropriately and competitively. But when it comes to understanding exactly which numbers and formulas to use to calculate their company’s profitability, HVAC contractors lean on ServiceTitan to help decipher it all. Use our HVAC Profit Margin Calculator to understand where you are and where you need to go, using your own company’s real-time financial data to maximize profitability and growth.

How to Use this Calculator

To determine the best HVAC profit margins for your service business, you need to know how much total revenue the company generates, the total cost of goods sold, your billable rates, techs’ billable hours, all overhead costs, and your net profit goal. The formula to calculate HVAC profit margins looks like this: Profit Margin = ((Billable Revenue - COGS - Overhead Costs) / Billable Revenue) x 100 This formula takes into account the revenue generated from billable services, subtracts the direct costs of providing those services (COGS), and then subtracts the overhead costs. This number is the net profit, which is divided by the billable revenue and expressed as a percentage to give you the profit margin. Follow these steps to use our HVAC profit margin calculator:

1. Gather Financial Data: Collect all necessary financial information, including:

   • Total Revenue: Represents all funds generated from sales of equipment, installation services, repairs, maintenance, and any other related HVAC services.

   • Cost of Goods Sold (COGS): Includes all direct costs associated with providing HVAC services or products, including the cost of HVAC units, materials, labor, subcontractors, transportation, equipment costs, etc.

   • Overhead Costs: The indirect costs of running your HVAC business, such as rent, utilities, salaries, marketing, insurance, and other operating costs.

   • Billable Rates and Billable Hours: Your billable rate is the flat rate or progressive billable rate you charge for your HVAC service work. The billable hours are the total number of hours that technicians spend on billable tasks.

   • Total work hours: The total number of hours your technicians are scheduled to work, including both billable and non-billable activities (or your labor costs).

2. Calculate Gross Profit Margin: Gross Profit = Total billable revenue - COGS.

3. Calculate Net Profit Margin: Net Profit = Gross Profit - Overhead Costs. (Your actual profit after accounting for both direct costs and overhead expenses.)

4. Calculate Billable Efficiency Ratio: Billable Efficiency Ratio = (Billable Hours / Total Work Hours) x 100. This ratio indicates the percentage of time your technicians spent on billable tasks.

5. Calculate Billable Revenue per Hour: Billable Revenue per Hour = Total Billable Revenue / Billable Hours. This gives you an average of how much revenue you generate per billable hour of work.

6. Calculate Profit Margin: Profit Margin = (Net Profit / Total Billable Revenue) x 100.

7. Interpret the Results:

   • A higher profit margin indicates better profitability from your HVAC services.

   • A higher billable efficiency ratio suggests efficient utilization of billable hours.

8. Adjust and Improve:

   • If your profit margin is lower than desired, consider ways to reduce COGS, optimize overhead costs, or adjust your billable rates.

   • If your billable efficiency ratio is low, evaluate technician scheduling, training, and job allocation practices.

Incorporating both overhead costs and billable rates, in addition to revenue and direct costs, into your profit margin calculations captures all the relevant financial factors that affect the profitability of your HVAC business. Use our HVAC Profit Margin Calculator to gain a more comprehensive understanding of your company's financial performance.

How ServiceTitan Can Improve Pricing and Efficiency

ServiceTitan HVAC software is a comprehensive field service management software that offers a range of features to help improve various aspects of an HVAC business, including pricing, efficiency, customer service, and profitability. Here's how:

1. Improve Efficiency:

   • Scheduling and Dispatching: Optimizes technician schedules, reducing travel time and ensuring timely appointments.

   • Mobile App: Technicians can access job details, customer history, and digital work orders through a mobile field service app, reducing paperwork and streamlining communication.

   • Real-Time Updates: Technicians can update job statuses, materials used, and work performed in real-time, allowing office staff to stay updated on each job's progress.

2. Optimize Pricing:

   • Flat-Rate Pricing: ServiceTitan supports flat-rate pricing models, as they make it easier to present consistent and transparent job costing numbers to customers.

   • Pricebook Pro: As an add-on feature, Pricebook Pro automates the delivery of regular content updates to your HVAC pricebook, keeping costs, images, descriptions, sold hours, and more in line with your pricing strategy goals.

3. Billing and Invoicing:

   • Digital Invoicing: Generate digital invoices and quotes that can be sent to customers via email or printed on-site.

   • Payment Processing: ServiceTitan allows customers to make payments on-site or online, improving cash flow and reducing payment delays.

4. Reporting and Analytics:

   • Performance Metrics: ServiceTitan provides insights into technician performance, job completion times, and revenue generated, helping you identify areas for improvement.

   • Financial Reporting: Generate reports on revenue, expenses, and profit margins, so you make informed financial decisions.

5. Customer Management:

   • Customer History: Maintain a database of customer information, their HVAC systems, service history, and preferences, allowing for personalized and efficient customer interactions.

   • Marketing Tools: Use the software to manage customer relationships and launch targeted marketing campaigns to increase customer retention and referrals.

ServiceTitan helps HVAC businesses streamline operations, boost cash flow, enhance customer service, optimize pricing strategies, and improve overall efficiency. >>Ready to see how ServiceTitan can boost your HVAC company’s profitability? Request a demo.