When it comes to running a successful HVAC business, understanding the average markup on equipment is essential. Knowing the right profit margin is key to making your company profitable. But what is the standard markup for HVAC equipment?The short answer is probably around 65%. Commercial contractors typically have a lower gross profit margin (GPM) than a residential HVAC contractor.
In general, you need 65% GPM on residential parts and 50% GPM on commercial parts. These recommendations are based on the assumption that your labor rate does not involve all your overhead expenses. However, it's important to note that the exact markup depends on the average price you pay for the parts. A standard profit margin in a non-retail business is 100 percent, which means you charge the customer twice what they spent on the part or material. This requires precise accounting and estimating skills, as prices are constantly changing.
Knowing how much you spent on each piece before you can mark it properly is key. The total cost of the work also includes a labor surcharge, since more is charged per hour for the technician's time than you pay them. These two margins can be combined to make your company profitable. When you increase your materials by 100 percent, you usually increase your labor force less, for example, by 25 percent. Many owners and managers of heating, ventilation and air conditioning companies have been moving up as technicians or have created their business after working in the field. Sometimes it's overstock (which takes up expensive storage space) or lack of stock (which annoys customers endlessly) or even damaged stock moving around in a truck for weeks, but the end result of this scenario is known to any owner or manager and it's one of the reasons they don't get anything like the standard profit margin for HVAC specialists like them. At the end of the day, no HVAC installation will be good enough to compensate for a rude technician, as well as poor customer service over the phone.
You might also be interested in 7 ways to grow your HVAC company's recurring business and how to maximize the profit margin of your HVAC company.
