Profit is not a four letter word, but loss is, and no one wants to lose money. That is why when you set the right price for almost any job it should include profit. Profit is the amount of money that you decide you want to make on a job. Profit is why you went into business in the first place: to make money to support your family and to be able to live the lifestyle you want to have. However, many HVAC dealers are afraid to set Right Prices in order to charge enough to make the profit they want to make and need to make.
So, how much profit is enough? Interestingly, the average profit for HVAC dealers in the $500,000 to $1,000,000 range is about 2.3% based on data provided by the banking institutes. Therefore, on a $4000 job the entire amount of profit comes to about $92; and, for a $600,000 HVAC business, the average yearly profit is only $13,800. That is just the average, 50% of the businesses out there make LESS than that. These statistics are the main reason that HVAC dealers go out of business. If you look at all the literature published by the HVAC trade associations, magazines, consultants, and if you read the books published by successful HVAC owners you will find that most of these folks recommend that an HVAC business should strive for at least 10% profit, and preferably 15% profit.
Aren’t you worth at least a 15% profit? Absolutely! HVAC dealers are one of the few businesses that actually still come out to the home to perform their work. You show up in a valuable vehicle filled with thousands of dollars of parts and tools. You have the extensive training that is required to be able to perform your jobs. You are required to be in compliance with a multitude of governmental regulations. You are responsible for the comfort and health of the customers you serve. More importantly, you are responsible for the safety of your customers. After all, you install and service equipment that can potentially kill people in multitudes of ways. You tame fire, you harness gas, you deal with high pressure gases, you vent carbon monoxide, you harness water and you route electricity in lots of voltages and amperages. Then why do most HVAC dealers think they are not worth enough to enjoy a decent profit.
From the practical side, a 15% profit also allows the HVAC dealer to run a good, responsible business. By having enough profit, you can pay your employees a decent salary with decent benefits. You can offer health insurance, vacation, and sick leave. You can afford to train your employees better so they are more efficient, and so they can do a better job for your customers. Most importantly, a decent profit allows you to stay in business for years to come; thereby, providing your customers the long term value and commitment they deserve. The great bonus is you get to have a decent income to provide for your families and to retire with a reasonable nest egg.
Now that you know you are worth 15%, let’s do the same math we did above but with this proper profit percentage. Now, if you do a $4000 job your profit will be $600. And if you have a $600,000 company, your profit for the year at 15% will be $90,000. You will finally be making the kind of profit necessary to have a responsible business with good salaries, benefits, and where your customers will feel your long term commitment to them.
In the next article, I’ll dive deeper into some tips on how to include profit, and how seasons can affect a profitable pricing structure. If you have any questions about how to include profits to your right price, let me know in the comments below. You can also contact cfm directly @cfmdistributors on Facebook and Twitter, or call us toll-free @ 1-800-322-9675.