What is your Target HVAC Business Profit Margin?
You’ve spent years learning your craft, taken the leap to go out on your own, and now it’s time to turn your operation into an HVAC business that actually makes money.
In the early days, it’s all about finding clients, setting up tools, and keeping things moving.
Revenue is the big focus—profit margins? Not so much.
But here’s the thing: revenue is just a number. Without strong profit margins, your HVAC business isn’t going to sustain itself long-term.
So, let’s talk about what your profit margin should be, how to improve it, and how to make sure you’re not just working hard—but actually making money.
First Things First: What is Your Profit Margin?
Before we talk about why profit margin matters, let’s define what it actually is.
Your profit margin is the percentage of revenue that remains after accounting for all costs. In HVAC, we typically break this down into two types:
- Gross Profit Margin – This is your revenue minus direct costs (labor, materials, and job-specific expenses). It tells you how efficiently your business is running at the job level.
- Net Profit Margin – This is what’s left after all expenses, including overhead, marketing, office costs, and taxes. It’s the true bottom line of your business.
Understanding these two numbers gives you a clear picture of how much money your business is actually keeping—and whether you need to adjust your pricing, expenses, or operations.
Why Your HVAC Profit Margin Matters
Profit isn’t just a nice-to-have; it’s the foundation of your pricing strategy. A lot of HVAC owners quote jobs to win business but don’t always check if those prices actually lead to profit.
If your margins are too thin, you’re just spinning your wheels. Tracking your margins helps you figure out if you need to cut costs, raise prices, or refine your operations.
Since HVAC pricing varies from job to job, looking at margins at the contract level can help you find the most profitable services and the best types of clients to target.
What’s The Target HVAC Business Profit Margin?
So, what should your profit margins actually be?
- Gross Profit Margin: The average for HVAC businesses is 30%-40%. To stay competitive and financially healthy, a target gross margin of 50%-60%—with a minimum of 45%—is ideal.
- Net Profit Margin: HVAC net margins vary, but a solid goal is 12%. Some businesses reach 20%+ by tightening operations and controlling costs.
If your HVAC profit margin isn't where it should be, don’t worry—there are plenty of ways to improve it without overhauling your entire business.
Let’s dive into a few easy action steps you can take.
How to Improve Your HVAC Business Profit Margin
Improving your HVAC profit margin isn’t just about raising prices or slashing costs—it’s about finding the right balance.
The two biggest levers?
Increasing pricing strategically and cutting unnecessary expenses. Let’s break down how to do both effectively.
How HVAC Businesses Can Increase Pricing
Watch Your Competitors
Know who your competitors are and set rates accordingly. Your pricing needs to reflect what customers in your area are willing to pay. If you’re offering specialized services like data room ventilation or radiant floor heating, you can likely charge more—just make sure your market supports it.
Use Social Proof to Justify Higher Prices
Ever noticed how people will pay more just because a business has tons of five-star reviews? That’s social proof at work. Having strong Google and Yelp reviews makes customers more comfortable choosing you, even at a higher price point. Encourage happy customers to leave reviews—it’s a simple way to justify charging more.
Raise Prices at the Right Time
Timing matters when increasing prices. The worst time? Peak season—because that’s when competitors might swoop in and undercut you. Instead, increase prices at the end of the busy season or during slower months when customers are less price-sensitive. Also, if a client is barely profitable, don’t be afraid to charge more (or even let them go).
How HVAC Businesses Can Cut Costs
Cutting costs doesn’t mean slashing everything when times get tough. Instead, regularly check your expenses and find ways to trim the fat without hurting service quality.
1. Take Advantage of Government Incentives
There are plenty of tax credits, rebates, and incentives for HVAC businesses that install energy-efficient systems. A few to look into:
- Federal Programs: The Energy Policy Act & Inflation Reduction Act offer tax credits for energy-efficient upgrades.
- Energy Star Rebates: Discounts for installing certified energy-efficient systems.
- State & Utility Rebates: Many states and utility companies offer incentives for eco-friendly installations.
- Carbon Credits: Some businesses can even profit from participating in emissions reduction programs.
Staying on top of these incentives can reduce costs and help close more sales.
2. Optimize Inventory & Reduce Waste
Overstocking expensive parts that sit on shelves for months? That’s just cash collecting dust. Instead, track usage trends and order only what’s needed. Some HVAC businesses negotiate just-in-time deliveries or bulk discounts for frequently used items. Also, standardizing equipment brands reduces the variety of parts you need to keep in stock.
3. Improve Route Efficiency & Reduce Fuel Costs
Fuel costs and vehicle wear add up fast. Using GPS tracking and route optimization software ensures your technicians take the most efficient routes. Also, simple policies—like dispatching the nearest tech instead of assigning jobs by seniority—can cut unnecessary travel.
4. Reduce Labor Costs with Seasonal Scheduling
HVAC work is seasonal, so your workforce should be too. Instead of keeping too many full-time employees year-round, hire seasonal workers during peak months. Cross-training employees to handle both installs and service calls also helps prevent overstaffing.
5. Save on Equipment & Tool Expenses
HVAC tools and equipment aren’t cheap, but you don’t always need the latest and greatest. Leasing or buying refurbished tools can free up cash. Sticking with a few trusted brands for installations also simplifies inventory and reduces costs.
High-Profit Margin HVAC Services
Not all HVAC jobs are created equal. Some services naturally have higher margins, and focusing on these can boost overall profitability. Here are a few high-margin services worth prioritizing:
- HVAC Maintenance Contracts – Recurring revenue with low labor costs; often 40%+ margins.
- Ductless Mini-Split Installations – High demand, easy installs, and 35%-50% margins.
- Indoor Air Quality (IAQ) Solutions – Air purifiers, humidifiers, and UV light systems have high markups.
- Smart Thermostat Installations – Minimal labor costs with big upsell potential (50%+ margins).
- Emergency Repairs & After-Hours Services – Customers pay a premium for urgency.
- High-Efficiency System Upgrades – Rebates and energy savings justify premium pricing.
- Duct Cleaning Services – Low equipment and labor costs make this a great add-on.
Our Final Thoughts
Running an HVAC business isn’t just about getting jobs—it’s about making sure those jobs are profitable. That means keeping an eye on pricing, cutting unnecessary costs, and focusing on the highest-margin services.
Regularly review your financials, adjust your strategy when needed, and don’t be afraid to charge what your work is worth.
Need help figuring out your HVAC business margins?
Here at Atlas Accounting Group, we specialize in helping HVAC owners like you improve profitability and set a long-term financial strategy.
If you’re in the market for a better HVAC accountant, we’re always here to help. Simply use the calendar below to book your introductory call.
Until next time!
