A 2006 financial analysis by BizMiner of 665 HVAC contractors showed that these companies averaged $786,090 in annual sales and had a net profit of 3.38 percent. A 2003 report from BizStats showed that the profitability averages of U.S. plumbing, heating, and air conditioning contractors is 4.1 percent.
I know there are many successful contractors who enjoy double-digit profitability, sometimes into the 20 percent range. At the same time, there are a lot of contractors who don’t even know what their profitability numbers are, either because they don’t track their financials or they are afraid to know the truth.
Seriously, some business owners believe that if they have money in their checking account at the end of the month, they have made a profit.
Herein lies the topic of this column: Is it possible to use benchmarking to help HVAC contractors understand what they have to do in order to earn a good profit?
I believe there are some benchmarks that can help business owners. Let’s look at a few.
LEADING EXPENSESBased on $786,090 in sales, which by some standards such as those set by BizStats would be a medium-sized HVAC contractor, these are the expenses and breakdown percentages. I am using the BizMiner analysis because frankly, the 10-page report cost $69. Hopefully I can expense that.
• Cost of sales (68.34%). Cost of sales (COS) includes the purchase of raw materials and finished products, utilities, misc. labor, etc.
• Officers (owners) compensation (5.02%)
• Wages (7.35%)
• Rent (1.66%)
• Taxes (2.55%)
• Interest paid (0.32%)
• Amortization and depreciation (1.48%)
• Advertising (0.53%)
• Benefits (2.34%)
• Misc. (7.03%)
If you add all of those numbers, the total is 96.62 percent, leaving the huge sum of 3.38 percent for net profit.
PLUG IN YOUR NUMBERSBased on these factors,The NEWSwants to establish some benchmark numbers for its readers. As a matter of fact, some readers think other factors should be taken into account. How do I know? I could admit to being clairvoyant, but in reality, my source of information is the new online survey at www.achrnews.com. Visitors to our Website will find the feature in the upper left-hand corner of the homepage.
The survey is titled: “What are the benchmarks for a successful HVAC contracting business?” The questions:
1.Besides labor and equipment costs, what are the key overhead items in an HVAC business?
2.In a best-case scenario, what percentage of sales should the following costs be: labor (including benefits), equipment (including supplies), mortgage/rent (including capital improvements), marketing/advertising, training/education, professional dues/license fees?
3.In your opinion, what percentage of net profit after taxes would define a “successful” contractor?
Some of the preliminary replies include factors such as vehicle expenses, insurance, non-billable time, training/education, professional fees, legal fees, etc.
What is a good net profit total according to the first respondents? Most people stayed in the 7-15 percent range, although some said as low as 3 percent and one person went the opposite direction and said 40 percent. I think I’ll write an article about that contractor.
Join us by logging on to our Website and taking part in the survey. It will be up until April 15 (does that date ring a bell?). The results should be interesting, yet not authoritative. If you want it authoritative, you might want to drop Donald Trump an e-mail.