Closing the Gap Between Bid and Bank in HVAC: 5 Levers That Actually Move Net Profit

Every HVAC owner I talk to knows their target margins. They bid jobs at 25-30%. They price service calls to hit certain numbers. The math works on paper.

Then the year ends and they're looking at 6-10% net. Sometimes less.

Where does the other 15-20% go? It leaks out through five specific places. These are the levers that actually move the needle on closing the gap between bid and bank.

Lever 1: True Labor Cost Per Billable Hour

Most HVAC owners know their techs' hourly wages. Few know their true cost per billable hour.

Here's the difference:

Your tech makes $32/hour. You think "my labor cost is $32/hour." But that's not what you actually pay:

• Payroll taxes: Add 7.65% (FICA)
• Workers' comp: Add 8-15% depending on your state and mod rate
• Benefits: Health insurance, PTO, 401k match—maybe $4-8/hour
• Unbillable time: Training, drive time, callbacks, shop time

Your $32/hour tech actually costs you $45-55/hour when fully burdened. And if they're only billable 65% of their paid hours? That effective cost per billable hour might be $70+.

The math: If you're pricing jobs assuming $32/hour labor and your true cost is $52/hour, you're underpricing by $20/hour. On a 4-hour job, that's $80 of margin you thought you had but didn't.

"Know your burdened labor rate. Not your wage rate—your actual, all-in cost per billable hour."

Lever 2: Install vs. Service Margin Clarity

HVAC businesses are really two businesses under one roof: service and install. They have different margin profiles, different cash cycles, and different cost structures.

But most owners only look at blended numbers. They know total revenue and total profit. They don't know which division is carrying which.

Typical reality:

• Service: Higher gross margins (50-65%), faster cash, lower ticket size
• Install: Lower gross margins (25-40%), slower cash, higher ticket size

If your install division is running 22% gross margin while service runs 55%, and installs are 60% of revenue—your blended margin gets dragged down hard.

The math: A shop doing $4M with 60% install / 40% service might show 35% blended gross margin. But if installs are at 25% and service is at 55%, you're leaving money on the table by not knowing where to focus.

Maybe install pricing needs to come up. Maybe you should be pushing more service and maintenance. You can't make that decision without margin clarity by division.

Lever 3: Maintenance Agreement Penetration & Pricing

Maintenance agreements are the heartbeat of a healthy HVAC business. They're recurring revenue, they smooth seasonality, and they're your service call pipeline.

Two numbers matter:

Penetration rate: What percentage of your residential customers are on a maintenance agreement? Elite shops run 40%+. Average shops run 15-25%. If you're under 20%, there's money on the table.

Pricing: Are your agreements priced to make money, or just to "keep customers in the fold"? I've seen agreements that actually lose money when you factor in the cost of the included visits plus the discount on repairs.

The math: If you have 2,000 residential customers and you're at 15% penetration (300 agreements) at $180/year, that's $54K in recurring revenue. Move to 30% penetration at $220/year? That's $132K. Same customer base, $78K more revenue—and it's the highest-margin revenue you have.

Lever 4: Tech Performance Metrics

Your techs are where margin is made or lost. But most owners only look at total revenue per tech, if they look at anything.

The metrics that actually matter:

• Average ticket by job type: What's the average service call ticket? Tune-up? Repair? Install? Is it going up or down?
• Membership conversion rate: When a tech runs a call on a non-member, how often do they sell a maintenance agreement?
• Callback rate: How often does a tech's work result in a return trip? Callbacks are pure cost.
• Revenue per day / revenue per truck: Efficiency metrics that show utilization.

The math: If Tech A averages $450/call and Tech B averages $320/call on the same types of calls, that's a 40% difference. Across 200 calls a year each, Tech A generates $90K vs Tech B's $64K. Same payroll, $26K difference in revenue.

Is it training? Confidence? Sales skills? You can't fix what you don't measure.

Lever 5: Payment Terms & AR Discipline

This is the lever most HVAC owners ignore because it feels like "accounting stuff." But it's directly connected to your bank balance.

Days-to-get-paid measures how long it takes from completing work to having cash in hand. Different customer types have different profiles:

• Retail service: Should be immediate or within a week
• Retail install with financing: 30-60 days to fund
• Builder/GC work: 45-90 days is common
• Commercial: Net 30-60 is typical, but 90+ happens
• Warranty/insurance: 60-90+ days

If your cash flow is tight, look at your customer mix. Are you taking on too much slow-paying work relative to your cash position?

The math: If you're carrying $200K in AR at an average of 45 days instead of 30 days, that's 15 extra days of float. At 10% cost of capital, you're spending ~$8,200/year just to finance your customers' slow payments.

More importantly: that $200K sitting in AR is $200K not in your bank account. Tighten AR by 15 days and you free up real cash.

Putting It Together

These five levers aren't theory. They're the specific places margin leaks out between what you bid and what you bank:

1. Labor: Know your true burdened cost per billable hour
2. Division clarity: See install vs. service margins separately
3. Maintenance agreements: Penetration + pricing = recurring profit
4. Tech metrics: Average ticket, conversion, callbacks
5. AR discipline: Days-to-get-paid by customer type

Most HVAC owners doing $3M–$8M have at least 3-5 points of margin hiding in these levers. That's $90K-$200K/year at that revenue level.

You don't find it by working harder. You find it by measuring the right things and making targeted adjustments.