Gross profit margin divides gross profit by net sales. Net sales are gross sales minus allowances, discounts, and returns. For HVAC businesses, the average gross profit margin is between 30 and 40%. Therefore, you want your gross profit margin to be in the 50 to 60% range — but no lower than 45% — to be above average.
The average profit margin for an HVAC company is less than 2%. This is due to poor management of expenses and a lack of consistent revenue throughout the year. With the right HVAC business plan and a solid financial plan and price book, an HVAC business can reach as high as 10-20% net profit.
Adding markup to new materials you purchase helps you offset overhead costs without cutting wages or adding huge hourly labor rates to your HVAC estimates. Follow an HVAC parts markup chart to get started. The average markup on HVAC equipment is between 25 and 50%, and 100% or higher for spare HVAC parts and materials.
If there's one thing to take away from this article, it's this: If you can consistently maintain a gross profit margin of 25-35% on most construction projects, you're generally going to have enough cash flow to stay profitable as a company.
A healthy profit margin is typically in the 10-20% range. Some businesses have higher margins than this. For example, Apple has been known to make up to 25%. But up to 30% is more typical of tech companies like Google and Facebook (both around 30%). It all depends on what you're selling and who your competition is.
A Good Gross Profit Margin is around 30 – 35% on average, but varies widely by industry.
A gross profit margin of over 50% is healthy for most businesses. In some industries and business models, a gross margin of up to 90% can be achieved. Gross margins of less than 30% can be dangerous for businesses with high gross costs.
A good margin to start with is 20% based on the “10-10 rule” in construction. This refers to 10% overhead and 10% profit which is considered an industry standard. Because every construction company is different in its size, operations, and finances, there is no hard rule in place for this.
Net profit margins vary by industry but according to the Corporate Finance Institute, 20% is considered good, 10% average or standard, and 5% is considered low or poor. Good profit margins allow companies to cover their costs and generate a return on their investment.
Markup rates can vary significantly depending on the type of project, location, competition, and other factors. However, industry experts suggest that a general contractor should mark up labour costs by around 25% and more, and material costs should see a markup of approximately 30% to 50%.
For HVAC businesses, the average gross profit margin is between 30 and 40%. Therefore, you want your gross profit margin to be in the 50 to 60% range — but no lower than 45% — to be above average.
HVAC Labor Rates
Now to determine hourly labor costs you need to find out the total by adding workers' compensation, and taxes, and add up each HVAC technician's hourly salary. A reliable markup for hourly labor costs is 20% to 30%. For example $22 + 20% = $26.40.
Approximately 20 percent of HVAC contractors fail across the industry every year, with 70 percent of new HVAC businesses failing in their first year of operation.
Yes, HVAC technicians can earn $100K a year, especially in the highest paying states or specialized fields such as commercial HVAC or system design. As service techs gain experience and move into higher positions or own their businesses, their annual pay can reach or exceed this threshold.
What is a good gross profit margin ratio? On the face of it, a gross profit margin ratio of 50 to 70% would be considered healthy, and it would be for many types of businesses, like retailers, restaurants, manufacturers and other producers of goods.
In most industries, 30% is a very high net profit margin.
The 40% rule is a widely used benchmark for assessing a startup's financial health and the balance between growth and profitability. This rule of thumb emphasizes that a company's growth rate and profit, typically represented by the operating profit margin, should collectively reach 40%.
In construction, we can see the 80/20 rule in instances where 80% of the project's value is created in the early stages at 20% of the cost. The steps teams take during the preconstruction phase—including design, planning, and procurement—can impact productivity and profit downstream.
However, according to industry experts, while the average gross profit margin tends to hover around 20%, the average net profit margin for construction companies is usually between 2% and 10%. While this may seem like a small range, it's important to remember that construction is a notoriously low-margin business.
That's fairly close to the “10 and 10” of 10% overhead and 10% profit which is often considered industry standard. (Your overhead and profit may differ, but let's use 10 and 10 as an example.) With the 10 and 10 rule, your combined overhead and profit (also known as your gross profit or margin) would be 20%.
So as an example, a company doing $2 million in real revenue (I'll explain below) should target a profit of 10 percent of that $2 million, owner's pay of 10 percent, taxes of 15 percent and operating expenses of 65 percent. Take a couple of seconds to study the chart.
As a rule of thumb, 5% is a low margin, 10% is a healthy margin, and 20% is a high margin.
In the construction industry, the average profit margin is approximately 6%. However, some businesses may have a much higher margin (upwards to 10%) or significantly less (2-3%) depending on many project factors from overhead to regional labor costs.