First, the Number Nobody Wants to Say Out Loud
Before we talk about reaching 20%, you deserve an honest picture of where the industry actually sits — because most of what gets quoted is marketing.
So when you feel stuck below 20%, understand what you are actually measuring yourself against: a level roughly three times the industry average. That is not a reason to lower the goal. It is a reason to stop assuming the gap is a personal failing — and start treating it as a systems problem, which is exactly what it is.
You are not behind. You are running the model the industry runs, and that model produces 4 to 7 percent. Twenty percent is not that model executed better. It is a different model.
The Four Leaks Between 7% and 20%
Not one big problem. Four ordinary ones, each quietly taking a few points.
Leak 1 — Underpriced Work
The biggest and the most invisible, because it looks like revenue. If the price does not carry true cost per billable hour plus overhead plus profit, every ticket sold is a small withdrawal. Volume then multiplies the loss.
Leak 2 — Unbilled Time
Drive time, warranty returns, callbacks, parts runs, and the "while I am here" favors nobody logs. You paid for every one of those hours. The customer paid for only some of them.
Leak 3 — Overhead Drift
Subscriptions, a truck, a part-time office role, a bigger space — each added during a strong month and never revisited. Overhead ratchets up easily and comes down only deliberately.
Leak 4 — Material and Refrigerant Margin
Bought at one price, billed at last year's. In a market where refrigerant moved 40% in a quarter, untracked material is untracked money. The A2L transition made this worse.
Leonard has spent 34+ years building, running, repairing, scaling and selling HVAC companies — starting his first from scratch in 1993 as the one man doing nearly everything. These systems were built under real pressure, with real payroll on the line. Not in a classroom.
The Arithmetic of a Single Point
Margin points do not behave like revenue. They behave like leverage.
Consider a company doing $2,000,000 a year at 5% net. That is $100,000 of profit for a year of risk, payroll, and 2 a.m. phone calls.
| Net margin | Profit on $2M | Change vs. 5% |
|---|---|---|
| 5% | $100,000 | — |
| 8% | $160,000 | +$60,000 |
| 12% | $240,000 | +$140,000 |
| 15% | $300,000 | +$200,000 |
| 20% | $400,000 | +$300,000 |
Illustration only, using round numbers to show the leverage of margin points. Your actual figures depend on your own profit and loss statement.
To add $300,000 of profit through growth alone at 5% net, you would need to sell another $6,000,000 — more trucks, more technicians, more risk, more of your life. To add it through margin, you fix four leaks in a company you already own.
Margin is the only growth that does not cost you more of your life. That is why this work matters more than the next marketing campaign.
The Order That Actually Closes the Gap
- Know your true cost per billable hour. Every other decision is a guess until this number exists on paper. Build it from your own profit and loss statement. Free break-even calculator here.
- Rebuild the flat-rate book on that number. The fastest, highest-leverage change available to you — and per the ACCA data, roughly the difference between 4% and 7% all by itself.
- Capture the unbilled hours. Track drive time, callbacks, and warranty returns for thirty days. You cannot recover what you refuse to measure.
- Build the agreement base. Recurring maintenance revenue steadies shoulder seasons and turns capacity planning from guesswork into scheduling. The program is here.
- Freeze and re-earn overhead. Every recurring expense justifies itself annually or it goes. Nothing gets grandfathered.
- Pay for margin, not volume. Technician pay plans that reward close rate, ticket quality, and low callbacks — because you get more of whatever you pay for.
- Review a weekly scorecard out loud. Margin that is not watched drifts back. Every single time.
HVAC Net Profit: Frequently Asked Questions
What is the average net profit margin for an HVAC company?
Lower than most owners expect. The ACCA / Farmington Consulting Group Contractor of the Future study of more than 1,000 HVACR contractors, published December 2025, found contractors using flat-rate service pricing averaged 7% net profit, while those using other pricing methods averaged 4%. That is the honest industry picture. Anyone quoting you a casual "industry average of 20%" is describing the top of the market, not the middle of it.
Is 20% net profit realistic for an HVAC business?
Realistic, yes. Common, no — and the difference matters. If the average contractor runs at 4–7% net, then 20% is roughly triple the field. It is achievable, and companies do reach it, but not by working harder at the current model. It requires priced-for-profit work, a real recurring-revenue base, controlled overhead, and a team that produces without the owner in every decision. Treat 20% as the outcome of a built system, never as a target you can hustle your way to.
Why is my HVAC company busy but not profitable?
Because volume is not margin. If your price does not cover true cost per billable hour plus overhead plus profit, then every additional call makes the problem bigger, not smaller. Busy-but-broke almost always traces to one of four leaks: pricing built on guesswork, unbilled or unrecovered time, callbacks consuming hours you already sold, and overhead that grew quietly while margins stayed flat.
What is the fastest way to improve HVAC net profit?
Reprice from your own numbers. Nothing else moves as fast. A correctly rebuilt flat-rate book applies to every ticket from the day it goes live — no new customers required, no marketing spend, no hiring. The ACCA data showing 7% versus 4% is essentially a measurement of this one decision. Build the multiplier from your own profit and loss statement, not a vendor's stock database. The method is here.
Where does the money actually go in an HVAC business?
Four places, in this order of damage: underpriced work (the largest and most invisible), unbilled time — drive time, warranty returns, callbacks, and "while I am here" favors, overhead drift — subscriptions, trucks, and staff added during good months and never revisited, and margin leakage on materials and refrigerant that nobody tracks by the pound. Each one is measurable. Each one is fixable.
How long does it take to move net profit meaningfully?
Pricing changes show up within one to two months of billing. Agreement-base growth and labor-efficiency gains take two to four quarters, because they depend on behavior, not arithmetic. A company that repriced correctly, protected the change, and held the discipline usually sees a different business inside twelve months — not because anything dramatic happened, but because every ticket started carrying its share.