Guide
Install or service: which side of your HVAC business pays?
The big invoices feel like the business. They are often not the profit.
Reviewed by Darren Lim, US CPALicence CPA.742536027 min read
A replacement system invoices for thousands. A service call invoices for a few hundred. So install feels like the business and service feels like what keeps the lights on between installs.
When HVAC contractors separate the two properly in their books, that is very often backwards.
Why install flatters the top line
Install revenue is large and visible. It is also the most competitive work you do, quoted against two or three other companies, where the customer is comparing on price because the equipment is broadly comparable.
That pressure lands on margin. Meanwhile the costs are heavier than they look:
- Equipment cost is a large share of the invoice and you have limited control over it
- Crew hours are long, and the loaded cost of two techs for a day or two is substantial
- Permits and inspection time is real and rarely costed to the job
- Callbacks on new installs are more expensive than callbacks on repairs
- Warranty exposure runs for years afterwards, at your cost
Service, by contrast, is usually sold on availability rather than price. The customer has no heat in February and is not collecting three quotes. Parts markup is healthy, the visit is short, and the same tech can complete several in a day.
The number that settles it
Gross margin percentage by revenue type, tracked monthly.
Not dollars — percentage. Install will always win on dollars because the invoices are bigger. The question is what share of each dollar you keep, and how many dollars you can produce per crew-day.
Two figures worth having side by side:
Gross margin percentage for install and for service, separately.
Gross profit per crew-day for each. This is the one that surprises people. A crew doing five service calls can generate more gross profit in a day than the same crew on an install — and does it without a multi-year warranty attached.
Setting it up
Three things, none of them exotic:
Separate income accounts. Install, service, and maintenance agreements as distinct lines. One "Sales" account makes this analysis impossible.
Direct costs coded to the job. Equipment, parts, and crew hours attached to the specific job rather than to the month.
Loaded labour cost. Wage plus payroll taxes, workers comp and benefits. Costing at the base wage overstates margin on install more than on service, because install is more labour-heavy — so the error does not just make you wrong, it makes you wrong in a direction that favours the weaker work.
What owners do with the answer
The finding is rarely "stop doing installs". Install work replaces equipment, and replacing equipment creates the service and agreement relationship that follows.
What changes is how it is priced and chased:
Stop buying installs. Quoting thin to stay busy is common and it is usually the least profitable work in the building. If a job needs to be won on price alone, it may be worth losing.
Value the relationship, not the invoice. An install that leads to a maintenance agreement and ten years of service is worth more than the margin on the box. That is an argument for pricing agreements properly, not for underpricing installs.
Load the crews with the right mix. If service produces better gross profit per crew-day, the scheduling decision in peak season is a different one from the instinctive answer.
Reprice agreements. Most agreement pricing was set years ago and has not moved while labour and fuel have. More in maintenance agreement profitability.
Related
How we do this
We build this into your books. Starting with a month that costs you nothing.
Install, service and agreements each get their own income account and their own margin reporting, with gross profit per crew-day alongside — so peak-season scheduling rests on a number instead of an instinct.
- Every transaction categorized, accounts reconciled, the month closed
- Reviewed and signed by Darren Lim, US CPA — licence CPA.74253602
- The Two-Day Guarantee: Your first month back in two days, or the next month is free.
If service has been carrying your install work, then every busy season you have worked harder to make less. One month of separated numbers settles it. Free, two days, CPA-signed, and yours to keep either way.