When you own a small business, it can be hard to know how to measure success and prime your company for growth. Track tried-and-true key performance indicators (KPIs) to monitor the trajectory of your company and correct the course as you face new challenges.
Running a small business can be daunting, and in competitive markets like HVAC, you need to know how to keep the finger on the pulse of your operation. Zero in on several key metrics so you can assess where your company succeeds, where it can improve, and what measures to take to ensure your business thrives.
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Important KPIs to track include:
1. Sales Revenue:
Sales revenue is simply how much money is coming in from the sale of your services (and any products you may offer). This is a foundational metric essential for any company in the HVAC industry to stay in business, hire staff, adjust inventory, and so on. Look for trends in your sales revenue. Do you experience spikes or slow periods during certain seasons? Do you know when customers tend to call for HVAC system maintenance or air conditioning repair? Distinguishing and anticipating these trends can help you keep competitive pricing and make long-term financial decisions to ensure profitability in your bottom line.
Increase revenue by equipping technicians with effective strategies for upselling in the field.
Keep customers in the know if the life cycle of their hot water heater or heat pump is nearing its limit, for best system efficiency and energy performance. Customers concerned with their energy consumption or the energy efficiency of their systems may be open to upgrading their HVAC equipment for optimal operational performance and energy savings.
2. Gross Margin:
Calculate gross margin by using this formula: sales revenue minus the cost of providing services, divided by sales revenue. Gross margin, expressed as a percentage, can help you track the growth of your HVAC business. This percentage represents the amount of every dollar from your sales revenue you retain as profit. A high percentage translates to good efficiency, but a low percentage indicates a need for increased productivity.
Track expenses and properly apply them to your bookkeeping every month. Remember not to close out your month’s numbers until accurately assigning the expenses to the services provided over that time period. Part of this includes tracking materials used from your inventory only when they are used for booked jobs (rather than calculating an incoming stocking order as one large expense for the month).
3. Monthly Profit/Loss:
To determine your monthly profit (or loss), fixed and variable operation costs need to subtracted from your profit.
Fixed costs are regular costs you pay every month:
Variable costs are unexpected costs that may fluctuate month-to-month, like fuel usage, repair services at your office, and so on. Subtract monthly fixed and variable costs from your profits to calculate your company's revenue. If you find your total costs eat up a significant part of your profits, determine where you can save money every month. Try to keep the total cost of operations (fixed + variable) at 30% or under.
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4. Service Metrics:
Do you know how long it usually takes for your techs to perform a certain install? How many service calls your techs can complete in one day? How often you sell a particular service in one month? The revenue of your average ticket? The close rate of each of your techs? For Weldon Long, president of Wright Total Indoor Comfort, the key metric was revenue per lead. As Long told Contracting Business: “Revenue per lead is total volume divided by total number of leads, including cancelled leads, sold, lost, everything. If a guy had 40 leads in a month and did a total of $100,000 in sales, you have $2,500 per lead. That's the best metric we've found." Use benchmarking to track tech performance or customer buying trends, so you know how you compare in the industry. Over time, you’ll find the most valuable key service metrics for measuring your business’ success.
5. Customer Retention:
Does your HVAC company inspire loyalty among customers? Returning customers can dramatically increase a home services company’s revenue. Use customer service surveys or simple asks on the day of service to gain insight on how many customers keep coming back to your service, and, if possible, why.
Net Promoter Score, a tool used to gauge the loyalty of one’s customers, asks customers to answer a simple question on a scale of 1-10, “How likely are you to recommend (this company, this product, this experience, this representative) to your friends, family or business associates?” Customers who score between 0 and 6 are unlikely to give you repeat business while customers who score between 9 and 10 are likely to be promoters of your business or service.
If you find that your business is subsisting on many one-time, low-scoring customers, look at your customer services practices or implement retention campaigns (such as discounts) to bring customers back.
6. Advertising ROI:
If you make the effort to invest in advertising — whether online, radio, print, TV, or elsewhere — make sure you measure the return on your investment. Customer surveys and CSR/tech inquiries to customers help you understand where new customers are coming from and nix costly advertising campaigns that may not be effective. If you run various online ads (social media such as Facebook, Google PCP, Yelp paid listings, etc.), make sure you know which platform customers are using when they encounter your ads. To calculate your advertising ROI, divide the returns (revenue) resulting from the campaign by the cost of the campaign.
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Measure Results in Real Time
Use ServiceTitan's cloud-based software to track specific KPIs in real time. Set benchmark goals that make sense for your company, so you know where your company stands financially.
Automation software connects your office to the field and streamlines the efficiency of your operations.
Schedule work orders efficiently with profit in mind, dispatching the nearest technician to a job when possible, depending on their skills. Send your best communicator to high-dollar jobs entailing building systems, renewable energy technology for building energy savings, or advances in indoor air quality to capture the most profit.
Increasing efficiency and measuring key metrics in your HVAC business enables you to set your business on the right track for growth.
ServiceTitan is a comprehensive software solution built specifically to help service companies streamline their operations, boost revenue, and substantially elevate the trajectory of their business. Our comprehensive, cloud-based platform is used by thousands of electrical, HVAC, plumbing, garage door, and chimney sweep shops across the country—and has increased their revenue by an average of 25% in just their first year with us.