A Guide to HVAC Business Model [Business Plan, Tips & More]

An Introduction to the HVAC Business Model

HVAC business owners typically fall into one of three categories:

• Sole proprietorship—one person owns/operates the business

• Privately owned—a single owner or small group of shareholders owns/operates the business

• Stakeholder-owned—a group of equity holders owns/operates the business

Most HVAC contractors operate as sole proprietors or family-run businesses with full authority to make their own decisions about how to run the business, but with less time or resources to explore new opportunities for expansion. If privately owned as a small group or stakeholder-owned, the decision-making process must be shared and will take longer, but more resources may be available.

Decide how you want to operate your heating and air conditioning business, then develop an HVAC business model that serves as your strategic framework to operate effectively and profitably with structure, direction, and a solid foundation for sustainable growth.

While HVAC businesses can be profitable, success often depends on the ability to adapt to changing market conditions. It's essential to conduct thorough market research and create a solid business strategy to maximize the potential for profitability in the HVAC industry.

How Profitable is an HVAC Business?

As the HVAC industry continues to innovate with better energy efficiency, indoor air quality, and smart home technology products, the global HVAC market is projected to grow by more than 5% by 2028, according to the HVAC Market - Global Outlook & Forecast 2023-2028 report.

Operating an HVAC business, whether it’s a one-man HVAC business or enterprise-level operation, carries certain risks and, of course, there’s no guarantee for profitability. Companies that utilize HVAC field management software like ServiceTitan help to streamline operations, improve customer management, and grow profits faster.

Thinking of starting your own HVAC business, and wondering what it pays? According to Comparably.com, the median salary for HVAC contractors in the U.S. is $83,446. The middle 57% of HVAC contractors make between $83,446 and $209,355. According to Salary.com, the salary range typically falls between $69,540 and $91,493.

Salary ranges can vary widely depending on many important factors, including education, certifications, additional skills, geographic location, and work experience.

Things to Consider Before Starting an HVAC Business

Starting an HVAC business requires careful planning, industry knowledge, and a commitment to delivering high-quality service. Here are key things to consider before launching your HVAC business:

1. Your HVAC business requirements

Research HVAC licensing regulations in the areas where you plan to work, then secure the proper credentials to operate your own business. In most states or municipalities, you’ll need an HVAC contractor license, which requires a permanent business location, registration with the Secretary of State, liability insurance and performance bonds, and workers’ compensation insurance.

Also, understand your startup costs, which can range anywhere from $3,000 to $12,000 for most HVAC businesses. What services will you offer? What HVAC equipment will you need? What’s your marketing strategy to attract new customers? Do you require funds to cover operating expenses for the first few months? Consult a financial professional to fully understand the big picture.

2. Your competitors

Conducting competitor analysis before starting your own HVAC business is a critical component to the whole process. Who are your competitors, and what services do they offer—or not offer—customers in your target market? Can you beat them on quality, pricing, service maintenance agreements, or guarantees?

Do your market research and demonstrate your knowledge about the HVAC industry in your market, including its current state and expected forecast. Is it a growth industry? What changes do you foresee in the industry, short term and long term? How will your company be poised to take advantage of new opportunities?

3. Your services

What specific HVAC services does your company offer? HVAC companies provide a wide range of services related to the installation, maintenance, repair, and replacement of heating, ventilation, and air conditioning systems.

Highlight any factors that give you a competitive advantage over other HVAC contractors in your service area. For example, do your service technicians possess advanced skills that enable them to work on high-efficiency HVAC systems or install high-tech indoor air-quality systems?

Examples of HVAC services include:

• HVAC system installation

• HVAC system maintenance

• HVAC system repair

• Ductwork installation and repair

• Thermostat installation and programming

• Energy-efficiency upgrades

• HVAC system replacement

• Refrigeration services

• Geothermal HVAC systems

• Indoor Air Quality (IAC) testing

HVAC contractors provide essential services for ensuring indoor comfort, air quality, and energy efficiency in residential homes, commercial buildings, and industrial sites.

4. Your pricing

To maintain healthy profit margins and sustain business growth, HVAC contractors must first determine a competitive pricing strategy for the HVAC services they plan to offer. Will you price HVAC jobs by the hour (time & materials), or offer flat-rate pricing?

Most HVAC companies calculate their prices using one pricing model or the other, and both offer advantages and disadvantages.

With hourly rates, you may find yourself trying to justify itemized costs with customers who don’t fully understand the value of the services your company provides, or encouraging poor performance from HVAC technicians who work too slowly. Flat-rate pricing, on the other hand, incentivizes techs to execute jobs more efficiently, leaves no room for customer haggling over the price, and ultimately results in higher profits.

Use our HVAC Labor Rate Calculator to calculate your direct labor costs, total overhead, and the total cost of doing business before setting prices for your HVAC services.

5. The legal process

When starting a new business, HVAC owners must comply with certain regulations when it comes to financial reporting, tax obligations, or employment rules. Here’s an at-a-glance list to get you started:

• Choose business structure: Sole proprietorship, Partnership, LLC, or Corporation are the four most common types.

• Register business name: HVAC owners typically register their business names with the Secretary of State as an entity, trademark, or doing business as (DBA). You should also reserve a website domain under your company’s name.

• Apply for federal tax ID number: Your Employer Identification Number (EIN) allows you to hire employees, comply with federal tax obligations, apply for HVAC contractor licenses, open a bank account, and more.

• Apply for HVAC contractor license: In addition to providing proof of work experience and paying fees, you need to show proof of permanent business location, registration with the Secretary of State, liability insurance and performance bonds, and workers’ compensation insurance.

• Keep accurate records: Measure growth and progress, meet tax obligations, and make informed business decisions based on real-time data and clear and accurate business records.

6. Your HVAC action plan

Finally, craft a well-executed HVAC action plan that outlines the goals and objectives of your large or small business, defines your products and services, details your marketing strategies, and demonstrates a positive financial outlook.

An HVAC action plan serves as your roadmap for achieving long-term success and growth, providing in-depth analysis of what it’s going to take to get there. Just remember, an action plan is meant to be tweaked and adjusted as sales forecasts and economic conditions change, but use it to execute your successful business model and sales strategy.

Below, we delve into the key components to include in your HVAC operational plan.

Elements to Include in Your HVAC Business Plan

Here are the key components typically included in an HVAC operational plan:

1. Industry analysis 

Assess the current market trends for the HVAC industry in your area. Who are your customers (residential homeowners or commercial businesses)? What demographics define your target audience for potential customers? Who are your biggest competitors? What is the market size in your area? How can you make your HVAC company stand out from the rest?

2. Executive summary

Write your executive summary last, but include it near the top of your plan as a constant reminder of your overall vision and goals for your HVAC company. Keep it concise with an overview of the entire strategic plan, including a mission statement, the business goals, target market, competitive advantage, and financial projections for future growth.

3. Business overview

Tell your company’s story, including how it got started and where it plans to go. Explain how your vision, core values, and business philosophy sets you apart from others in the HVAC industry. Outline your goals and objectives, and identify key performance indicators (KPIs) you plan to monitor as your company grows. Build your ideal customer base and explain how you plan to market your services to generate new leads.

4. Products and services

Clearly describe your HVAC company’s pricing structure and what’s included for each service you offer, including service calls for repairs, installations, maintenance contracts, emergency services, and specialized work. Then, develop creative guarantees for service, repair, and replacement that inspire customers to take notice.

5. Market analysis

Assess the market trends in your area and research key competitors before developing your own HVAC marketing plan. What do your competitors do well, and where are they falling short? How do they price their HVAC services? What gaps need to be filled?

Collect and analyze the market data, then strategize ways to outrank your competition on every key metric, from providing online booking capabilities and delivering excellent customer service to quicker response times and fewer callbacks.

6. Customer analysis

Gain a complete picture of who your HVAC customers are and who you want them to be. Define their demographics, such as age, gender, income level, location, and buying behaviors online or through social media. If you plan to service residential customers, learn as much as you can about the age of their homes, total assessed value, date last sold, and the type of HVAC system in use.

7. Marketing plan

Detail your marketing plan for how the business will attract potential customers and retain current ones through branding, pricing strategy, advertising methods, online presence, reputation management, and customer experience.

ServiceTitan’s home services marketing software analyzes your own customer data to come up with solutions to attract, convert, and retain customers. With ServiceTitan’s Marketing Scorecard, you can rank your campaigns by revenue so you know what’s working and what isn’t, and even drill down to see what kind of jobs your ads are producing.

8. Management summary

Develop a chart that outlines the company’s organizational structure, roles and responsibilities of key team members, resumes of key team members, and the owner's qualifications, licenses, and permits. Include job descriptions and job interview questions so everyone knows your expectations for how the company will be organized and managed.

9. Day-to-day operations plan

Explain the day-to-day operations of your HVAC business. Detail your workflow processes, equipment and inventory used, go-to suppliers, and any HVAC partnerships that help you deliver premium service. Demonstrate your HVAC technician training process to inspire team excellence.

10. Financial plan

Your HVAC business’s financial plan typically includes startup costs, a 12-month profit-and-loss projection, a cash-flow projection, a projected balance sheet, and a break-even calculation. 

With customized reporting capabilities, ServiceTitan field reporting software helps you stay on top of every aspect of your financial plan, giving you data-driven visibility into the areas where you’re finding success and where you’re not.

Tips on How to Grow and Run a Successful HVAC Business

Tip #1: Put the customer first

HVAC companies that place high priority on delivering excellent customer service tend to develop a loyal customer base, which helps them grow and build long-term success.

Leverage customer experience software to gain even more insight into your customers’ HVAC job history, needs, and possible pain points, then train your CSRs and techs to use our automated customer relationship management (CRM) features to improve their overall performance.

Notable ServiceTitan CRM features include:

Scheduling: Customers can book their own HVAC jobs with automated scheduling options, including booking directly online or through calls, text, or web chats. 

Detailed customer history: CSRs use a robust CRM to personalize the customer experience from the start, then collect the necessary data to adequately inform service techs.

Text messaging communication: Through text messages, customers can easily confirm or reschedule appointments, ask questions, or see invoicing to pay their bill.

Live tracking: With live tracking features, customers can see the tech’s exact location on a map and know when they’ll arrive.

On-site estimates: Techs use ServiceTitan Mobile to build and display branded, digital estimates with good, better, and best options in just a few taps. 

Financing options: Provide easy financing options on high-dollar HVAC jobs. With ServiceTitan, customers apply from the tech’s mobile device, choose the best plan, and receive instant approval.

Tip #2: Pay close attention to your finances

Keep a close eye on your HVAC financials by implementing systems and processes that help you calculate payroll, invoice customers, order inventory, and meet all of your business accounting needs with powerful automation capabilities.

The reporting features in ServiceTitan allow you to review revenue compared to budget and actuals, and track the following metrics:

• Number of completed jobs

• How much completed revenue

• Gross margin dollar

• Gross margin percent

• Daily business goal

With powerful reporting capabilities, ServiceTitan reports help you find a financial issue, identify its cause, and determine what you need to do to fix it.

ServiceTitan Payroll Pro, a new all-in-one payroll software, eliminates the need for data exports, bonus calculations, and data entry into your payroll processor. It not only automates the processing of benefit and tax deductions and direct deposits for employee pay, Payroll Pro also automatically files and pays federal, state, and local business tax liabilities.

With ServiceTitan Payments, HVAC techs can use their mobile device to securely capture checks and credit cards in the field, or send customers a link to a personalized online payment portal.

Tip #3: Hire the right people (and empower them)

Without highly qualified HVAC technicians and a well-trained CSR team to keep your HVAC business running smoothly, your business may never even leave the starting gate. To run a successful business, hiring the right people is key.

At ServiceTitan, we want to help HVAC professionals in the skilled trades grow their businesses with highly qualified employees for every position. After all, employees represent the heart of your business, and your heart needs to beat strongly. Use our clearly defined job descriptions and probing interview questions to find the right HVAC personnel to set your business up for success.

Once you find and hire the right people, equip them with the right tools to perform their jobs better. With ServiceTitan's call-booking software features, CSRs can access a customer’s information at their fingertips and deliver a more personalized customer experience right from the start. With Pricebook Pro, techs can easily present good-better-and-best options right from their mobile device, thereby increasing their chances of closing the sale.

Tip #4: Invest in technology

Today’s HVAC customers demand convenience, high performance, and fewer hassles. If you’re still operating with error-prone manual processes and paper estimates and invoicing, your competitors are likely leaving you in the dust as they rack up higher profits.

Most successful HVAC businesses streamline and optimize their operational processes with HVAC field management software so they can focus on boosting cash flow, creating workflow efficiency, and growing ticket sizes. 

With ServiceTitan's HVAC management solution, HVAC companies can:

• Optimize job scheduling to maximize efficiency and profit

• Streamline business processes such as pricing, estimates, and invoicing

• Offer estimates and financing to customers on the spot

• Capture check and credit card payments in the field

• Track HVAC staff’s performance and specific marketing campaigns—from leads to booked jobs

Tip #5: Leverage digital marketing

Want to reach more potential customers for your HVAC business? Leverage digital marketing to meet your customers where they prefer. While billboards, TV, and radio ads may still work as great marketing tools, most HVAC customers today search for your business online and read reviews.

Digital marketing can often be less expensive and give you a better ROI. 

Some examples of digital marketing include:

• PPC or pay-per-click: Draws paid traffic to your business website.

• Social media: Helps businesses promote their brand and communicate with customers by placing ads on Facebook, Instagram, and more.

• SEO: Focuses content production on specific keywords that help your business rank higher on Google based on how customers search online.

• Content marketing: Focuses content production on demonstrating the value of your HVAC services to attract more customers.

• Video marketing: Promotes your brand, gives customers a behind-the-scenes look at your business, shares testimonials, and tells your story in a visually appealing way.

• Email marketing: Sends personalized emails to a specific target audience or previous customers, and offers one of the highest ROI.

Tip #6: Train your employees

Training employees proves essential for HVAC business growth. It not only teaches them new knowledge and skills to improve their performance, but also shows you value them as employees and care about their continued growth.

When employees perform at a higher level, your business benefits from better efficiency, more effective employees, and higher profits.

Now Over to You

ServiceTitan’s cloud-based, all-in-one HVAC software gives HVAC business owners the technology to work more efficiently, the data and reporting they need to do it smartly, and a wide array of resources to guide them as they grow toward achieving long-term success.

>>Want to start your own HVAC business or revitalize and grow an established business? Download our HVAC operational plan template to get started.