The HVAC Business Doctor®: Your P&L Statement
By Wayne AtkinsThe HVAC Business Doctor®
How often do you look at your Profit & Loss statement? Do you know what to look for? Here's an easy idea to help you make a quick diagnosis of your company's health.
First, what do you sell? You sell two items--labor and materials. You sell them on two types of jobs--installation jobs and service jobs.
Start with cost of materials on installation jobs. To see how you're doing with the cost of materials, add up all of the equipment and materials you use on installation jobs. Divide that number by your total installation sales.
Full lines contractor (both residential new construction and retrofit jobs): Your business is in good health if your cost of materials is around 35 to 40 percent, maybe up to 45 percent.
Retrofit contractor: Your cost of materials should be slightly higher--40 to 45 percent, maybe as high as 50 percent.
Next, look at your labor cost on installation jobs. Take the total cost of installation labor and divide it by total installation sales.
Full lines contractor: Your labor cost should be 15 to 20 percent.
Retrofit contractor: Your labor should be less than 15 percent.
If one of your percentages is too high:
- You're not estimating enough time for your installers,
- Your installers are not producing enough, or
- You aren't pricing your jobs high enough.
Now, examine your costs on service jobs.
First, service materials. Add up all of your service materials, including parts and accessories, and divide them by total service sales. Your materials cost should be 15 to 20 percent.
- If your number is lower than 15 percent: Your technicians aren't selling enough parts and accessories.
- If your cost is higher than 20 percent: It could mean that your technicians aren't billing for all the parts they use.
Finally, service labor. If you use a flat rate system, your cost of labor should be 25 percent or less. If you use a time and materials system, your labor cost should be 35 percent or more.
So, how's your business doing on labor and materials? Are you making enough money? It only takes a couple of minutes to find out.
Remember, you can't fix a problem if you don't know you have one.
About Wayne Atkins:Wayne has worked with thousands of HVAC, Plumbing, and Electrical contractors throughout the United States to help them develop more profitable businesses. He has accumulated over 25 years of experience. Since 1993 Wayne has worked independently with contractors both as a consultant and as a group trainer. Wayne’s expertise includes: Financial Management, P&L Statement review, Cash Flow Management, Credit & Collections, Budgeting and Planning, a custom Installation Net Profit Pricing System, Residential and Commercial Marketing, Residential Sales, Organization Planning, Installation Production Management and all aspects of Service Departments.
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