Is the HVAC industry profitable?

July 10, 2024

by a searcher in Montréal, QC, Canada

Hi folks,

I want to know if the HVAC industry is profitable ? Specifically the HVAC in residential and commercial services (new installation and maintenance).
What do you think of consolidation in this industry ?

Thank you

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Reply by a professional
from University of New Brunswick in Saint John, New Brunswick, Canada

We do res HVAC, and getting into commercial. Here's some things we have observed: overall it's about on par with plumbing in terms of profitability, there are run of the mill installations that run a bit lower in margin, then gov funded ones that are higher margin. Service can be quite profitable but you need solid technicians. Commercial service is very high margin, but it requires even more skilled/experienced techs. We're about to do some larger Commercial projects so I can't comment on that yet. If you have the capability to run ducts yourself then you will gain some margin points. If you can do the insulation, then more. We are treating carefully because our biggest perceived risk is a PE backed competitor comes and offers all our techs $X more per hour. They wiped out two other competitors teams overnight last year. One other important point, in our area competitors are hyper focused on installs leaving an opportunity for service. We're driving service to lock in customers and will build our installation pipeline as we go. Hope this helps. We're in a city of 100k people for context.

Reply by a searcher
from Biola University in North Tustin, CA, USA

Been told GM% for commercial HVAC should be greater than 30%, otherwise walk. 50% is good, 40% OK. That said, I focus on EBITDA margins of 15-20%. For commercial, also ascertain how much is bid work as can eat into margin quick. Focusing on options, higher average ticket price, and maintenance/service contracts can help increase revenue if techs and CSRs are trained and incentivized well.

John Wilson has a good podcast called “Owned and Operated” that has some good, practical insights about HVAC, plumbing, and electrical home services businesses.

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