The three biggest mistakes you can make as the owner of a HVAC company are:
- Using markup instead of margin
- Owners not getting paid twice
- Focusing on the work instead of on time
Markup is the most generic form of pricing in the trades, and it is based on a false assumption. If your cost of materials is $1 and you want to mark it up 50%, you multiply it by 1.5 ($1.50) and you made 50%. By doing so, you are looking at the beginning of the process rather than the end. If the sale is $1.50 and you made .50, you’re up 33%, not 50%. This is why we never use markup! I strongly suggest printing out a markup vs margin chart and reviewing it before pricing another job.
Owners should get paid twice – once for doing the work in the business and once as the owner of the business. The reason? Someday, as we build your business together, you will hire people to do the work you do now. By treating yourself as an employee within the organizational chart, you have already prepared the company for the expense of replacing your labor cost and ensuring future profitability.
This is why new companies can be so competitive. They only look to pay for themselves once and therefore can sell at cheaper margins. This, however, only works until the business looks to scale. Once new employees are brought in the pricing model begins to fail and the business bleeds cash. This is a fatal flaw when building your company.
Focus on time. The trades are a hands-on business. We all feel productive in the field – making decisions and leading from the front. The trick to scaling your company is to step back and change the way you think about the work. You are no longer in the HVAC business…you are in the managing time business. Let me explain. The most important skills are estimating the time it takes to do the work and making sure everyone on your team knows they are being held to a time standard. You sell professional services and time!
To learn more about this topic and how to scale your HVAC company, give us a call at 888.777.0303 or message us by clicking here.
