HVAC Contractor

Executive Summary

Profit Transformation: Net margins improved from 6% ($84K on $1.4M) to 18% ($312K on $2.1M) within 10 months — a 271% increase in take-home profit.

Service Simplification: Reduced service offerings from 23 different job types to 7 high-margin core services, eliminating $180K in hidden complexity costs.

Pricing Standardization: Implemented flat-rate pricing with Good-Better-Best options across all services, increasing average ticket from $287 to $412 (44% improvement).

Revenue Per Technician: Improved from $175,000/year to $262,500/year through better utilization, routing, and elimination of low-value work.

Service Agreement Revenue: Grew maintenance agreement base from 89 customers to 347 customers, creating $62,460 in predictable annual recurring revenue.

Company Profile

Business: Residential and light commercial HVAC — installation, repair, and maintenance serving the Phoenix metro area.

Starting Point: $1.4M annual revenue, 8 technicians, owner-operated office with one part-time admin.

Net Margin at Start: 6% ($84,000 annual profit on $1.4M revenue).

Owner Hours: 68-72 hours per week. Personally quoting every job over $500, handling all customer complaints, dispatching, and doing the books at 10pm.

Primary Challenge: Despite running one of the busier HVAC operations in his area, the owner was taking home less than a mid-level technician’s salary. Revenue was growing, but profit wasn’t — a classic case of margin collapse from complexity and founder dependency.

Diagnostic Assessment

Our initial diagnostic revealed a business that looked healthy on the surface but was bleeding profit through structural inefficiencies that the owner couldn’t see because he was too busy working in the business.

The Service Sprawl Problem

The company offered 23 different service types:

• 6 types of AC repair
• 4 types of heating repair
• 3 types of installation packages
• Duct cleaning
• Duct sealing
• Indoor air quality assessments
• UV light installation
• Humidifier/dehumidifier installation
• Thermostat upgrades
• Mini-split installation
• Commercial rooftop units
• Refrigeration (walk-in coolers)
• Preventive maintenance

Each service required different parts inventory, different training, different pricing calculations, and different marketing. The refrigeration work alone required $14,000 in specialized inventory that turned over once every 8 months.

The 80/20 analysis was stark:

The bottom 12 services weren’t just unprofitable — they were losing money once we allocated complexity costs. Every refrigeration call required the owner to personally supervise because only he had the expertise. Every duct cleaning job tied up a truck for 4 hours on work with 18% margins when that same truck could run 3 AC repairs at 48% margins.

The Pricing Chaos

Pricing was entirely in the owner’s head. When we audited the last 200 invoices, we found:

• Same repair, 47 different prices. A capacitor replacement ranged from $165 to $340 depending on who quoted it and what mood they were in.
• “Handshake discounts” on 31% of jobs — typically 10-15% off because the customer “seemed like they needed a break.”
• No upsell structure. Technicians diagnosed the immediate problem and quoted that — nothing else. Average items per invoice: 1.2.
• Time-based quoting on repairs that should have been flat-rate, meaning slow technicians generated more revenue than fast ones.

The Utilization Gap

Technician productivity told the real story:

The 54% utilization meant technicians were billing customers for only 4.3 hours of an 8-hour day. Where did the other 3.7 hours go?

• 1.4 hours: Driving (poor route optimization)
• 0.8 hours: Waiting for parts (inventory gaps)
• 0.6 hours: Callbacks on previous work
• 0.5 hours: Paperwork and phone calls with office
• 0.4 hours: Idle time between jobs

The Missed Call Hemorrhage

27% of incoming calls went to voicemail. The owner’s cell phone was the backup line, but when he was on a roof or in a customer conversation, calls went unanswered.

We tracked 30 days of missed calls. Of the ones we could reach for callback:

• 41% had already booked with a competitor
• 23% no longer needed service (emergency passed)
• 19% didn’t answer our callback
• Only 17% converted to appointments

At an average ticket of $287 and 340 missed calls per month, the estimated revenue loss was $16,500/month — nearly $200,000/year walking out the door.

Transformation Approach

We rebuilt this business using the same playbook PE firms use when they acquire HVAC contractors — focused on margin expansion, complexity reduction, and operational efficiency.

Phase 1: Service Simplification (Month 1-2)

We made the difficult decision to eliminate 16 service offerings and focus on 7 core services:

Kept (High-Margin Core):

1. AC Repair (48% margin)
2. Heating Repair (42% margin)
3. AC System Replacement (24% margin → improved to 31% with pricing changes)
4. Heating System Replacement
5. Maintenance Agreements (51% margin)
6. Thermostat Installation (bundled with repairs)
7. Indoor Air Quality Add-ons (bundled only, not standalone)

Eliminated:

• Refrigeration (referred to specialist, kept 10% referral fee)
• Duct cleaning (referred out)
• Duct sealing (kept only as add-on to replacements)
• Commercial rooftop units (referred to commercial specialist)
• Mini-splits (kept only for specific high-margin scenarios)
• 6 other low-volume, low-margin offerings

Impact of simplification:

• Reduced parts inventory from $47,000 to $31,000 (freed $16,000 in working capital)
• Eliminated 3 supplier relationships and their associated complexity
• Reduced required technician certifications from 7 to 4
• Simplified training for new hires from 6 weeks to 3 weeks
• Owner stopped personally supervising specialty calls (recovered 8 hours/week)

The initial revenue hit was real: we lost approximately $168,000 in annual revenue from eliminated services. But we also eliminated $180,000+ in complexity costs, netting a $12,000 improvement before any other changes.

Phase 2: Pricing Standardization (Month 2-3)

We implemented flat-rate pricing with a Good-Better-Best structure across all services.

Example: Capacitor Replacement

Before: Time-and-materials quote, ranged $165-$340, average $218

After:

Results after 90 days:

• Good: 22% of customers
• Better: 51% of customers
• Best: 27% of customers
• Weighted average: $347 (was $218)

We created standardized pricing for all 7 core services with Good-Better-Best options. Every technician carried a laminated pricing guide. No more mental math, no more “handshake discounts,” no more owner approval needed.

Overall pricing impact:

Phase 3: Lead Capture & Response (Month 3-4)

We took over phone operations completely.

Implementation:

• 24/7 live answering by trained HVAC-specific staff
• Call scripts built from the owner’s 18 years of knowledge
• 5-minute maximum response time on all leads
• Real-time calendar booking (no more “let me call you back”)
• After-hours emergency dispatch protocol

Results:

• Missed call rate: 27% → 2.1%
• Lead-to-appointment rate: 34% → 61%
• Average speed to answer: 47 seconds → 8 seconds
• Weekend/after-hours bookings: 12 → 47 per month

The revenue impact was immediate. Within 60 days, we recovered an estimated $11,400/month in previously lost revenue — jobs that would have gone to competitors.

Phase 4: Technician Optimization (Month 4-6)

With services simplified and pricing standardized, we focused on technician productivity.

Route Optimization:

• Implemented zone-based dispatching (north, central, south Phoenix)
• Reduced average drive time from 34 minutes to 19 minutes between calls
• Technicians started mornings from home, not the shop (saved 45 minutes/day)

Parts & Inventory:

• Standardized truck stock for 7 core services (vs. 23)
• 94% first-call completion rate (up from 71%)
• Eliminated “parts run” delays (was 0.8 hours/day per tech)

Callback Reduction:

• Implemented photo documentation of all repairs
• Added customer sign-off on work completed
• Callback rate dropped from 8.2% to 2.1%

Utilization Results:

Phase 5: Service Agreement Growth (Month 5-8)

Service agreements became a strategic priority — not an afterthought.

The Pitch (at every service call):

“Mr. Johnson, I fixed your capacitor today for $329. Here’s something to think about: this system is 9 years old, and capacitors are usually the first thing to go. Next it’ll be the contactor, then the fan motor. Each one is a $300-400 repair.

For $199/year, you get two tune-ups that extend your system’s life, 15% off any repairs, priority scheduling when it’s 115 degrees and everyone’s AC is breaking, and if something fails between visits, we’re here within 4 hours instead of 24.

Would you like me to add that today? I can take $50 off since I’m already here.”

Results:

The 347 agreement customers also generated $127,000 in repair revenue during the measurement period — repair calls where we were the obvious first choice because we’d been maintaining their system.

Phase 6: Owner Liberation (Month 6-10)

The final phase was removing the owner from day-to-day operations.

Tasks transferred to Office OS:

• All phone answering and lead capture
• Scheduling and dispatch
• Estimate follow-up (for replacements)
• Invoice generation and payment collection
• Service agreement enrollment and renewal
• Review collection and response
• Customer reactivation campaigns
• Daily performance reporting

Owner’s new role:

• Weekly 30-minute operations review (vs. 15+ hours/week in ops)
• Monthly ride-alongs with each tech (quality and coaching)
• Quarterly strategy sessions with us
• Focus on commercial account development (higher-value work)
• Actually taking weekends off

Quantified Results

Financial Performance

Operational Metrics

The Profit Bridge

Here’s exactly where the additional $228,000 in profit came from:

Strategic Impact

Business Value Transformation

Before: A $1.4M HVAC company with 6% margins, entirely dependent on the owner, is typically valued at 1.5-2x seller’s discretionary earnings. With $84K profit + $120K owner salary, that’s roughly $300,000-$400,000 business value.

After: A $2.1M HVAC company with 18% margins, documented systems, recurring revenue from 347 service agreements, and an owner who works 30 hours/week is valued at 3-4x SDE. With $312K profit + $120K owner salary, that’s $1.3M-$1.7M business value.

The owner’s equity increased by approximately $1M+ in 10 months — not from revenue growth alone, but from building a business that operates like a franchise.

Predictable Operations

The business now runs on systems, not heroics:

• Lead flow is predictable: 127 qualified calls/week, 61% conversion rate
• Revenue is forecastable: 347 agreements = guaranteed maintenance visits + predictable repair revenue
• Capacity is measurable: 8 techs × $262K = $2.1M capacity, need 9th tech at $2.4M
• Margin is protected: Flat-rate pricing removes variability

Owner Freedom

The owner recently took a 12-day vacation — his first in 7 years. Revenue during that period was 4% higher than the same period the previous year.

He’s now focused on landing 3 commercial maintenance contracts that would add $180K in high-margin recurring revenue — work he never had time to pursue when he was dispatching trucks and approving $400 repairs.

Implementation Timeline

Month 1: Business diagnostic, service profitability analysis, complexity cost audit
Month 2: Service elimination decisions, pricing structure design, flat-rate book creation
Month 3: Pricing rollout, technician training, phone system takeover
Month 4: Route optimization, inventory standardization, parts stocking
Month 5: Service agreement sales push, callback reduction program
Month 6: Full dispatch handover, daily reporting implementation
Month 7: Owner transition to strategic role, commercial prospecting begins
Month 8: Service agreement renewal systems, customer reactivation campaigns
Month 9: Performance optimization, technician coaching program
Month 10: Full operational independence, owner working <30 hours/week

Total time from 6% margins to 18% margins: 10 months.

Key Lessons

1. Complexity is an invisible tax. The owner thought offering 23 services made him competitive. In reality, it was costing him $180,000/year in hidden overhead and preventing him from excelling at anything.

2. Pricing confidence comes from structure. When every price is a negotiation, you leave money on the table. Flat-rate pricing with Good-Better-Best options increased average ticket 44% while reducing customer complaints (because expectations were clear).

3. The math on service agreements is undeniable. 347 agreements at $199/year = $69,053 in guaranteed revenue before a single repair. Those same customers generated $127,000 in repair revenue. That’s $196,000 from a customer base that costs nearly nothing to retain.

4. Revenue per technician matters more than revenue. Growing from $1.4M to $2.1M with the same 8 technicians meant each tech went from generating $175K to $262K. That’s 50% more output from the same labor cost.

5. Owner time is the most expensive resource. Every hour the owner spent dispatching trucks was an hour not spent landing commercial contracts, coaching technicians, or building the business that would eventually be worth $1M+ more.

This case study represents an actual client engagement. Specific numbers have been adjusted for confidentiality while preserving the accuracy of ratios and percentages.