How to Start an HVAC Business

How to Start an HVAC Business

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Posted by Brad Smith

September 16, 2019

If you’ve been working as a tech for someone else’s business or doing HVAC work on the side, and now you’re looking to start a legitimate heating and air cooling business of your own, this guide is for you. 

Here you’ll find curated advice from successful HVAC business owners and industry experts. We’ll look at the legal and financial requirements, as well as how to market and sell your services. We’ve also pulled it all together in a printable check-off list of all the steps you need to take to start a residential or small commercial HVAC business.

HVAC Business Start-Up Costs 

While starting an HVAC business doesn’t require significant funds, you’ll probably need to tap into your savings or get a loan for initial investments.

Steps

  1. Add up your business expenses

  2. Assess your personal expenses not covered by other income or savings

  3. Estimate your initial monthly revenue

  4. Calculate your break-even point

  5. Set revenue and profit margin goals

  6. Figure out your business credit score

  7. Compare financial options for your startup costs

  8. Write a business plan

Case Study

Joel Nieman, owner of AirAce Heating and Cooling, started doing HVAC work on the side before he took the leap to running his business full-time. For a couple of years, he used the revenue from his part-time work to build up a better inventory of tools:

“If I put a system in, I just turned around, took that money and reinvested it. I’d buy a better pump or a better tool. I’d figure that tool into the price of the job so that next time I’d be equipped to do a better job.”

How Long Can You Go Without a Salary?

It can take months to get past the break-even point and start earning a profit. Many business owners don’t take a salary until this happens. Do you have savings or another form of income to rely on until you turn a profit? 

Why Work with a CPA and Bookkeeper from the Start

A licensed accountant can help you figure out how to keep on top of your finances and your KPIs. 

Tracy Collins, a certified accountant and bookkeeper, explains that one of the biggest mistakes new businesses can make is trying to manage their own financials without the help of a pro:

“I understand that it's an added expense, but when you have your accounting and bookkeeping done professionally, then you’re going to be able to figure out where your money's going, what money you’re bringing in, and the best course of action if some things aren't working the way they need to work.”

Unless you have an accounting background, Tracy explained, it’s easy to miss things. So working with a CPA and bookkeeper from the get-go can help you stay legal and profitable.

HVAC Franchise Opportunities: Worth It?

If you want to work for yourself but are daunted by everything it takes to build a business from the ground up, then buying into a franchise is another option to consider.

Advantages: You can plug into the existing ecosystem and leverage the brand recognition of an established company. You also gain access to the company's processes, training, and support systems.

Disadvantages: Buying a franchise requires a lot more startup capital. It makes the financial risk of opening a franchise significantly higher. You also have less creative control over aspects of the business concerning branding, marketing, and systems and procedures. And finally, a percentage of your revenue will always go back to the franchise itself.

HVAC Business Legal Requirements 

On top of the HVAC and contractor licensing requirements, you’ll also need to register your business on the federal, state and local levels and apply for a tax ID. If you’re not sure how to register, you can work with a registered agent to get started.

👉See HVAC licensing requirements in detail

Steps

  1. Make sure you have all the licenses you need 

  2. Incorporate and register your business 

  3. Apply for a tax ID

  4. Open business bank account

  5. Apply for insurance and bonding

Know Your State Insurance and Bond Requirements

Each state has different requirements not just for certification requirements, but also what kind of insurance and bonds you need to complete certain jobs and maintain your license. Search for local, independent insurance brokers who are familiar with the HVAC industry: they can help you navigate your local requirements and find the best rates.

The Technical Stuff: HVAC Scheduling, Invoicing, Payment & Quickbooks 

If you’re more comfortable in the field than behind a computer, the technical aspects of starting a new business might be the most overwhelming at first. But the right technology will make all the difference — especially if you find tools that automate as many tasks as possible.

Steps

  1. Set up website and social media profiles

  2. Shop for and invest in tech platforms (see chart)

  3. Create calls-to-action (CTAs) on website and social media profiles

What Tech Platforms Will You Need?

The following diagram explains which tools are required at which stage in the buying and post-purchase process. Tip: Search online for the kind of software you need (like social media management) and HVAC to find tools that other folks in your industry rely on. Better yet, ask for recommendations in HVAC community groups.

Customer LifecycleTech NeedsWork Order LifecycleOperations
Consumer searches for a service providerSocial media management
Online booking & schedulingNew job is created
Job management and dispatchJob assigned to technician and added to schedule
Customer is notified and reminded of upcoming appointmentEstimate ManagementTech prepares quote
Customer accepts estimateInvoicing & Payment ProcessingJob is completed and payment is taken or invoice is sent, then receipt is sent
Customer paysReview ManagerRequest for review is sent
Customer books another service or signs up for recurring servicesEmail marketingCustomer is sent a follow-up message
Bookkeeping Payroll

These tools can help you simplify and automate a lot of steps in the marketing, customer onboarding, and customer relationship management process.

Additional Resources From Our Blog

Web hosting sites for home service businesses

Guide to credit card readers

The Supplies

You likely have most of the professional tools and equipment you need to get started. Below, we've listed the steps and other items (like uniforms) that are useful for every HVAC business.

Steps

  1. Assess and fill tool inventory

  2. Research HVAC manufacturers and distributors to partner with

  3. Rent office front and/or warehouse space (if needed)

  4. Invest in a service van or truck

Why Partner with a Manufacturer or Distributor

Kathy Townsend, the director of government contracts for Trademasters explained: “Everyone understands that offering products that manufacturers have already spent a fortune promoting, and having access to the marketing materials that lets your company coat-tail on the manufacturers’ well-crafted brand identities, is a big benefit that comes with partnering with manufacturers for marketing,” she explained. “Contractors and manufacturers are both in the solution business. Manufacturers market their solutions to commercial and government market segments, too, and they’re not just great at providing niche solutions; they’re great at creating the niche they’ll fill.”

Other reasons to join a partnership program:

  • Better pricing

  • Educational and financing resources for your customers

  • Better warranty options

Here are the five most popular programs with our pros:

AmanaGoodman

Trane

Ruud Pro Partners

Rheem Pros

Carrier

Don’t Forget About The Apps

Besides your hand tools, a modern resource that can help on the job are mobile apps. Check out our lists of the top troubleshooting, educational and miscellaneous apps for technicians.

Choosing Your Market & Target Audience

Steps

  1. Outline your target market and ideal customer

  2. Decide if you want to specialize

  3. Update your brand messaging and service offerings accordingly

Who is Your Ideal Customer?

The vast majority of residential HVAC companies target homeowners, but there are other options.

Home Warranty Companies

You can partner with existing home warranty service companies that include heating and air issues. Some of the benefits include:

  • Consistent work. Instead of waiting for your phone to ring, a home warranty company can supply you with jobs. 

  • You don’t need to spend as much on advertising.

But there are cons to working with these companies instead of working directly with the customer:

  • Home warranty companies will usually cap what you’re able to charge or the work they will approve.

  • You often have to pay for expenses up front and go through red tape to get reimbursed.

  • You’re less likely to build up referrals, reviews, and your own clientele this way.

Be careful that the home warranty company you work with has a good reputation with contractors. Read more about the pros and cons of working as a home warranty contractor.

Property Management Groups

Targeting property management groups is a good way to stay busy. The same primary benefit of working with a home warranty company applies here as well: 

  • Instead of waiting for your phone to ring, a property management group (especially a growing one) can supply you with more consistent work. 

  • In addition, the management group is your direct client, so there’s less red tape involved.

Here’s the cons:

  • Not all management groups are created equal, and you’ll want to be careful who you’re doing business with. Sure, this is the same with small businesses and homeowners, but a management group may be a bigger investment in your time, resources, and brand.

Do You Want to Specialize?

Similar to choosing a target audience, choosing a specialization can help you stand out, get specific referral work, and raise your prices. Specializations include things like indoor air quality, residential or light commercial HVAC design, or working with smart home systems.

These specializations don’t need to be the entirety of your business. They can be added to any more traditional repair and installation work you do.

Setting Your HVAC Service List and Rates 

Finding the right price point can be tricky. While your previous experience and industry standards can be a helpful guide, you need to factor into account your overheads and additional expenses you might not have considered as a tech. 

Steps

  1. Create a list of services you’re able or interested in offering

  2. Create a price list for all of your services

  3. Choose between a flat rate or time and materials pricing structure

  4. Create a contract template

  5. Write up a terms and conditions document

Setting Your Rates

Calculate prices that will allow you to not only cover your expenses (both overheads and variable costs) but also give you a profit. 

You need to accumulate capital if you’re looking to expand your business.

Here’s an example of a simple accounting method you can use to calculate your earnings.

What You’ll Make

It’s also always helpful to know what the national and regional average prices for a service call is, as well as the hourly rate for an HVAC technician.  That’s why we’ve put together a list of popular HVAC services and the national average cost.

Customer LifecycleTech Needs
Repair an AC Unit$352
Repair a Furnace$288
Clean a Chimney$240
Clean Ducts and Vents$365
Install an AC Unit$5,466
Install a Furnace$4,298
Install a Ceiling Fan$245
Install or Repair Gas Pipes$508
Repair a Fireplace or Woodstove$457
Install Batt, Rolled, or Reflective Insulation$1,640
Repair a Boiler$370
Repair an Attic Fan$292
Install Solar Panels$23,311

(Image Source)

Whether you decide to offer an hourly rate or flat fee, don’t compete on price. 

It may be tempting to use price to gain a cost advantage over competitors. But you’ll end up either paying yourself too little or trying to cut corners, so you don’t make a loss. Either way, competing on price is the fastest path to destroy your business. You can’t provide fantastic customer service and perform a great job when you’re competing on price.

If you’re still feeling unsure about how to price your HVAC services, you can download a free HVAC price list template here

Should You Charge a Diagnostic Fee?

It takes time and money to drive to a customer’s home or office and diagnose the problem regardless of whether they choose to get work done. It’s a standard practice for HVAC business owners to add a diagnostic fee to cover their expenses for the trip.

But a bigger debate we’ve seen among HVAC pros is whether to waive the diagnostics fee when the customer agrees on a repair. Some companies simply waive the fee while others credit the diagnostics fee toward the total cost of the repair. Another common option is to waive the fee for certain higher end jobs, like a total system replacements. Other companies still never waive the fee.

There’s no one right way to charge, but here are some things to consider:

  • If you waive the diagnostics fee, can you still make your goal revenue per service call?

  • How can you balance valuing your company’s time and resources with building trust and rapport with your customers?

Pricing Maintenance Agreements

Recurring service agreements are a fantastic way to increase revenue for your HVAC business and increase customer retention. But how do you price them?

On the EGIA’s Cracking the Code podcast, Gary Elekes advises businesses to consider the following when pricing a maintenance agreement:

  • What kind of work goes into a service call? How long will a regular tune up take you?

  • Who will be completing the tune ups and what is their wage? 

  • What kind of warranties are involved?

  • How big is your coverage area (how much travel time might be involved?)

  • Do you want to make specific margin after expenses or are you looking simply to break even on a maintenance agreement call? (Learn more about this on the podcast)

Also check out the episode about communicating the value of service agreements on Cracking the Code.

Additional Resources From Our Blog

Downloadable HVAC price template

HVAC Marketing and Advertising

Sales are one of the hardest parts of running a business. There are many approaches to increasing your leads like optimizing your website, getting on Google’s local search listing, and even producing valuable content. But we’ll share with you a few surprising places you can find lifelong customers. 

Steps

  1. Create a marketing plan

  2. Design business cards, van wrap, and other marketing materials

  3. Sign up for Google My Business

  4. Claim your business on other lead generation platforms

  5. Optimize your website for search engines (SEO)

  6. Join digital and in-person networking groups

How to Differentiate Your Company

As you start to develop your marketing plan, website, and other marketing materials, the ultimate goal isn’t just to be found by potential customers, it’s to earn their business. We’ve already talked about why you shouldn’t compete on price. So how do you stand out amongst the competition? Here’s some advice from HVAC Business Coach Nick McDonald and business owner Chad Peterson.

Crafting a Sales Message that Gets You Customers

Nick McDonald, co-founder of high growth coach works with HVAC companies to grow their business. Here’s his advice on how to get leads to become customers:

“A lot of people spend money on SEO, and they get their website on the front page of Google and then never get any phone calls. Because when I look at the website, it just says, Guess what? We fix AC.  It doesn't say: benefit, benefit, benefit, benefit, value, value. Scrap the copy on your website and start talking about what is it that the customer wants. 

You've got to think about what your promise is to the customer. What are you delivering?  What are they afraid of? How can you sort all that out so that they want to do business with you in the first place before you get to your promotion? That helps you position yourself in the market. Do you want to be value? Do you want to be quality? There is a big difference when people think price, value and quality. Price and value are the same thing, but price and quality are different. Once you've sorted crafting your offer out, we then think about how you then get a sell. So what's the key conversion? What’s your customer journey?”

Business Example: Chad Peterman of Peterman HVAC and Plumbing

On the Plumbing and HVAC- Internet Marketing Podcast, business owner Chad Peterman explains that one the guarantees his company offers members is an “Owners Voice” guarantee:

“If you have a problem, and you felt like you were wronged in some way or the situation didn’t go the way it was supposed to, you can call us and one of us will talk to you. We’ve always looked at it as we’re going to talk to you anyway — why not just put it out there and use it as a piece of our marketing to really show that you can trust us cause we’ll talk to you on the phone about it if something goes wrong.”

Case Study

 By leaving a door hanger on the front of houses, this HVAC Business turned $50 into $15,000 in new business in just two months! How did they do it? 

  • When a technician from Coolmasters services a home, they’ll leave a door hanger on the front door of the neighbors of the home they recently serviced, and three across the street. 

(Image Source)

The door hangers replicate a word-of-mouth process. They're not obtrusive and highlight the company's top services. The door hangers tell people who don't know about the company that they've serviced someone they know or trust.

Search for Free Opportunities First 

Before you start investing heavily into paid advertising, have you considered what you can do for free?

  • Have you emailed your friends and family asking them to spread word about your business?

  • Have you set up a Facebook page and joined local Facebook groups?

  • Have you gone out and talked to people at local events?

Many pros use local networking groups such as their local chamber of commerce, Business Network International (BNI) and Meetup.com to find new leads for referral sources. These can be great ways for newer HVAC businesses to network with others, exchange business cards, and build up name recognition.

Prioritize Existing Customers

It’s cheaper to keep an existing customer than get a new one. Keep in touch with customers you’ve done work for in the past so that they remember your company. Also reach out to leads that haven’t yet become customers.

Joel Nieman recently began calling every contact he’s made through HomeAdvisor, even if they never worked with him. “I paid for those leads; they're still mine. You're not going to get every one, but I’ve had a couple of people have me come out and give me quotes. Maybe back then they were thinking about putting in an air conditioner in and never pulled the trigger, and you’re going to hit some of those.”

Additional Resources From Our Blog

How to turn leads into customers in 5 steps

HVAC branding tips

How to market your business

Postcard designs for HVAC businesses

HVAC Hiring: Your Path to Growth

One-person HVAC businesses are quite common. But if you’re looking to grow, you’ll need help in the office and in the field.

Steps

  1. Assess the numbers (what can you afford?)

  2. Research the legal requirements (federal, state, and local) of hiring someone

  3. Outline hiring and onboarding processes

  4. Set up functions to handle salary and benefits

  5. Create job listing ad

Where and When to Find HVAC Technicians

When to Hire

One of the biggest issues HVAC companies face is hiring and retaining help. Many businesses have slow and busy seasons and can’t guarantee full-time hours year round. Others lose technicians to competing companies who can afford higher wages or better benefits. Here are a couple of tips to avoid these issues.

  1. Pay competitive wages: When you find an amazing employee, pay them above the average rate. (Look up the average rate for different jobs). A good employee will help grow the company and raise your revenue.

  2. Work with a business coach: There’s not a simple answer to when you should hire and what you can afford. Your situation is unique. Working with a business coach can help you avoid costly mistakes and make better informed hiring decisions. 

Where to Look

There’s no one-stop shop to the best HVAC talent. You should be advertising on major job boards like Craigslist, Ziprecruiter, Indeed, and even on your vans. But also consider asking your current employees (if you have any), as well as other industry friends for referrals. Many of our pros find the best employees through old-fashioned networking because they already come pre-vetted.

If you’re hiring someone directly out of an HVAC school, then you should consider a training program so your employees can represent your brand well. 

The Importance of Continued Training

Isaac Heating and Cooling in Rochester, New York dedicates over 40 training hours a year per employee. On an episode of the Cracking the Code podcast, Isaac’s General Manager Eric Knaak explained how this training was essential for employee retention and the overall company’s growth.

Additional Resources From Our Blog

How to write an HVAC tech job description

Hiring mistakes to avoid

Where to Start If You’re Overwhelmed

A new or young business’s list of to-dos can be overwhelming. Here is Nick McDonald’s advice about where to start.

1. Start With the Numbers

“You need to know your numbers, because once you know that, then you can make some informed decisions,” Nick explained. 

Besides what you’ll need for end-of-year taxes and bookkeeping, there are other numbers (your key performance indicators or KPIs) that can help you run your business more efficiently. Here are some numbers to consider:

  • Average job ticket size

  • Average cost for each new customer (marketing + lead gen costs) 

  • % of repeat customers (check annually) 

2. Take Stock Of What Opportunities You Have

Nick suggests making a list of your available resources:

  • Who do you know?

  • Who do you know who knows who you want to know?

  • Do you have any strategic alliances or partnerships that you can form?

  • How can you encourage your existing customers and past customers to refer you to others?

“Understanding what opportunities you've got and then having a strategy to go after those people is miles better than advertising. When you get to like 1.5 million, and you've got more mouths to feed, you need to have the pipeline all the time. But in order to get to 1.5 or $750,000 probably, you need to have experience and money in the bank, and when you’re doing that, you are also sorting out your numbers and your pricing.

Check out the rest of Nick’s Rise to a Million Academy for HVAC companies.

Where to Go From Here

It can be tricky knowing how to start your HVAC business. That’s why we’ve compiled a list of resources to help you run your business and connect with other contractors in your area.

Two of the primary trade organizations that our pros are involved in are:

See also:

For general business resources, we recommend:

Check out a longer list of small business associations.

Finally, don’t forget to download the ‘How to Start an HVAC Business Checklist’ — a summary of all of the steps we went over in this guide.

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