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The HVAC Business Model Explained

The HVAC business model is similar to the flat rate business model. In basic terms, a service is rendered for a customer for a set price. This allows the customer to know what they’ll be charged and how much profit the HVAC professional can expect to make per service call. The problem with this business model is that it also includes components of a commission business model where repair technicians make money based on the services or parts they sell.

In practical terms, the technicians are fighting for their jobs based on what they can sell. This means that customers who aren’t familiar with the HVAC business model could wind up paying more than expected for services that have been rendered.

50% of the HVAC Industry Is Under Sole Proprietorships

If repair technicians aren’t competing for commission dollars, then they’re competing against other professionals in the HVAC industry. One of every two businesses in this industry is a sole proprietorship. This means they are entirely owned by the individual and their personal and business finances are tied up together.

This does give the HVAC business model one key advantage: they have a lean governance structure. Even in family-run organizations, there is only one owner who is generally making the decisions. At best, there are only a few key people who are making important decisions. This gives each business a certain level of consistency that other business models aren’t able to provide. Decisions can be made quickly, which means the business can be flexible enough to adapt to changing conditions.

The disadvantage to the HVAC business model is that high levels of insurance must be carried to protect personal assets. With personal and business assets co-mingling together, one bad repair could result in a massive lawsuit that drives someone out of business. Most technicians want to keep a small, personal business footprint, but structuring as an LLC is probably in the best industry of almost everyone involved in the HVAC industry.

Aren’t HVAC Technicians Contractors?

In some ways, it could be argued that the HVAC business model is closer to the independent contractor model of business than it is to the flat rate business model. These businesses do have the ability to charge their own rates and prices, serve customers that they only wish to serve, and are able to complete jobs in the way they best see fit. The difference here is that it is the customer that is hiring the HVAC business instead of another HVAC business hiring to have services rendered.

The flat rate model is more reflective of the B2C industry. The independent contracting business model is more reflective of the B2B industry.

That doesn’t mean there aren’t independent contractors in the HVAC world. It isn’t uncommon for jobs to be contracted out to other organizations or technicians who work independently when work comes in. When this occurs, the business model is reflective of how the work was initiated. For the subcontractor, it would be the latter. For the initial contractor, the HVAC business model is flat rate based.

What Are the Dangers of the HVAC Business Model?

The primary danger is a lack of profitability. If repairs are being done at a flat rate, then this rate will be based on a time formulation that has been derived by the industry’s best practices. If it takes longer for a repair technician to complete a job than anticipated, then the flat rate becomes less profitable.

It also means that some HVAC companies may charge for services they didn’t render to make up the difference. A 2012 sting on HVAC contractors by NBC showed how easy it is to do. Not only can there be charges for parts that weren’t used, but charges for unneeded repairs might show up as well. For reputable agencies, this practice casts a shadow on their own work because their clients become naturally suspicious of the work that has been completed.

For most HVAC businesses, there is at least $100k in startup capital at stake. Having an effective flat rate business model in place can help to bring that business to profitability. At the core of this profitability must be a commitment to honesty and integrity. With the right technicians doing the work, the right reputation in place, and the right amount of work being scheduled every day, the HVAC business model can lead a business toward profitability.

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