Picture this: you’ve just started your very own HVAC company. You provide stellar service, your customers are happy, and your spirits are high.
Then you take a look at your operational costs.
You’re shocked. Your installation labor costs have eaten up 50% of your profit. You have barely any room to squeak out a profit, let alone expand your business.
Installation Labor is a large part of any HVAC business. This makes sense since installation is where representatives of your company come face to face with the customer. It can, however, be expensive.
Operational KPIs can help lessen this burden. As part of a series on operational KPIs, this article focuses on installation labor.
Want to learn how operational KPIs can help improve your HVAC business? Read on.
What are Operational KPIs?
All businesses have goals, but not all businesses have ways to determine whether they are on track to meet those goals. Enter the operational KPI.
An operational KPI, or Key Performance Indicator, is a specific measurement that tracks progress toward a goal. KPIs can be both quantitative (indicating a numeric value) or qualitative (indicating non-numerical measurements).
For example, all businesses want to maximize their profit. To ensure that the business is advancing toward this goal of maximized profit, it might institute a quantitative operational KPI of more than 15% net profit (the recommended amount).
This way, the company has a tangible measurement to determine whether they are progressing toward their goal of maximum profit. If they continue to achieve their goal of 15%, they can increase the amount for next month.
Best Operational KPIs to Use for Installation Labor
KPIs are, unfortunately, often misused. To ensure that your KPIs are helpful, always choose actionable KPIs that clearly show progression or regression. Additionally, you should make sure that your KPIs are quantifiable.
You’ll also want to focus on a few very critical measurements, not many less critical ones.
This is an overall KPI that can capture the overall state of your installation labor. If you are trying to run a successful HVAC company, you will want to keep installation labor costs at less than 10% of your sales.
Of course, this number is not universal and you may want to adjust it according to your own metrics, but it’s a good place to start.
What you need to do is select a number that will help you maximize your profits. First, take a look at your costs and determine how much your installation labor is eating into your profit. Then use a KPI to cut that down.
Revenue per Labor Hour
This is another very useful KPI because it can show how much revenue your company is taking in per the hours you are paying for.
If your ratio is very high, that’s good! You’re taking in a lot of money for each labor hour you pay for. If the ratio is low, you’ll want to work to improve your workers’ productivity.
If you want to find ways to increase your workers’ productivity, check out our proposal software, which can streamline your business.
How to Determine the Precise Amounts
This all might seem overwhelming at the moment. You might be wondering how in the world you are going to maintain all of these different operational KPIs.
Never fear! Our consulting services, tailored explicitly for HVAC businesses, can answer all of your questions about running an HVAC business and the KPIs to use.