HVAC Industry KPI's In the HVAC industry, there are certain Key Performance Indicators that will help you achieve certain milestons within your business. These indicators will guide you on your daily journey for excellence. You won't always hit every mark. So don't sweat it if you miss a month. You'll always have an opportunity to make it up next month. After all, the reset button gets reset on the first day of every month. KPI #1 The first KPI that drives all other KPI's is…. NET PROFIT strive for more than 15% All "For Profit" businesses should strive to achieve a positive NET PROFIT. Net Profit is described here in it's simplest form. Sales 100% Overhead COGS Net Profit The goal of NET profit isn't to make as much as possible. It should be a "defined cost that every company strives to achieve. And 15% is a great achievement. All other KPI's going forward will support the concept of 15+% Net Profit. Need Help with this sheet? Company Name Person requesting assistance Email Phone number
KPI #2 IAQ or Add-on Sales - 5% of your business All contractors need to offer upgrade for their clients. Upgrades command higher margins. And generally can be added to sales that don't require another gross profit event. So all add-on sales margin that can be done during a work-event turn into NET PROFIT. They also can fill gaps in partial day jobs. Sales 100% Overhead COGS Add-on with no additional OH 5% Net Profit The goal of NET profit isn't to make as much as possible. It should be a "defined cost that every company strives to achieve. And 15% is a great achievement. All other KPI's going forward will support the concept of 15+% Net Profit.
KPI #3 Installation Labor should be less than 10% Installation labor at month end should be less than 10% of departmental sales. This KPI can be used on a daily basis when thinking about pricing jobs, job costing and other activities an owner or manager looks at when reviewing performance from employees such as salespeople and or field production employees. Sales Labor There are several ways to pay production employees. Salary, Hourly, Piece-meal, flat rate, sub-contract, percentage-based and bonused are commonly used in our business. Make sure your percentage of pay is less than 10% at month-end. Keep in mind that any performance based compensation does not necessarily obsolve a business from paying overtime. Even though the employee may have received MORE than the hourly rate they earned in a 40 hour period.
KPI #4 Pre-Paid Maintenance Program All HVAC companies should strive to achieve 1000 maintenace agreements for every 1 million in business that they do. This metric should be on total sales for the company. Sales Maint Agreements The byproduct of maintenance agreements is lower advertising. KPI#5 consists of a percentage of marketing of your company sales. When your customers are paying to be a customer, they also are vested in doing business with you. Their discounts are tied up in future service. Their equipment is due to live longer since your staff is making it the most efficient, clean and in tip-top shape. Not only does the customer win, but the company and your employees win also. By keeping this list of customers on a recurring cycle, you also get to ensure your company has revenue in the shoulder seasons. An idle mind is a devils workshop. So keeping employees working will keep them engaged and not looking for work elsewhere.
KPI #5 Advertising Expenses All HVAC companies should strive to achieve a line-item budget of less than FIVE percent in advertising expenses for their company. This is TOTAL sales vs their advertising expense. Sales Advertising/Marketing The byproduct of maintenance agreements is lower advertising. KPI#5 consists of a percentage of marketing of your company sales. When your customers are paying to be a customer, they also are vested in doing business with you. Their discounts are tied up in future service. Their equipment is due to live longer since your staff is making it the most efficient, clean and in tip-top shape. Not only does the customer win, but the company and your employees win also. By keeping this list of customers on a recurring cycle, you also get to ensure your company has revenue in the shoulder seasons. An idle mind is a devils workshop. So keeping employees working will keep them engaged and not looking for work elsewhere.
KPI #6 Service Technician Labor Rate All HVAC companies should strive to achieve a line-item budget of less than FIVE percent in advertising expenses for their company. This is TOTAL sales vs their advertising expense. Service Dept Billing Advertising/Marketing The overall billed labor rate at the end of the month should be equal or less than 22% of total billing for service labor. This revenue model suggests that higher ticket items with lower labor time will result in a lower labor percentage. This is true. For this reason, an owner of a business needs to ensure they aren't using this KPI to compensate a service manager. What can happen is a service manager can be incentivized to not turn over leads for replacement. When replacement is the blood-line of any businesses cash position. You can view our blog on flat-rate billing and how to determine your hourly rate at… https://entsellingsolutions.com/blog/flatrate
KPI #7 Inside Support to Field Revenue Generators This is a tough one. Many companies struggle with reducing inside support since Aunt Bertie works for the company and has been the operator of the fax machine. their advertising expense. Outside People Inside People When applying this KPI there are some interesting caviouts. A business needs a minimum number of people to operate a business. In the beginning a small company will have one to two people that wear many hats. As the company grows this KPI gets more relevant. As the company gets larger and implements software that can remove some of the duties of the organization you can do more with less people. Any business should constantly review programs, reports, and activities to determine their effectiveness and efficiency.
KPI #8 AOR Equipment as a Percentage of Sale - 25% In the replacement department, a great number to seek is a LOWER percentage of equipment cost as it relates to the selling price. The total of a replacement sale should not exceed 35% in total equipment and parts. Total Selling Price Total Units 25% Total Parts 10% Total of Units and Parts 20 years ago, this KPI was easily reachable. As time has passed and equipment costs have steadily increased, it has become a more difficult threshold to meet. However, no matter the difficulty, keeping an eye on this will ensure a greater gross profit in your replacement department. Unfortunately, the ability for a contractor to command a higher priced job hasn't kept pace with the cost of raw materials and the absence of good labor in our industry.
KPI #9 Installation Crew Revenue 1.5 million+ In the replacement department, each installation crew should be able to generate at least 1.5 million in revenue in a year. This mean 2 crews should be able to support one salesperson. See KPI number 10 to understand this relationship. Average Selling Price Total Days in a year Production Capacity 65% Annual Revenue This KPI relies on the basic idea that an installation crew is working all year at 260 days. The production capacity is generally 65%. This means your crew will take vacation, they will not be able to finish every job in 1 day, and some days just go over 1 day. You can enter your average selling price here. HVACBizPro users have a national average selling price of $8900. Yours may vary and if it does you can enter it here.
KPI #10 Join the 2 Million+ Dollar Sales Club It used to be that a sales person should be able to deliver a million dollars in sales. With the increase in product cost based on raw materials, shipping costs and sheer inflation, the cost of equipment in the formula has mostly doubled in the past 15 years. This fact, along with an advanced sales force, has enabled certain teams the ability to deliver upwards of 3 million dollars in annual sales. Average Selling Price Total Days in a year adjusted days Adjusted Capacity (Vacation, Shoulder Season, etc) 60% Total Appointments Per Day 3 Closing Ratio (KPI 10A - Should be 50+%) 50% Sales Attainable Achieving 2 million dollar sales club status is not a difficult task. As you see above with an average ticket of $8900 and only 3 appointments a day on XXX days a year at a 50% closing ratio, you should exceed the minimum expectation to get in this club. Any improvement in these numbers can get a salesperson into the 3 million dollar sales club. That feat in itself would have a single salesperson supporting the capacity of TWO installation crews. This would be KPI#9. It should be mentioned here that KPI#10A is that a salesperson should have a minimum of 50% closing ratio on sales. This means they sell half the jobs they present to.