The Four Profit Leaks You Should Plug in Your HVAC Business

Are You Building a Business to Live On — or to Sell?

One of the most important decisions a business owner makes is whether they’re building a business simply to make a living or building a business to eventually sell. There’s nothing wrong with earning a strong income in a profitable trade. However, many owners become complacent about their financials — and when retirement or a sale approaches, they realize profits have been leaking for years.

According to Lynn Wise, CEO of Contractor in Charge and author of Build It, Grow It, Sell It! Nine Steps to a Thriving Contracting Business, contractors in plumbing, HVAC, electrical, and other skilled trades commonly overlook four major profit leaks.

Here’s what to watch for.

1. Revenue Left on the Table

If you’re not reviewing and adjusting pricing annually, there’s a strong chance you’re underbilling for your services.

Failing to price correctly does more than reduce incoming revenue — it lowers profit margins, which directly impacts:

• Net income
• Company valuation
• Seller’s Discretionary Earnings (SDE)

Small pricing gaps compounded over years can dramatically reduce business value when it’s time to sell.

2. Cost of Goods Sold (COGS)

There are only two ways to increase profitability:

• Increase revenue
• Reduce expenses

While growth should focus on increasing revenue, overspending on labor, equipment, and materials is often an easy fix — if you’re tracking it.

Common COGS issues include:

• Unmonitored labor efficiency
• Excessive material waste
• Poor vendor pricing
• Lack of job costing visibility

A strong bookkeeping system makes it easier to identify spending trends and correct inefficiencies before they erode margins.

3. Inefficient Marketing and Advertising

Is your marketing strategy generating profitable customers — or just leads?

A healthy service business should close at least 50% of incoming leads. If your close rate falls below that, marketing dollars are likely being wasted.

Strong marketing fundamentals include:

• An up-to-date, mobile-optimized website
• Clear service messaging
• Consistent testimonials
• Active reputation management
• Encouraging referrals from satisfied customers

Monitoring your Google reviews and training your customer service team to request feedback can significantly improve conversions and brand trust.

4. Throwing People at Problems Instead of Fixing Processes

Hiring more employees won’t solve broken systems.

If you perform a task more than once a month, it may be a candidate for automation. Examples include:

• Payroll processing
• Quote requests
• Service agreement reminders
• Customer notifications
• Billing and invoicing

By leveraging technology and automation, you:

• Increase employee productivity
• Reduce administrative errors
• Improve customer response times
• Strengthen profitability

Efficient processes free your team to focus on customer satisfaction and revenue-generating activities instead of repetitive administrative tasks.

Why Profitability Drives Valuation

When it’s time to sell, buyers base offers on Seller’s Discretionary Earnings (SDE). Your profitability isn’t just important — it’s the foundation of your valuation.

Every multiple you’re offered is applied to SDE. That means:

Stronger profits = Higher valuation.

Every dollar of recurring, clean profit increases what your business is worth.

Every Dollar Counts

Whether you plan to sell in a year, five years, or at retirement, plugging profit leaks today directly impacts your future financial outcome.

If you’d like to understand what your company may be worth in today’s market, consider requesting a free and confidential valuation to gain clarity on your business’s current position and potential.