How profitable an HVAC business is has a thin public answer and a generous coaching answer, and both are right. IRS corporate returns put the average net margin at 5.7% for plumbing, heating and air-conditioning contractors and 6.1% for electrical contractors, for the 2022 tax year, the latest published. Firms that read contractor P&Ls for a living call 10 to 20% net good on 45 to 55% gross, and say most companies they see land between 5 and 12%. The gap is overhead and pricing, not the trade. If your service work and your installs sit in separate companies, the blended margin hides which one is earning it.
What the averages actually measure
Net profit margin is what is left of revenue after every cost, including your own salary if you take one through payroll, divided by revenue. It is the number every benchmark quotes.
The 5.7% and 6.1% come from IRS Statistics of Income data on corporate returns, compiled by VantaInsights on pages updated 9 September 2026. They count incorporated firms only, they include the ones that lost money, and they cover the 2022 tax year, so they are three years old on the day this is published. The same pages put the HVAC and plumbing trade at more than 111,000 establishments and electrical at more than 83,000. That is the whole public record on margin, one number per trade.
The other benchmarks come from two kinds of private source, and both need labeling. Profitability Partners is an advisory firm; its HVAC benchmarks, updated 12 June 2026, come from more than 200 client P&Ls at $2 million to $30 million of revenue, and its electrical benchmarks from June 2026 the same way. That is client data, not a survey, and clients of a profitability coach are not a random sample. ServiceTitan is a software vendor; its July 2026 guidance is internal research with no outside sources named. We use both because nobody else publishes specific numbers, and we say where each one is from.
| Measure | Public data (IRS, 2022) | Good, per Profitability Partners client data | Great, per Profitability Partners | Vendor guidance (ServiceTitan, July 2026) |
|---|---|---|---|---|
| HVAC net margin | 5.7% average | 10 to 20% | 20% and up | Target 20%; average below 10%, often 2 to 3% |
| Electrical net margin | 6.1% average | 12 to 20% | Not given | Same target |
| Gross margin, HVAC | Not published | 45 to 55% | 55% and up | 50 to 55% |
| Gross margin, electrical | Not published | 52 to 65% | Not given | Same |
| Overhead, excluding marketing | Not published | 20 to 27% of revenue | Under 20% | Not given |
Profitability Partners also sets the red flags: gross under 40% for HVAC and under 45% for electrical, overhead over 27%, net under 8%. Most of its clients, it says, net 5 to 12%, and a few reach 15%. The general version of this question, across all industries, is in what a good profit margin is for a small business.
Two gross margins, never one
Gross margin is revenue minus the direct cost of doing the work, meaning technician wages and burden, equipment, materials, permits and subcontractors, divided by revenue. It is the margin before overhead.
Profitability Partners' client data splits it by department: service and repair at 55 to 65% gross, replacement and install at 42 to 52%, with the national average on installs "around 40 percent." Those are different businesses that share a truck. Service sells an hour at a rate the customer does not compare. Install sells a $14,000 system against two other bids.
A company that does both and reads one gross margin learns nothing. Blended 50% could be service at 62% and installs at 38%, a red flag hidden by a healthy department. The difference between gross, operating and net margin matters more here than in most trades, because the gross line is where the departments diverge and the net line is where they get averaged back together.
Overhead is the lever
Overhead is every cost that is not the job: office and admin salaries, the owner's pay, rent, vehicles not charged to jobs, software, insurance, marketing. Profitability Partners' tiers put overhead excluding marketing at under 20% of revenue for a great company, 20 to 27% for a good one, and over 27% as the red flag.
At 50% gross and 27% overhead, plus marketing, net is somewhere under 20%. At 45% gross and 32% overhead it is around 10%, which is where the IRS averages and the coaching numbers meet. A company drifts from the first to the second one hire at a time, usually in the office.
Technician utilization is the share of a technician's paid hours that are billed to a customer. ServiceTitan publishes a table linking utilization to the net margin it produces, and the direction is what matters: a tech paid for forty hours and billed for twenty-four is overhead for the other sixteen, whatever account the payroll lands in. It is why two shops with the same rates can be ten points apart on net.
Common advice for a thin margin is to raise prices. We would do that second. Prices are the easiest thing to change and the hardest to reverse, and an owner who raises install pricing 8% to fix a margin problem that was really twelve unbilled tech hours a week has lost bids and kept the problem.
Where margin moves between your companies
Most trades owners with 25 to 50 staff end up with a service LLC, an install LLC, and often a third that owns the trucks or the building. Margin moves between them all the time, and almost never because anyone decided it should.
The techs are on one payroll and work the other company's jobs. The trucks belong to the third company, which charges a flat lease set in 2021. The service company bills the install company a management fee that was reasonable at $1.8 million of combined revenue and has not been looked at since. Each of those moves cost from one P&L to another, so the margins you read are the ones the arrangements produce, not the ones the work produces.
The year-end files land on the owner's desk in January: Ridge Service LLC and Ridge Install LLC, $4.1 million of combined revenue, $2,150,000 in service and $1,950,000 in installs. The two files show $258,000 of net in Service, 12.0%, and $209,000 in Install, 10.7%. Blended, that is $467,000 and 11.4%, and it looks like a healthy, even business.
Then allocate the shared techs. Four technicians are on Service's payroll, and their timesheets show about a third of their hours on Install jobs. That is $150,500 of wages and burden that Service carried and Install got for free. Move it, and Service is at $408,500 and 19.0%, while Install is at $58,500 and 3.0%. Same $467,000. One company is near the top of the good range and the other is below the IRS average, and the blended number said neither. The timesheet is the thing that reveals it, which is why job costing in QuickBooks Online is worth setting up even at this size, and why a WIP report on the install side only works once the cross-company labor is in cost to date.
What a buyer pays for
Profitability Partners reports private equity paying 5 to 6 times EBITDA for HVAC companies under $5 million of revenue, from its own deal data. At that multiple, every $10,000 of margin you can prove is worth $50,000 to $60,000 at sale, and every $10,000 you cannot is worth nothing. How to get to EBITDA from a QuickBooks P&L is its own post.
A buyer will not take the blended number. They will ask for margin by line of business and by company, with shared costs allocated, and they will find the $150,500 above in the first week of diligence if you have not. The owner who has already split it has a defensible 19% service business. The owner who has not has an argument.
Navigator reads each QuickBooks Online file read-only and shows the service company and the install company side by side, each with its own gross and net margin, on the base plan at $299 a month for the first entity and half that for each additional one. The recommended KPIs for contractors include gross margin by company and overhead as a share of revenue, and any figure opens to the entries behind it. It cannot allocate the techs for you; that is a timesheet and a journal entry. Plans are on the pricing page.
Five things to do this quarter
Start by getting a gross margin per department, or per company, for the last twelve months, and put each against the ranges above. Then pull overhead excluding marketing as a share of revenue and see which side of 27% you are on. Third, take one month of technician timesheets and count the hours worked for the other company; if it is more than a few, book the allocation and re-read both margins. Fourth, list every charge between your companies and ask when each was last set and why. Fifth, only then, look at pricing on whichever department came out thin.
What none of this can tell you is whether your market will bear the price a 55% gross margin needs, or whether the install company should exist at 3% at all. One firm's client data cannot answer that. Two clean P&Ls and a year of timesheets get you close enough to decide. The cash side of the same business, and why a profitable quarter can still miss payroll, is in construction company cash flow problems.
Questions owners ask
What is the average profit margin for an HVAC company?
The public number is 5.7% net, from IRS Statistics of Income corporate returns for the 2022 tax year, covering plumbing, heating and air-conditioning contractors together, as reported by VantaInsights in September 2026. Profitability Partners, an advisory firm, says most companies in its client base net 5 to 12%. Both are averages of firms you are not.
What is a good profit margin for an electrical contractor?
IRS returns put the 2022 average at 6.1% net for electrical contractors. Profitability Partners, working from its own clients' P&Ls, calls 12 to 20% net good and under 8% a red flag, on gross margin of 52 to 65%. Those are one advisory firm's client numbers, not a survey, and they skew to service-heavy shops.
What is a good gross margin on HVAC installs?
Profitability Partners' June 2026 client data puts replacement and install work at 42 to 52% gross and says the national average is around 40%. Service and repair runs 55 to 65%. A company doing both should read two gross margins, because a blended 50% can hide installs at 38% behind service at 62%.
How much does an HVAC business owner make?
The honest answer is that nobody publishes a good number. The owner's pay is buried in overhead on the P&L, and what is left after that is the net margin, which averages 5.7% on IRS returns. On $3 million of revenue that is about $171,000 of profit on top of whatever salary the owner takes. The range around it is very wide.
Why is my HVAC business profitable on paper but not in the bank?
Because profit is booked when you invoice and cash arrives when the customer pays, and in between sit truck payments, loan principal, your draws and the equipment you bought for next month's installs. Construction firms held a median 20 days of cash in a 2016 JPMorgan Chase Institute study. Thin margin plus slow collection leaves nothing.
Related
The general benchmarks and how to read them are in what a good profit margin is for a small business. The cash problems that sit under a decent margin in the trades are in construction company cash flow problems. The number a buyer will actually start from is in how to calculate EBITDA for a small business.
If you want to see your service company and your install company on one screen, each with its own margin, the trial connects read-only in about fifteen minutes and needs no card: navigatorhq.ai.
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Published . Last updated . Reviewed by a CFO on the Navigator team.