Include Profit, You’re Worth It! Part 2 | HVAC Pricing Series Part 7
In Part One of our discussion on Profit, we established that the successful HVAC companies strive for a 15% Profit. But, in reality, Profit is not the same on every job you perform. Some jobs have more risk than others and those jobs should be priced with more Profit in order to cover the increased risk. In other words should the profit be the same for a job that is an easy basement replacement job with exposed ductwork compared to a job that requires tearing out a ceiling and running new ductwork or compared to a job where your employees have to spend three days in a 120 degree attic or a dirty, wet crawl space? Of course not. So Profit should increase with job risk.
And Profit may not necessarily be the same at different times of the year. In the dead of winter when jobs are difficult to find, perhaps your profit should be lower in order to be more competitive so you get job in the fiercely competitive markets. In other words, you may reduce your profit in the slow times of the year to keep your employees working and cover their costs of employment. Conversely, in the busiest times of the year, in the heat of summer, perhaps you should increase your profit because jobs are easier to get and the demand for HVAC services is so high. In fact, if you lower your profit in winter you better be sure you raise your profit in summer in order to maintain that 15% overall profit your company needs.
Finally, it should be very rare that you would lower your profit to go below your breakeven point. The breakeven point for any job is when that job covers the Direct Costs and the Overhead Costs but does not have any Profit: you “break even.” In other words, you cover all your costs but you don’t make any money. Be very careful with your Right Price formula as you get closer and closer to your breakeven point. Realize that it is difficult to get back the Profit dollars you give up. Usually to get back those Profit dollars you will need to be significantly higher than 15% Profit.
So, when you figure your Right Price for any job, Profit will be one of the main components. Profit is part of the mathematical formula you use to figure the Right Price. Like Overhead Costs, you use a Profit Percentage within the mathematical formula. Companies that have Financial Statements know exactly the Profit Percentage they have for their companies. Their Profit is a percentage of their Total Sales for the year. And for companies that do not have a Financial Statement, then we already know that you should use at least 10%, and preferably 15%, as your Profit Percentage in the mathematical formula.
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