What Are Healthy Gross Margins for Replacement, Service, and New Construction Work?

A Contractor University Member recently utilized the Ask-The-Expert Q&A feature within the member dashboard by submitting the following question and received the response below.

Contractor Question:

“We are attempting to dial in more with our metrics. We have a small residential HVAC company. We have departmentalized, replacement, service, new construction.”

Contractor University Expert Response:

“Regardless of revenue size, this is one of the most important steps a company can take. It gives you clear visibility into where you’re winning, where the gaps are, and where inefficiencies are hiding.

When it comes to healthy gross margins, here are the benchmarks I see from top-performing shops:

Service: 55–65%

The best operators live in this range. If pricing is off or techs are only focused on “what’s broken today” instead of fully solving problems, margins will suffer. Consistent training is key.

Install (Replacement): 40–50%

Top shops push toward 50%. Hitting this consistently comes down to process—proper load calculations, offering accessories/IAQ, and tracking labor down to the penny.

New Construction: 20–30%

This should be treated as a volume and labor utilization play—not your primary profit center.”

Contractor University members can click here to log in to their member dashboard and submit a question through the Ask the Expert portal.

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