How Should I Price Small Commercial HVAC Replacements?

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:

“What gross profit margin and net profit margin should we target when pricing a small commercial HVAC replacement, and what payment terms are typically offered? Can you provide any KPIs?”

Contractor University Expert Response:

“Commercial work does have different financial targets and performance metrics than residential business.
There is a great resource in the Best Practices Library, The KPI Charts – Detailed Benchmarks & Metrics, that provides a detailed breakdown of commercial service, maintenance, and installation work. I think you’ll find it helpful as you continue to grow that side of your business.
As a general guideline, I recommend targeting a gross margin between 30% and 39% on commercial projects. While the gross margin percentage is typically lower than residential, commercial jobs often generate significantly higher gross margin dollars, making that range acceptable.
For clarity, gross margin is calculated as net sales less all direct job costs, including:

Burdened direct labor

Equipment and materials

Subcontractors

Burdened sales salaries and commissions

Warranty expenses

Permits

Regarding payment terms, Net 30 is the standard expectation for commercial customers. Whenever possible, however, consider offering financing through the Optimus program. Even if there is a modest buy-down cost, financing can improve your cash flow by allowing you to get paid promptly instead of waiting for customer payments. Regardless of the payment method, monitor your accounts receivable closely and be proactive about collections to ensure invoices don’t extend beyond your 30-day terms.”

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