10 HVAC Key Performance Indicators: What to Measure for Success

Running a company in the competitive HVAC industry is both dynamic and challenging. The industry faces constant changes with evolving heating and cooling technologies and a rising demand for sustainable systems, while new market players and competitive pricing only add to the complexity.

The good news is that by tracking a handful of well-established Key Performance Indicators (KPIs), you can make data-driven decisions to navigate these challenges and stay ahead of the curve. KPIs are vital tools for monitoring performance and guiding business strategies, but what are they and how can you effectively use them?  

Our comprehensive guide highlights 10 critical HVAC KPIs that every HVAC business should monitor. We'll explain why each indicator matters and how you can leverage them to grow your business in this competitive industry.

What Are Key Performance Indicators (KPIs) in HVAC? 

KPIs are measurable values that help HVAC businesses track progress toward key business objectives.  They typically focus on areas like customer satisfaction, revenue, efficiency, and profitability.

Tracking KPIs is crucial for growth because it enables businesses to identify strengths, address weaknesses, and make informed decisions based on real-time data.  

Essential Financial KPIs

Let's start with these 3 financial KPIs that provide clear insights into revenue growth, profit margins, and operating costs.

Sales revenue

Sales revenue is a fundamental indicator that keeps your business running. It represents the total income from all HVAC services and products over a specific period, including installations, repairs, products, maintenance contracts, etc.

Tracking this KPI will give you valuable insights into business growth trends, service demand patterns, seasonal fluctuations, customer retention and acquisition, and more.

How to track sales revenue:

1. Accurately record all income from your HVAC services and products.
2. Calculate the total revenue for specific time periods (monthly, quarterly, annually).
3. Compare current figures with previous periods to identify trends and growth.
4. Analyze data to understand which services or products are driving revenue.
5. Set realistic revenue targets based on historical data and market conditions.

By regularly monitoring your sales revenue, you can identify opportunities for growth to drive your business forward.

Gross Margin

Gross margin  measures the percentage of revenue remaining after deducting the direct costs involved in delivering your HVAC services and products. This KPI provides clear insights into pricing strategies and cost management effectiveness.

Tracking gross profit margins highlights questions like:

• Should you be increasing prices?
• Can you upsell some products? E.g. smart bathroom fixtures.
• Can you negotiate better deals with suppliers?
• Are your overheads, including rent, salaries, and marketing costs, too high?

How to calculate gross margin:

• Use this formula: Gross Margin (%) = [(Revenue - Cost of Goods Sold) / Revenue] × 100. For example, if you earn $100,000 in revenue and your costs are $60,000, your Gross Margin is 40%.

A higher gross margin indicates better profitability, so regularly monitor this KPI to refine your pricing, optimize cost management, and enhance your overall profitability.

Operating Costs

Operating costs is another must-track financial metric as it encompasses all expenses supporting regular business operations, including:

• Fixed costs: Expenses that are payable regardless of business activity. Think rent, insurance, and the salaries of full-time employees.
• Variable costs: These expenses change based on business activity levels. For example, this could include material costs, energy bills, and fuel for company vehicles.

How to track operating costs:

• Include all relevant costs: Identify and record both fixed and variable costs, as well as costs you may be overlooking, such as software subscriptions, vehicle maintenance, and office supplies.
• Categorize expenses: Break down costs into categories like labor, materials, vehicle maintenance, and energy usage for better visibility and expense management.
• Use benchmarks: Compare your costs against industry standards or past performance to spot concerning deviations or inefficiencies.
• Review regularly: Regularly review and analyze this data to spot inefficiencies, optimize budgeting, and identify areas for cost reduction.

Expert Tips - Financial KPIs

Use HVAC management software or a CRM to track sales trends, set targets, and adjust strategies based on actionable data.

Ensure sales teams are properly incentivized via bonus plans and performance rewards.

Operational KPIs

These KPIs focus on improving the day-to-day operations of your HVAC business.

First-Time Fix Rate

First-time fix rate measures how often your technicians resolve issues on their initial visit. In a perfect world, your first-time fix rate would be 100%. That means you've kept all customers happy and saved time and money. However, this is not a business reality.

Monitoring this metric will help you identify skills gaps, underperforming technicians, parts issues, and problematic HVAC systems.

How to measure first-time fix rate:

• Use this formula: First Time Fix Rate (%) = (Number of Jobs Fixed on First Visit / Total Jobs) × 100. For example, if 80 out of 100 jobs are fixed on the first visit, your rate is 80%.

Identify why some jobs require multiple service calls (e.g., lack of parts or training) and address these issues promptly.

Average Response Time

Average response time shows how quickly your team responds to customer inquiries or service requests.

This is a critical metric for an HVAC business, as modern consumers expect quick and convenient outcomes. Customers stranded without heating or cooling feel severely inconvenienced and want their utility restored as soon as possible. If you don't respond promptly, a competitor will.  

How to measure average response time:

• Calculate the time between receiving a service request and the technician's arrival on-site. The Average Response Time = Total Response Time for All Jobs / Number of Jobs.
• For business inquiries, implement a system to record the time of contact and the time of first response.

Faster response times enhance customer experience and can lead to higher retention rates, so consider using customer service chatbots to handle initial queries. We also recommend using scheduling tools and route optimization to facilitate swift responses and reduce travel times for your technicians.

Technician productivity

This KPI shows how efficiently your technicians use their time. Higher productivity means more jobs completed and efficient resource utilization, leading to increased revenue.

Poor productivity can signal several problems:

• Lack of skills
• Inefficient scheduling
• Lack of the proper tools
• A disengaged workforce

How to track productivity:

• Measure the ratio of billable hours (time spent on jobs) to total available hours. For example, let's say an HVAC technician works 40 hours per week: 30 hours on billable jobs and 10 hours on travel, training, administrative tasks, and other activities. This means they're 75% productive.
• Identify downtime causes (e.g., excessive admin, scheduling issues, or travel delays) and optimize workflows to reduce them. This should boost productivity above 75%.

If some technicians are significantly less productive than their peers, work to improve their performance (or release them).

Expert Tips - Operational KPIs

• HVAC software like ServiceTrade and FieldEdge have excellent features to optimize scheduling and travel routes.  
• Disengaged employees cost organizations over $8 trillion annually in lost productivity.
• Compensation plans that offer compelling incentives help keep teams engaged and motivated. Some HVAC companies use profit-sharing and profit-sharing bonuses to encourage technicians to think and act like business owners.

Customer-Focused KPIs

The following KPIs will help you measure customer satisfaction, loyalty, and overall engagement—insights that can drive improvements in your service delivery.

Customer Retention Rate

Your customer retention rate shows the percentage of customers who stick with your business over time. Retaining customers is significantly more cost-effective than acquiring new ones. So, if you're getting a lot of repeat business, then you're clearly doing something right, but it's important to understand why customers stay loyal.

How to measure customer retention rate:

• Use this formula to help you understand your customer retention: Retention (%) = [(Customers at End of Period - New Customers) / Customers at Start of Period] × 100. For instance, if you start with 100 customers, gain 20 new ones, and end with 110, your retention rate is 90%.

Monitor the KPI regularly to ensure customers keep coming back. If loyalty drops, assess why. Your service quality might have slipped, or customers might be resisting your latest price increases.

Be curious about what makes customers loyal. Ask them directly. Use the insights you gain to drive relevant campaigns. Incentives like discount offers are one of the most useful ways to re-engage inactive customers.

Net Promoter Score (NPS)

Your customers are potentially your best ambassadors. When a customer raves about your business, it's free and credible marketing! Net Promotor Score (NPS) indicates how likely your buyers are to recommend your services to others. A high NPS means clients are happy and loyal.

How to measure NPS:

• Ask customers this simple question: "On a scale of 0 to 10, how likely are you to recommend our services to a friend?"

Categorize their responses:

• Promoters (9-10) are happy customers who are enthusiastic enough to recommend you.
• Passives (7-8) are satisfied but not overly enthusiastic.
• Detractors (0-6) are less happy customers. Some might even leave negative reviews online that can damage your reputation.

Your NPS score is the percentage of promoters minus the percentage of detractors. For example, if 60% are promoters and 20% are detractors, your NPS is 40.

Regularly review your NPS to identify areas for improvement and raise customer satisfaction.

Expert Tips

• HVAC management software like ServiceTitan integrates with CRMs to deliver powerful analytics, enabling data-driven decisions to improve the customer experience.
• Research shows that employees perform better under incentive schemes. So, consider incentive ideas to inspire excellence from your customer service teams.
• Show your appreciation to loyal clients with a token of thanks. Something small, like a gift card, can generate generous goodwill.

Marketing and Sales KPIs 

Monitoring the right marketing and sales KPIs reveals how efficiently you attract, nurture, and convert prospects into paying customers.

Lead Conversion Rate

Lead Conversion Rate measures how effectively you turn potential customers (leads) into paying customers. A high conversion rate indicates that your marketing and sales strategies are delivering results, and conversion rates directly impact your revenue and growth.

If leads aren't converting, ask yourself:

• Is our lead database organized and accurate?
• How do we nurture leads more effectively?
• What follow-up strategies should we adopt?
• Should we allocate more resources to developing leads?

How to track lead conversion rate:

• Use this formula: Lead Conversion Rate (%) = (Number of Converted Leads / Total Number of Leads) × 100. For instance, if you had 100 leads and 20 became customers, your conversion rate is 20%.

Analyze this rate to identify areas for improvement, such as better lead nurturing or refining your sales pitch.

You can also consider adding engaging content, like videos, to help move leads closer to converting.

Advertising Return on Investment (ROI)

This KPI helps you understand how much value you're getting from your advertising spend. It's crucial to track, especially when you're investing in various advertising platforms. It answers the question: How much revenue is generated for every dollar spent on ads?

How to measure this ROI:

• Use this simple formula: Advertising ROI = (Revenue from Ads / Advertising Costs] × 100. So, if you spend $1,000 on ads and earn $3,000 in revenue, your ROI is 300% (a cost-effective campaign).
• Track each campaign separately, using codes to attribute sales back to specific advertising efforts.
• Analyze which advertising channels perform best and focus on boosting high-ROI campaigns while rethinking those with low returns.

Consider refining your messaging, targeting, or design on campaigns that underperform, or even discontinuing them.

Remember, free advertising is possible with targeted, helpful posts or videos on social media platforms like Instagram, Facebook, LinkedIn, and TikTok.

Expert Tip

If you use a social media agency for advertising, ensure they can provide transparent metrics linking advertising spending to results.

Wrapping Up

By tracking these key financial, operational, and customer-focused KPIs, your HVAC business can identify areas for improvement. This helps you streamline processes, increase customer satisfaction, and boost profits.

But to achieve the growth, efficiency, and customer satisfaction you're hoping for, KPIs must be actively managed with continual monitoring and analysis.

Start by focusing on the most relevant KPIs for your business and implement systems that deliver data-driven insights. Smart tracking and regular strategy adjustments pave the way for long-term success.

ShareWillow works with HVAC companies to develop incentive programs that reward teams for surpassing their KPIs. Contact us to discuss how we can help accelerate your results!

FAQs

Is there an alternative to NPS for measuring customer satisfaction?

Customer Satisfaction Score (CSAT) is a good alternative to NPS as it directly measures customer happiness after a specific job or interaction.

While NPS gauges long-term loyalty, CSAT focuses on immediate satisfaction by asking, “How satisfied were you with our service?” on a scale of 1-5 (or 1-10). It records the satisfaction level per job for more instant feedback.

How do you measure technician performance in an HVAC business?

Track KPIs such as first-time fix rate, billable hours vs. non-billable hours, job completion rate, and customer feedback scores to assess a technician's efficiency and effectiveness.