The furnace replacement margin worksheet

Why invoice-minus-equipment is the wrong number

Ask a furnace company owner what a replacement earns and you'll usually hear the invoice total minus the equipment cost. On an $8,000 job with a $3,500 furnace and materials, that suggests $4,500. It feels comfortable.

But that $4,500 has to pay for the installers' time, the return trip for a missing part, the warranty call in February, the three quotes that didn't close, the office, the trucks, the insurance and the owner. By the time all of that is counted, the real figure can be a fraction of the comfortable one. The worksheet's job is to show you the real number.

The seven lines

Work through these for a sample of at least 20 recent replacements. A spreadsheet with one row per job is ideal.

Line 1: Invoice total, before tax

Use the amount the customer paid you, excluding GST, HST or PST, and excluding any utility or government rebate the customer receives separately. If you discounted the job, use the discounted figure.

Line 2: Equipment and materials

The furnace at your actual cost after supplier rebates, plus everything else that went into the job: venting, fittings, pad, thermostat, filters, line sets and coil if it was a dual-fuel job, and a fair allowance for the small parts that leave the shop without being logged. A common allowance is a fixed amount per job, checked against your annual parts spend.

Line 3: Loaded labour

Hours on site plus drive time, multiplied by a loaded labour rate. The loaded rate is the wage plus everything that comes with it: payroll taxes and contributions, workers' compensation premiums, benefits, paid time off, and the vehicle and tool cost per working hour.

Quick way to estimate a loaded rate: take total annual cost of your install crews (wages, payroll costs, benefits, vehicles, tools) and divide by the hours they actually spend on jobs, not the hours they're paid. If installers are paid for 2,000 hours a year but bill 1,500 to jobs, the loaded rate per job hour is a third higher than you'd think.

Line 4: Second trips

Any return visit within 90 days: missing part, inspection follow-up, a thermostat the customer couldn't use, a condensate line issue. Cost each one at loaded labour plus drive time.

Line 5: Warranty labour

Manufacturers often cover parts but not labour. Track how often your replacements need a warranty visit in the first year and what that costs you.

Line 6: Sales cost

The time spent quoting, for the jobs you won and the ones you didn't. If your adviser or the owner spends two hours on each in-home quote and closes four in ten, every won job carries five hours of quoting.

Line 7: Overhead share

Annual overhead (rent, office staff, software, insurance, marketing, the owner's salary, accounting, vehicles not assigned to crews) divided by the number of jobs you do a year, weighted by job size. A simple method: allocate overhead by labour hours, so an eight-hour install carries more than a one-hour service call.

A fully worked example

Here's a single mid-efficiency replacement, using illustrative figures.

The comfortable number, invoice minus equipment, was $4,250. The real number is $1,064, or about 14% of the invoice. That isn't necessarily bad. But if your office thought each job made $4,000, decisions about discounts, marketing and hiring were being made on a number four times too high.

What the worksheet usually reveals

Once twenty or more jobs are in the sheet, sort them by what they really earned. These patterns come up again and again:

• Difficult installs are underpriced. Attic, crawlspace and tight-closet jobs take far longer than standard basement swaps but are often charged the same. A site-condition surcharge fixes this.
• The premium tier earns less than it seems. High-efficiency furnaces often need more venting work and more first-year adjustments. Their extra margin can be much smaller than the price gap suggests.
• Out-of-town work is subsidised. Drive time eats rural margins. A travel zone charge is fairer than averaging it across city customers.
• One crew is consistently slower. That is a training or crew-structure question, not a pricing one.
• Discounts hurt more than you think. On the worked example, a $500 discount cuts the real earnings by nearly half.

Turning the result into prices

Use the sheet to set a minimum price for each job type: the price at which real earnings reach the profit you want. Then:

1. Build a base price per tier from typical equipment, standard labour and the averages for second trips, warranty, sales and overhead.
2. Add site-condition charges for attic, crawlspace, long venting runs and other known extras.
3. Add a travel charge by zone.
4. Set a discount limit that no one can go below without the owner's approval.
5. Test one change at a time. Raise prices on one job type for a month and watch close rate alongside earnings.

Common mistakes

• Using paid hours instead of job hours for the loaded labour rate.
• Treating rebates as your margin. A utility rebate is the customer's money.
• Ignoring jobs that didn't close. Their quoting time is a real cost of the jobs that did.
• Doing it once and filing it. Equipment prices and wages move every year.

Where to go from here

When the sheet is done, the next questions are usually how to present these prices in the home, covered in our repair-or-replace guide, and how a care plan can lower your sales cost per job, covered by our service-plan base design service. If you'd like us to rebuild the worksheet with your own records, that is our replacement margin review.