Profit First for HVAC and Plumbing Companies

Last updated November 12, 2026

How does Profit First work in an HVAC or plumbing company?

A trade business uses the five accounts named in Mike Michalowicz's guide. What changes is the number the percentages apply to, and the next section covers it.

His guide "5 Easy Ways to Start Profit First" names five accounts: Income, Profit, Owner's Compensation, Taxes and Operating Expenses. Every dollar that enters the business goes into Income first. On two allocation days a month, set percentages move from Income into the other four accounts. Then the business is run from what sits in Operating Expenses.

The guide says that "at the foundational level, you need five accounts". A business that buys materials can add one more, a Materials account. It comes up below, under busy months and slow ones.

Two other pages here cover the general ground. The Profit First implementation page has his five steps. Profit First for contractors works through Real Revenue for any trade business that buys materials. This page stays with heating, cooling and plumbing.

What comes off the top line in an HVAC or plumbing company?

Materials and subcontractors. In these two trades, materials include the equipment you install.

Mike Michalowicz's Instant Assessment form defines the term: "Real Revenue is the income generated by your company after subtracting the cost of materials and subcontractors." It says this is similar to gross profit "but does not include your employee labor". The form does not mention HVAC or plumbing. The table below is our reading of his definition for the two trades.

The mix of work moves the number. An install job carries the cost of the equipment, and a repair call may use only a few parts. So two shops with equal sales can have different Real Revenue. The one that does more installs is likely to have the lower figure.

You can only do the subtraction if the books show equipment, parts and subcontractors apart from wages and overhead. Job costing goes a step further and records them against each job. If the books do not show them yet, bookkeeping comes first.

What do the percentages look like on an HVAC company's numbers?

Here is the arithmetic with round numbers. It is an illustration, not a client's books.

An HVAC company collected $2,400,000 over the last 12 months. It spent $1,000,000 of that on equipment, parts and subcontractors. Its Real Revenue is $1,400,000.

The target percentages below come from one document: the Instant Assessment form that Mike Michalowicz publishes and links from his own website, mikemichalowicz.com. In that form, Real Revenue of $1 million to $5 million has targets of 10% Profit, 10% Owner's Pay, 15% Tax and 65% Operating Expenses. Owner's Pay is the form's name for the account his guide calls Owner's Compensation.

These are targets, not a starting point. His guide says: "Start small. Very small if necessary. Even 1% is enough to begin changing behavior." The Tax figure is a target for the account. It does not tell you what you will owe.

The other rows of his table are in our guide to Profit First bank accounts and allocation percentages.

How does Profit First handle busy months and slow ones?

Through the percentages. Every allocation day uses the same ones. So a month that brings in more money sends more to every account, and a month that brings in less sends less.

Heating and cooling work follows the weather. The ENERGY STAR maintenance checklist tells homeowners to book check-ups ahead of the season because "contractors get busy once summer and winter come".

His form sets the percentages as shares of Real Revenue. His guide does not say how the money for materials leaves Income on an allocation day. A question and answer post on his website does. A reader with a retail store asked how to allocate for stock and materials. He answered: "determine your historical percentage for Materials. Create an account for Materials at your bank. When INCOME comes in and you do your allocations, transfer that materials percentage to the Materials account." The money left in Income then goes to the other four accounts.

That answer was given to a retail store, and it does not mention the trades. Our reading for an HVAC or plumbing company has two parts.

First, the Materials percentage covers what his form takes off to reach Real Revenue: equipment, parts and subcontractors. In the illustration above, that is $1,000,000 of the $2,400,000 collected, or about 42%.

Second, a historical percentage is an average. A month of many installs is a big sales month with big equipment bills, and those bills can run above the average. A month of mostly repair calls can run below it. So the Materials balance rises in some months and falls in others. Check it against the bills that are due.

Our seasonal revenue post says to review the percentages each quarter against a full year of books.

That alone does not carry a shop through the quieter months between those busy seasons. The same post, Profit First with lumpy or seasonal revenue, adds two habits. Hold part of every big month in a reserve for the slow stretches. Set your own pay from what the whole year supports, not from the best month.

Where does prepaid maintenance agreement money go?

Into Income, like every other deposit. On the next allocation day, the Materials percentage moves to the Materials account first. The rest is divided among the other four accounts.

Mike Michalowicz's guide does not single out maintenance agreements, and neither does his question and answer post. Step 2 of the guide says all revenue goes into Income, and that is what happens here.

The care comes afterward. A customer who pays in spring for a year of visits is still owed those visits. Parts for those visits are materials. With a Materials account, a share of the agreement money is set aside on the allocation day after the customer pays, before anything reaches the other four accounts. Our reading is that the parts for the owed visits are paid from that account when they are bought, even if that month brings in little. Wages for your own technicians come out of Operating Expenses when the visits happen. So do the other running costs of those visits, such as fuel.

Our seasonal revenue post has a rule for a deposit paid before the work: allocate it as normal, then treat the Operating Expenses share as spoken for until the job's costs are paid. We apply the same rule when maintenance agreement money is collected before the visits.

A simple check is to keep a count of the visits still owed beside the Materials and Operating Expenses balances. How the books record that money is a separate question. The page on a fractional CFO for HVAC companies covers it.

How do after-hours calls fit into Profit First?

The call's income goes into Income. Its parts are materials. The pay for the person who took the call is payroll.

The Bureau of Labor Statistics says most plumbers, pipefitters and steamfitters "work full time, including nights and weekends", and that plumbers are often on call to handle emergencies.

On-call pay and overtime are wages of your own employees. So they are not subtracted to reach Real Revenue, and his guide lists payroll under Operating Expenses. A month with many emergency calls draws more payroll from that account. The Operating Expenses percentage has to leave room for it.

Whether those calls are priced to pay their way is a different question. The page on a fractional CFO for plumbing companies takes it up.

Where can HVAC and plumbing owners get stuck with Profit First?

The six pitfalls below follow from the sections above. Each one has a way through.

How does Profit First coaching start at Right Way Profits?

With a 45-minute discovery call by web conference. It covers where you are and where you want to go.

After that, you open the new bank accounts. The accounts and the allocation percentages are set up with you, to fit your real numbers. Every quarter there is a profit distribution, separate from your regular owner's pay.

Prefer to learn the system on your own first? The Profit Revolution is the firm's Profit First course.

Who runs Right Way Profits?

Right Way Profits is led by Debbie DeKnight. She has more than 30 years in accounting and is a Master Certified Profit First Professional.

The firm works with founder-led service and trade businesses. No HVAC or plumbing case example is published on this page.