One of the first questions I asked when reviewing an acquisition target on the buy side was simple: how much is the owner paying themselves? The answer told me more about the business than almost any other line item on the P&L.
Not because there is a right number — there isn’t. But because how an owner structures their compensation reveals how clearly they understand their own financials. And in my experience reviewing hundreds of home services companies, most HVAC owners are either dramatically underpaying themselves, burying personal expenses in cost of goods sold, or pulling so much cash out that the business can’t invest in growth.
If you run an HVAC company and have ever wondered whether you’re paying yourself too much, too little, or in the wrong way — this is what the data actually says, and what a buyer will think when they open your books.
What HVAC Owners Actually Earn: Benchmarks by Company Size
Industry surveys peg the average HVAC business owner salary somewhere around $85,000 to $110,000. That number is almost meaningless, because it blends solo operators running one truck with owners of $15 million enterprises. The range is enormous.
Here’s a more useful way to think about it, based on what I’ve seen across hundreds of P&Ls:
| Annual Revenue | Typical Owner Total Comp | As % of Revenue |
|---|---|---|
| Under $1M | $40,000 – $80,000 | 6 – 10% |
| $1M – $3M | $80,000 – $150,000 | 5 – 8% |
| $3M – $5M | $120,000 – $200,000 | 4 – 6% |
| $5M – $10M | $175,000 – $300,000 | 3 – 5% |
| $10M+ | $250,000 – $500,000+ | 2 – 4% |
“Total comp” means everything: W-2 salary, distributions, health insurance paid by the business, vehicle allowances, and any personal expenses running through the company. When a buyer looks at your books, they add all of that up.
The percentage-of-revenue column matters because it shows a pattern. As companies grow, owner compensation usually decreases as a share of revenue — but the absolute dollar amount goes up significantly. A $3M company paying its owner $180,000 is in a reasonable range. A $10M company paying its owner $180,000 is likely underpaying, which creates a different set of problems during a sale.
Salary vs. Distributions: How to Structure Your Comp
Most HVAC business owners operate as S-corps or LLCs taxed as S-corps, and the compensation question usually comes down to: how much should be W-2 salary versus distributions?
The IRS requires S-corp owners to pay themselves a “reasonable salary” — one that reflects what you would pay someone else to do your job. After that, remaining profits can be taken as distributions, which aren’t subject to the 15.3% self-employment tax.
The temptation is to set salary artificially low and take everything as distributions. The IRS has caught onto this. If you’re running a $5M HVAC company and paying yourself a $40,000 salary with $250,000 in distributions, that’s a red flag. A reasonable salary for the CEO of a $5M trade company is typically $100,000 to $150,000, depending on your market and role.
Here’s a framework that works for most HVAC owners:
| Component | What It Covers | Tax Treatment |
|---|---|---|
| W-2 Salary | Base pay reflecting market rate for your role | Subject to payroll taxes |
| Quarterly Distributions | Profit above salary, taken as owner draws | Not subject to self-employment tax |
| Benefits | Health insurance, retirement contributions, vehicle | Partially deductible |
| Retained Earnings | Cash left in the business for growth, reserves, capex | Taxed at entity level if applicable |
The right split varies, but a common structure for a profitable HVAC company is roughly 40-50% salary, 30-40% distributions, and 10-20% retained. The exact percentages depend on your tax situation, growth plans, and what your CPA recommends. The point is to have a deliberate structure rather than just pulling cash when you need it.
The Two Mistakes That Cost Owners the Most
See what your margins should be
In a free 30-minute call, we’ll calculate your true job costs, quantify what the gaps are costing you monthly, and give you the 3–5 highest-ROI fixes — ranked by impact.
Book a Free Call →Mistake 1: Owner Comp Buried in COGS
I saw this in probably a third of the companies I reviewed. The owner is also a working technician or runs jobs in the field, so their pay gets lumped into direct labor — cost of goods sold. On the surface, gross margins look low, and overhead looks lean. But the economics are misleading.
Any competent buyer will restate this immediately. Your salary belongs in overhead or general and administrative, not in COGS. When an HVAC company shows a 38% gross margin and we move $120,000 of owner comp out of direct labor, suddenly gross margin is 42%. That changes the entire valuation conversation.
If your owner compensation is sitting in COGS right now, move it. It’s distorting your financials and making it harder for you to benchmark against other companies.
Mistake 2: Not Paying Yourself Enough
This sounds counterintuitive, but underpaying yourself is actually a problem during a sale. Here’s why: when a PE firm acquires your company, they need to hire someone to replace you. If you’ve been paying yourself $80,000 to run a $7M HVAC company, the buyer knows a professional general manager will cost $150,000 to $200,000.
That means your EBITDA is overstated by $70,000 to $120,000 of below-market compensation. The buyer will adjust for that in their model, and your effective valuation goes down. You thought you were being frugal. The buyer sees it as hidden overhead.
The flip side is also true: if you’re paying yourself $400,000 to run a $4M company, a buyer will add back the excess above what a replacement manager would cost. That excess becomes an EBITDA add-back that increases your valuation. But only if the business can sustain that profitability after your comp is normalized.
What PE Buyers Actually Do With Your Comp During Due Diligence
Here’s the step-by-step process from the buyer’s side:
Step 1: Identify total owner compensation. Salary, distributions, auto, insurance, retirement, phone, personal expenses charged to the business. Everything.
Step 2: Determine market-rate replacement cost. What would it cost to hire a general manager to do what the owner does? For a $5M residential HVAC company, that’s typically $130,000 to $175,000 including benefits.
Step 3: Calculate the add-back (or deduction). If the owner takes $300,000 and replacement cost is $160,000, the add-back to EBITDA is $140,000. If the owner takes $90,000 and replacement cost is $160,000, EBITDA gets reduced by $70,000.
Step 4: Validate with documentation. Every add-back gets scrutinized during the Quality of Earnings process. The buyer’s accounting firm will ask for credit card statements, auto logs, and expense reports. Undocumented add-backs get thrown out.
The lesson is straightforward: document everything, and pay yourself in a way that’s clean, defensible, and close to market rate. It makes the diligence process smoother and avoids surprises that kill deals.
A Simple Framework for Setting Your Own Comp
If you’re trying to figure out the right number for your situation, start here:
1. What would you pay someone to replace you? Look at general manager or operations director salaries for companies your size in your market. That’s your baseline salary.
2. How profitable is the business after that salary? If net profit after paying yourself market rate is 10% or more, the business is healthy and you can take additional distributions. If net profit disappears after market-rate comp, you have a profitability problem to address before worrying about your pay.
3. What does the business need to retain? Every HVAC company should keep 2-3 months of operating expenses in cash reserves. Beyond that, you need capital for truck purchases, equipment, marketing, and seasonal dips. Don’t strip the business bare for personal income.
4. Talk to your CPA about structure. The salary vs. distribution split is a tax question with real consequences. Get advice specific to your entity type, state taxes, and income level.
Where This Goes Wrong — and When to Get Help
Owner compensation isn’t just a personal finance question. It directly affects your gross margins, your net profit, your EBITDA, and ultimately what someone will pay for your business. Get it wrong and you’re either paying more in taxes than you need to, distorting your financial picture, or leaving money on the table during a sale.
At Profitability Partners, we see compensation structure issues in almost every HVAC company we work with. It’s one of the first things we clean up — because getting it right improves your reporting, your tax efficiency, and your valuation simultaneously. If any of this sounds familiar, we can help you get it right.
For additional industry data, visit Bureau of Labor Statistics.
Related: financial forecasting, and fractional CFO compensation strategy
Matthew Mooney is a co-founder of Profitability Partners and a former private equity professional with deep experience in home services M&A. Over the course of his career, Matthew has reviewed over 200 acquisitions of HVAC, plumbing, roofing, and electrical companies. He previously worked at Apex Service Partners, one of the largest residential home services platforms in the country — giving him a rare, buyer-side perspective on what drives valuation, profitability, and deal structure in the trades. He now helps contractors and home services business owners optimize their financials, plan for exits, and maximize the value of their companies.
Connect on LinkedIn
Matthew Mooney
Matthew Mooney is a co-founder of Profitability Partners and a former private equity professional with deep experience in home services M&A. Over the course of his career, Matthew has reviewed over 200 acquisitions of HVAC, plumbing, roofing, and electrical companies. He previously worked at Apex Service Partners, one of the largest residential home services platforms in the country — giving him a rare, buyer-side perspective on what drives valuation, profitability, and deal structure in the trades. He now helps contractors and home services business owners optimize their financials, plan for exits, and maximize the value of their companies.
See where your margins are leaking
Book a free consultation with a senior partner. We'll review your situation and tell you honestly if we can help.
Book Free Consultation →