The most dangerous key person in your acquisition might not be the owner. It might be the person who prices the bids.
Every HVAC acquisition checklist asks about owner dependency. How many customer relationships are personal? Does the owner run the crews? Can the business function without them?
But there’s a key-person risk that doesn’t show up in any owner-dependency assessment: the commercial estimator.
If your target does 30–40% of revenue from commercial work — schools, office buildings, retail chains, multi-family — someone is pricing those jobs. Someone is reading blueprints, calculating duct runs, specifying equipment, coordinating subcontractor quotes, and assembling bid packages that arrive on time and win at the right margin.
When that person leaves, your commercial revenue doesn’t decline. It stops.
What the Estimating Function Actually Does
In a residential HVAC company, pricing is relatively standardized. ServiceTitan or Housecall Pro generates flat-rate pricing. A tech diagnoses the problem, the price book tells them the number, the customer says yes or no. Individual judgment matters, but the system carries the pricing.
Commercial work is fundamentally different. Every project is custom:
- Takeoff from plans — The estimator reads architectural and mechanical drawings to quantify ductwork, piping, equipment, controls, and labor hours
- Equipment selection and specification — Matching equipment to the engineer’s design intent, often involving conversations with manufacturer reps about alternatives and substitutions
- Subcontractor coordination — Sheet metal fabrication, controls wiring, insulation, pipe fitting, crane services. Each sub provides pricing on the estimator’s schedule, not yours.
- Labor loading — Calculating crew hours by trade and skill level, factoring in site conditions, access restrictions, and sequencing constraints
- Markup and margin management — Applying the right margin for the project type (negotiated vs. competitive bid), the GC relationship, and the company’s current capacity. Too high and you lose. Too low and you wish you had.
- Prevailing wage calculation — For government, school, or institutional work, labor rates are set by Davis-Bacon or state prevailing wage schedules. Getting this wrong doesn’t just cost margin — it triggers compliance violations.
- Bid assembly and submission — Preparing the formal bid package with bonding documents, insurance certificates, and all required certifications. Miss a deadline by an hour and you don’t exist.
This isn’t a spreadsheet exercise. It’s a discipline that takes 5–10 years to develop. And in most HVAC companies under $5M in revenue, it lives in one person’s head.
The Numbers That Should Worry You
Commercial HVAC estimating has built-in failure rates that are normal and expected — but devastating if you don’t understand them:
- Win rates on competitive public bids: 10–20% — You submit 10 bids, you win 1–2. The other 8 represent estimating hours that generate zero revenue.
- Win rates on negotiated work: 30–50% — Better odds because you’re working relationships, not just numbers. But relationships belong to the estimator, not the company.
- Net margins on commercial work: 5–15% — Compared to 10–60% on residential. The margin for error is thin. A 5% underbid on a $200K project isn’t a reduced margin — it’s a $10,000 loss.
- Labor as percentage of job cost: 40–60% — Underestimating labor hours by 10% on a $150K project loses $6K–$9K. Overestimating by 10% prices you out.
These aren’t red flags — they’re the economics of commercial HVAC work. But they require a skilled estimator to navigate. When the estimator leaves, you can’t “figure it out” — you either hire someone with the same capability or you stop bidding commercial work.
How to Audit the Estimating Function During Due Diligence
Before you make an offer on a company with significant commercial revenue, you need to answer five questions:
1. Who Estimates Commercial Work?
Get a name. Is it the owner? A project manager? The “office manager” who also does it? Someone who works from home two days a week?
Then ask the follow-up: how long have they been doing it, and where did they learn? An estimator with 15 years of local market knowledge — who knows the GC pricing expectations, the sub relationships, and the institutional buyer preferences — is irreplaceable on a 90-day timeline.
2. What’s the Win Rate and Margin by Project Type?
Request the bid log for the last 24 months. A well-run commercial operation tracks:
- Total bids submitted
- Bids won
- Actual margin vs. estimated margin on completed projects
- Win rate by project type (new construction vs. retrofit vs. service/replacement)
- Win rate by GC relationship
If the company can’t produce this data, that’s a finding in itself. It means they don’t know whether their commercial estimating is profitable.
3. Is There a Documented Estimating Process?
Ask to see:
- The cost database (labor rates, material pricing, sub pricing by trade)
- Estimating templates or software
- Standard markup schedules by project type
- The takeoff process (manual or software-assisted)
A company with templates, a current cost database, and written markup guidelines can survive an estimator departure — painfully, but it’s possible. A company where the estimator uses “my spreadsheet” with pricing notes in their personal files cannot.
4. What Happens if This Person Leaves in 6 Months?
Ask the seller directly: if your estimator quit tomorrow, who would price commercial work? The answer tells you everything:
- “I’d do it myself” — Owner dependency confirmed. The owner-dependency assessment should capture this, but if the estimating role isn’t identified separately, it gets missed.
- “We’d hire someone” — In this labor market? Experienced commercial HVAC estimators are earning $80K–$120K in most markets. Recruiting takes 3–6 months. Your commercial pipeline dies during that window.
- “Our assistant estimator could step up” — Good answer. Verify it by asking the assistant to walk you through their last completed estimate.
5. How Are GC and Institutional Relationships Managed?
Commercial HVAC revenue often flows through repeat relationships with general contractors and property management companies. The estimator who’s been bidding to the same GCs for a decade has trust equity that’s independent of the HVAC company’s brand.
Ask: how many GCs represent 80% of commercial revenue? How many of those relationships are personal to the estimator vs. the company? Would those GCs continue inviting the company to bid if the estimator left?
This is the commercial equivalent of the residential customer retention question — but harder to solve, because commercial relationships are fewer, larger, and more personal.
Structuring the Deal to Protect Commercial Revenue
If the estimating function is concentrated in one person and that person isn’t the owner, you have three options:
Retention agreement — Negotiate a retention bonus for the estimator as part of the purchase agreement. A $30K–$50K bonus that vests over 18–24 months is cheap insurance on a $600K–$1M commercial revenue stream. Structure it as 50% at 12 months, 50% at 24 months. The seller should be willing to fund this from proceeds — it protects the goodwill they’re selling you.
Overlap hiring — Budget to hire a junior estimator or project coordinator 3–6 months pre-close (with seller cooperation) or immediately post-close. Even a 6-month overlap where the senior estimator trains a replacement transfers enough institutional knowledge to keep the pipeline alive.
Phantom equity — For the estimator who is also a high-value project manager, a synthetic ownership stake that pays out at your eventual exit aligns their incentives with yours for the long term. This is the PE playbook adapted for a one-company buyer. Understanding the SDE multiples at play helps you structure a phantom equity stake that’s meaningful enough to retain but doesn’t overcommit your future exit proceeds.
The Upside of the Estimating Audit
This isn’t just risk identification — it’s opportunity detection.
A company with a strong estimating function, documented processes, and diversified GC relationships is worth a premium that blended SDE multiples don’t capture. Commercial revenue with repeatable estimating capability trades at a higher multiple than commercial revenue that’s one resignation letter away from disappearing.
Conversely, a company with a weak or single-threaded estimating function is a negotiation lever. You’re not paying full price for commercial revenue that has a known fragility. Either the seller addresses the risk pre-close, or the price reflects it. Understanding owner compensation structures also helps you model how the estimator’s retention package fits into your post-acquisition cash flow.
Either way, you need to know before you sign.
