A multiple has to be applied to an earnings figure, and HVAC deals use two of them — SDE and EBITDA — which is why a quoted multiple tells you almost nothing until you know which measure it sits on. This is general education, not legal, tax, or financial advice; confirm the right earnings measure and figure for your specific business with your own CPA, M&A advisor, and certified business appraiser. What this guide does is explain the two measures clearly, so that when you hear a multiple you can ask the one question that makes it meaningful: on what earnings?
Owners hear multiples thrown around constantly, and the confusion almost always traces back to this point. Someone says HVAC businesses sell for “three times” and someone else says “eight times,” and both can be right, because they are quoting different earnings measures. Sorting that out is not accounting trivia — it is the difference between understanding a quoted number and being misled by one.
SDE: earnings for one owner-operator
Seller’s discretionary earnings (SDE) takes the business’s profit and adds back the owner’s salary and discretionary expenses, plus interest, taxes, depreciation, and amortization. The question it answers is “what does this business produce for one owner-operator who works in it” — the total benefit a single working owner takes from the business. It is the common measure for smaller, owner-run shops, because the buyer of that kind of business is stepping into the owner’s role: they will draw the salary the previous owner drew, so adding it back to show the full earnings available to the new working owner is the honest way to measure what they are buying. The defining move of SDE is that the owner’s compensation is treated as a benefit returned to the owner-operator, not as a cost of running the business.
EBITDA: earnings with management in place
EBITDA — earnings before interest, taxes, depreciation, and amortization — measures the business’s earnings with a professional management team in place. The decisive difference from SDE is the owner’s pay: EBITDA leaves a market-rate manager’s salary in as a real cost the business has to carry, because the buyer of a larger business is not going to run it themselves — they will pay someone to. EBITDA is the measure for larger, multi-crew operations and for nearly all private-equity and strategic deals, where the business already runs on management rather than on the owner’s own hands. Because it subtracts a manager’s pay that SDE adds back, EBITDA is usually a smaller earnings figure than SDE for the same business — and that single difference is the root of most multiple confusion.
Which measure applies to your business
The choice tracks size and structure more than anything else. A smaller, owner-operated shop where the owner is central to selling and servicing the work is usually valued on SDE, because the buyer is stepping into the owner’s role. A larger operation with a management team already running the day-to-day — and nearly every private-equity and strategic deal — is valued on EBITDA, because the business already carries the cost of professional management. Plenty of growing HVAC businesses sit in a gray zone where both get discussed, and where the choice interacts with who is buying: an owner-operator may frame an offer on SDE while a platform buyer frames the same business on EBITDA. That overlap is one more reason the buyer type matters so much, which is the subject of who buys HVAC businesses. The measure is not a label you assign yourself; it is a conversation to have with an M&A advisor who knows how your eventual buyers will frame it.
Why the same business carries a different multiple on each
Here is the point that resolves most of the confusion: because SDE and EBITDA produce different earnings numbers, they cannot carry the same multiple and still describe the same value. SDE is usually the larger figure, because it adds the owner’s salary back, so an SDE multiple is applied to a bigger base — which means it is naturally lower than the EBITDA multiple for the identical business. The reported ranges show exactly this. The business-for-sale marketplace BizBuySell, which tracks completed sales, has reported smaller owner-operated HVAC businesses changing hands in the rough range of 1.99 to 3.33 times SDE. First Page Sage reports HVAC industry averages nearer 8 times EBITDA and 5.1 times SDE — note the same source quoting a higher number on EBITDA than on SDE, which is the relationship described above. And broad advisory commentary from firms such as Capstone Partners frames the wider consensus around 3 to 10 times EBITDA, with well-run growth platforms higher. Those are reported industry ranges that vary by source and deal size, quoted on different measures — not a quote for your business. Comparing an SDE multiple to an EBITDA multiple directly is comparing two different things, which is why the first question to ask about any multiple is which measure it sits on. The broader framework these multiples plug into is covered in what an HVAC business is worth.
Real-World Scenario: One HVAC business is described two ways in the same week. An individual buyer looking to own and run it frames it on SDE — adding the owner’s salary and the personal vehicle and the discretionary expenses back to profit — and arrives at a healthy earnings figure and a modest-sounding multiple. A private-equity platform looking at the identical business frames it on EBITDA — leaving in the cost of a market-rate general manager, because they will install one — and arrives at a smaller earnings figure and a larger-sounding multiple. Nothing about the business changed between Tuesday and Thursday. The earnings figure changed because the measure changed, and the multiple changed to match. An owner who only heard the two headline multiples, without the measure attached, would think they were looking at two different businesses — when it was one business read through two lenses.
The arithmetic is simple; the inputs are not
It is tempting to treat valuation as a calculator exercise: pick an earnings figure, pick a multiple, multiply. The arithmetic genuinely is that simple — and that is the trap, because the two hard parts are the inputs. Getting the earnings figure clean means normalizing the books and supporting every add-back, which is work for your CPA; pick an unnormalized number and the multiple multiplies the error. Getting the multiple right means knowing which measure it sits on and how your specific drivers move it, which is work for an M&A advisor or certified business appraiser. A figure pulled from a chart and applied to your raw revenue is a guess dressed up as a number. So learn the measures, ask which one any quoted multiple sits on, and then let the professionals produce the clean earnings figure and the right multiple for your operation. The preparation that improves both — cleaner books and a stronger, more transferable earnings base — is covered in how to prepare your HVAC business for sale, and the way these measures show up in offer structure is in deal structures for selling an HVAC business. For the cost side of running the operation, see what drives HVAC insurance costs, browse more owner resources as the library grows, and when you want the general liability and other coverage written to the way the business actually runs, start a quote. This is general education to sharpen the conversations with your own CPA, M&A advisor, and appraiser — not a substitute for their advice on your specific business.