HVAC Pricing Guide: How to Price HVAC Jobs?

How to Price HVAC Jobs Step by Step?

Choose a Pricing Strategy

Some pricing models are specified as suitable for specific services. So, initially, you need to justify a proper pricing strategy. There are two HVAC pricing models: flat rate pricing and time and materials pricing.

Flat Rate Pricing

HVAC Flat rate pricing includes a fixed cost of a job regardless of its duration. It’s a kind of reward-efficient work, which means more profit will be there when you perform fast.

HVAC flat pricing is ideal for the following types of work:

• Routine Maintenance and Inspections—Proper standard procedures are required for regular inspection and HVAC maintenance. The flat rate is the best option for performing this work.
• Common Repairs – Some repair services are simple. This comes under flat-rate pricing strategies.
• Installments and Replacement – A flat rate price can be applied for a brand-new HVAC system, the price of which depends upon the supplier.

Material and Time Pricing

This kind of pricing method is based on the time that the job takes, including contractors’ hourly labor rate and material cost. After that, you can include markup to the total as follows –

Total cost = profit + overhead + (cost of material x markup) + hourly labor rate

Here,

Hourly labor rate or HVAC labor cost per hour is the amount of time workers take to complete the job. If it is a long time, the amount of money will be high while on the other hand, it will be low when the amount of time is less.

This kind of pricing model is suitable for the following jobs:

• Custom Installations: Custom installation is sometimes outside the scope of your normal job. It requires extra time and materials. That’s where pricing by the hour helps you gain profit.
• Complex or Unusual Repairs: Determining labor hours is a tough job for complex repairs. That’s where charging by the hour is the best solution to ensure specialized skills.
• Emergency Calls: Emergency HVAC service is time-consuming and complicated. These kinds of calls also affect the scheduled work and that’s where time and material pricing is an ideal solution.

Hybrid Pricing

A combination of hourly and flat rate approaches is hybrid pricing to reach the best pricing for your HVAC job.

In this kind of pricing strategy, a business owner can easily apply an hourly rate approach to large and complicated tasks. On the other hand, choosing a flat rate price is for small and simple jobs.

In this way, it offers flexibility in pricing HVAC services. With hybrid pricing, you can also charge an additional fee for the inspection.

Research Competitor Rates

Checking out competitors’ rates is highly recommended when you are pricing for HVAC jobs. You have to examine your competitors’ strategies properly. You need to pay attention to the following things –

• Company size
• Are they providing service to residential or commercial customers?
• From how many times they are offering service
• What job size do they consider

A well-established company, when serving commercial sites, will always charge high rates.

However, prices will be dropped for small and residential HVAC. At the initial stage of your HVAC business, set a proper price that is normal between high and low rates.

Calculate Your HVAC Job Costs

For a proper understanding of HVAC prices, we can divide them into material, labor, and overhead costs.

Calculating Material Cost

To offer the best HVAC service, you need to buy materials. But before that make sure to inspect the site and the job. Once you have that, list out the materials you need, determine the cost of each material, and add a markup to each material cost.

HVAC Labor Rates

Labor rate is how much you pay for contractors, subcontractors or your employees. The labor cost will be calculated as

Hourly Labor Cost x Labor Hours

Suppose 4 people are working and taking 2 hours so the total labor hours will be 8 hours. Now to determine hourly labor costs you need to find out the total by adding workers’ compensation, and taxes, and add up each HVAC technician’s hourly salary.

A reliable markup for hourly labor costs is 20% to 30%. For example $22 + 20% = $26.40. Now multiply this cost by total labor hours, $26.40 x 8 = $211.2.

Add Markup to Your Total Cost Estimate

The next strategy is adding a markup to your HVAC costs. This markup will be how much you charge on top of the price to meet your profit margin.

There is a separate markup added for services and materials in HVAC.

• Calculate a total cost estimate (overhead cost + material + labor)
• Determine the desired profit margin
• The total price of a job = markup + cost estimate

To calculate HVAC markup you need to use the below formula as –

Markup Percentage = (Selling price – Your Cost)/ Your Cost x 100

Calculating Overhead Costs

Overhead cost is the combined cost of all the things. These include licensing fees, vehicle leases, cell phone bills, uniforms, and office space. You can consider these overhead costs annually or monthly when you are pricing HVAC jobs. The formula for overhead cost calculation is as follows –

Total monthly overhead / number of billable hours per week

• Calculating the monthly overhead fee
• Obtain the number of weekly labor hours worked
• Now divide the weekly overhead cost into hours worked. This will help determine what cost you need to charge for every labor hour.

For instance, if your monthly overhead cost is $8,000 and the number of hours that workers work is 200 hours. So the hourly overhead cost will be $8,000/200 = $40.

Now, suppose the number of labor hours for a job is 300, multiply this hourly overhead cost by the same.

That is $40 x 300 = $12000

This total overhead cost that you need to consider.

Add Applicable Tax

Including taxes is the next move in this journey. This is important to cover your business taxes. There are two options when covering your taxes.

• Charge tax on each invoice separately
• Include tax in the pricing

Usually, businesses mention tax as a separate line item on every quote. This makes it easy to calculate and manage taxation. This simply means business owners can set a specific cost for the service and then charge applicable tax on it.

Negotiation in Price

Certain moments you can come across when there is a need to negotiate the price and this might be offering a discount. This is a common scenario when pricing HVAC jobs.

However, before providing a discount, you must have a clear scenario on the below factors –

• How much profit will you earn after offering a discount?
• Is it possible to offer a different service within the budget of the customer?
• Is it possible to offer an upsell at a discount price?

If your customer is urging negotiation, then you must try to know why they are emphasizing a discount. You can further offer them multiple proposals with different prices. And make flexibility in payment by enabling them to pay in installments.

You can offer them additional service at a lower price than usual if your customers aim to avail a lower price through discount. For instance, you can offer furnace repair along with the main air conditioning repair service at a low price. Furthermore, always use high-performing HVAC equipment.

What Is the Average Price for HVAC Service?

There are certain average costs that are applicable to different HVAC services. These are repair costs and HVAC installation costs which are as follows –

What Is the Best Profit Margin for HVAC Companies?

The profit margin is the percentage of net earnings. This earning is determined after you make payment to your employees, covering the material cost and considering overhead costs.

The average profit margin is 25% for HVAC businesses. This too depends upon individual goals and services. Additionally, HVAC business owners need to justify how much profit they need to operate and manage their HVAC companies.

How to Calculate HVAC Profit Margin?

Using the below formula, you need to calculate your net profit as –

Net income = Total revenue – Material Cost – Labor cost – Overhead cost

Now determining profit margin as –

Net Income/Total Revenue = Profit Margin

Now, to factor the profit margin into the pricing for the particular job, you need to use the below formula as –

Total Project Pricing = Total Project Material Cost + (Total Project Material Cost x Profit Margin)

How to Create a Professional HVAC Estimate?

Creating a professional HVAC estimate is more crucial than just creating a normal estimate. You must mention your expectations clearly to avoid confusion and avail profit. Mention all the details accurately, related to business, client, and the service that you offer with proper cost breakdown.

Well, this is just an overview of creating an estimate. For the proper crafting of an estimate, you need to choose the right estimation software like Moon Invoice.

The platform is committed to offering 66+ estimated templates with highly personalized and easy-to-download. MS Word, MS Excel, Google Sheets, Google Docs and PDF are the formats in which estimated templates are available. This makes the estimation process simple, fast, and accurate. The basic details you need to add in the estimate are as follows –

• Business name with contact details
• Client name with contact details
• Estimate number, date of issue, and currency
• Add HVAC services along with a cost breakdown
• Applicable tax
• Notes or terms of payment

Moon Invoice also enables professionals to send estimates easily via online mode through WhatsApp or email.

Verdict

So here we end with an HVAC pricing guide for contractors. Pricing for your job is not too tough but you must handle it wisely. This is crucial to maintain a steady flow of profit to keep your HVAC technicians, other employees, and customers satisfied in terms of wages and service.

Looking for the right estimation solution for your HVAC? Try Moon Invoice today!

Frequently Asked Questions