How to Price HVAC Jobs: 7 Tips to Turn a Profit
There’s a lot to consider when pricing your HVAC services. From setting competitive rates to making a profit, you need to strike a balance that keeps both you and your customers happy. Before setting your prices, take time to figure out what your costs are, how much you need to make to be profitable, and how you’ll handle different pricing situations in the future.
By being proactive and planning ahead, you’ll build a stronger pricing strategy that you can rely on for years to come.
Read through our guide to learn seven valuable tips for pricing out services for your HVAC business.
1. Calculate your costs
The first step in pricing your HVAC services is calculating your costs. By knowing how much you need to spend, you can determine what you need to make.
Your costs can be divided into three categories: labor, materials, and overhead.
Labor is how much you pay your contractors, subcontractors, or employees (or yourself) for a job. It often eats up 30% of your revenue. Labor is usually an hourly rate or cost per job. For example, $20 an hour or $50 for an HVAC tune-up.
READ MORE: Find out how much to pay HVAC technicians in your area in our 2022 HVAC Salary Guide
If you haven’t been tracking how long it takes your workers to complete jobs within allotted timeframes, reference your experience. Think back to similar jobs and take note of how many team members you’ll really need to get the job done.
Once you have all that information, here’s how you can figure out your labor cost:
- Multiply the number of hours needed to complete a job by the number of employees needed on the job. This is your labor hours.
- Then calculate your hourly labor cost. This can be employee’s wages, extra for taxes, worker’s compensation, and any other employee-related expenses. 20% is a reliable markup for an hourly labor cost.
- Multiply the labor hours by the hourly labor cost to get your labor cost.
Materials are made up of the supplies you need to complete an individual job. For example, a new thermostat or a replacement part like a fuse or a drain pan. Use expense tracking software to keep a record of parts and other job-related materials.
The material type and quantity you need will vary by job. Once you have a clear scope of the work, start by listing all the materials you need for the job, attach a corresponding cost, and tally all costs for the grand total.
READ MORE: Free HVAC installation checklist template
Overhead is the combined cost of all the things you need to run your business. Overhead is not specific to an individual job and includes vehicle leases, licensing fees, cell phone bills, insurance, office space, and uniforms.
Here are four steps to help you calculate the portion of overhead costs you need to recover for each job:
- Calculate your weekly overhead fees (let’s assume it’s $2,000).
- Determine the number of weekly labor hours worked (for example, 100).
- Divide weekly overhead cost into hours worked for an hourly overhead cost ($2,000/100=$20 ). This means that for every labor hour you need to charge $20 to cover that cost.
- Multiply the hourly overhead cost by the number of man hours for the job ($20*260=$5200).
Once you’ve calculated your labor, materials cost, and your overhead, tally it all up.
Remember: Underestimating your labor and materials can be risky. It’s important to have a crystal-clear idea of your costs to make sure that you aren’t spending more than you bring in.
2. Research competitor rates
Next, do some competitor research to determine what average HVAC prices look like in your city or town. Be sure to review both new and established HVAC businesses to get a feel for how pricing varies based on experience.
Not all of your competitor pricing will be on their website so you may have to give them a call and ask for some of their rates. This will give you a better idea of what they charge.
Take note of the services they offer and how similar they are to yours. Pay attention to things like:
- Whether they offer residential or commercial services or a mix of both
- What size jobs they focus on
- How long they have been in business
- How big their company is
- Whether they hire employees or contractors
All of this affects how much a business will charge for their services. Established, commercial-focused HVAC companies may have higher rates because they need more equipment or employees. Alternatively, small, residential HVAC startups may offer lower rates because they have less overhead.
If your prices are too high, you risk missing out on customers, but price too low and you won’t be making much (if any) profit.
Find businesses that offer similar services to yours and try to price yourself somewhere in between the highest and lowest pricing so that you can take advantage of that sweet spot.
You’ll want to keep an eye on what your competition charges even after you’ve set your service pricing. As market rates change, your pricing will have to be adjusted.
3. Add taxes
You probably already know that you need to pay business taxes, but don’t forget to consider them when setting pricing. You’ll have two options when it comes to quoting your customers for your HVAC services:
- Charge taxes separately on each invoice
- Include taxes in your pricing
Most businesses choose to list taxes separately on each quote or invoice because it’s easier to calculate and manage. This means that they set a specific price for a service, like $80 to repair a flame sensor, and then charge taxes on top of it.
If you decide to include taxes in your pricing, you need to make sure they don’t end up cutting into your profit, especially if tax rates change.
4. Determine your HVAC markup
Markup is how much you plan to charge on top of your costs. It can be measured in a dollar amount or a percentage. Usually, you set the markup for your materials and services separately. Remember that markup for service businesses and profit margins are closely related.
For example, you may buy parts in bulk and charge a markup on them, while you also have a markup on jobs after costs like labor and overhead.
To get a more straightforward idea of your markup, use our HVAC parts markup chart to see if you’ve been able to make a reasonable profit after your jobs.
The calculator helps you determine the profit margin, profit dollar amounts, and job markup after the real costs (like materials, and labor) and price are added in.
Marc Brewer, the owner of DALCO HVAC shared some insight on how he thinks about markup:
“Half of the quote is overhead costs, but overhead costs differ. Is it a lean business, or a business with a fancy shop and a big HVAC marketing budget? This will determine how much you need to price out your work,” Marc says.
“I try not to obsess over monthly income in my business statements. Instead, I compare monthly performance over an annual term (e.g. this March to the previous March) to see if the top and bottom-line numbers improved or not,” Marc tells us.
“I don’t change proposals and accounting overhead if something has changed from the previous month because business is seasonal, so monthly comparisons are not helpful.”
Marc recommends looking at the year-end income statement, then overhead, and then dividing it by 260 (daily workdays in the month or you could divide it by 12 for a monthly breakdown).
5. Use strategic upsells
A lot of business owners have base services to cover the bills and use upsells to bring in a significant profit. Marc also recommends this strategy for HVAC businesses:
“Your customer might not even realize they need a certain service, and you might be getting them at the perfect time. They also might not be aware you provide certain services, so upselling is a great time for cross-promotion.
Marc tells us that once you prioritize upselling, you can train your employees on how to use upselling techniques when they’re on the job site. Then build it into your employee training plan.
“Your clients view your HVAC techs as experts in their field, so they’re more trusted than salespeople anyway.”
Offer good, better, best options when quoting your clients to sell higher-end products like warranties, or luxury cooling systems. This gives your customers the option to decide what they would like, based on their own budget and needs. Optional HVAC packages in quotes can make your quotes stand out from the competition, plus you can maximize your profit.
6. Offer bulk rates
Bulk orders for small and large jobs can be a huge boost to profit. Encourage group and neighborhood jobs by offering discounted rates for customers in the same communities. Make sure to offer them simple, straightforward jobs that all homeowners need, like heat pump and furnace cleaning so that you can accurately calculate rates and make sure you don’t discount too deeply.
Some of these customers will turn into larger jobs while others may just call you for maintenance each season. Either way, if they’re happy with the job you did, they’re likely to give you a call again and recommend you to friends and family.
You can even set limitations to make sure that you stay within your profitability range. For example, you could offer a 10% discount on seasonal maintenance or cleaning, but only if at least 15 customers commit.
Clients who need your services will talk to their neighbors and spread the word, doing a lot of the marketing work for you.
7. Handle customers who negotiate
Eventually, you’re going to come across a client who wants a deal. But whether you can give one to them or not depends on a few different things.
Before giving a discount to a client, consider:
- How much profit you are going to make on the job
- If you can offer an upsell at discount prices instead
- The scope of the job (how big of a job is it?)
- If you can offer a different service within their budget instead
Sometimes, you can work with a client without actually offering a discount. Knowing why they are asking for a discount is key: are they on a tight budget, or are they simply hunting for a deal?
If they’re on a restricted budget and simply can’t afford to go over a certain amount, consider how you can downsize the job to help them out. That might mean cutting back on some services or using lower-cost materials.
If they just want a discount for the sake of getting a lower price, try keeping the base service the same but offering an upsell at a discounted price. If you need to complete a furnace repair, offer your customer a cleaning service for less than your usual price.
This way, you still get paid for the initial job (which is where you likely have the least wiggle room), and the customer feels like they got a deal.
Pricing HVAC Jobs for Profit
Pricing HVAC jobs can be a lot of work in the beginning but taking the time to set strategic prices that benefit both you and your customers will pay off in the end. Forgetting this important step is what causes a lot of businesses to fail early on.
By understanding your costs, doing competitor research, and calculating markup, you’ll be sure to set your business up for healthy and profitable growth in the future.