How to Price HVAC Jobs for Maximum Profit?

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Blog summary

Discover the secret to pricing HVAC jobs like a pro. Learn to determine the cost of material and labor, maximize your profits, and stay competitive with our expert tips to price HVAC jobs.

The HVAC industry has grown at a 13% rate in the past few years. The worldwide market size of the HVAC market is estimated at $367.5 billion by 2030.

With the rising demand, the competition is rising, making it difficult for an HVAC contractor to sustain and earn good profits.

Different businesses in the industry are slashing their HVAC job prices to allure the customers and stand out from the competition, but it’s eating away at their profit margins.

You don’t want to fall into this trap, right?

But how to price HVAC jobs to maintain the balance between profits and customer satisfaction?

Let’s find out.

1. Know Your Cost

The most critical aspect of pricing your HVAC job and providing an ideal job estimate to your clients is understanding the total cost. You must see how much is the job’s direct costs and then use the HVAC quote tool to prepare an estimate.

know your cost

Once you know your expenditure, you can add your profit margin to quote the accurate HVAC estimate to help you deliver a quality customer experience and increase your profit numbers.

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Your cost calculation can depend on labor, material, subcontractors, and overall taxes. These factors are important in covering the majority part of your expenses.

Have a look.

1.1 Labor cost

The total labor cost can be calculated by knowing how much you pay your employee or HVAC technicians for the job. According to Paycor, labor cost is around 70% of the total business cost. It includes your technician’s hourly wages, benefits, payroll, and HVAC tech salaries. 

Many HVAC companies don’t track how long it takes the employees to complete jobs and the total project labor costs. Since it varies from employee to employee because of their experience, it can hinder business profits.

You must ensure that you can tackle your labor cost and manage the overall company deficit, giving you a clear picture of a realistic profit goal.

You should avoid using an HVAC flat rate price book. Calculate the total service prices based on a smart pricing model, i.e., an hvac hourly labor rate, to help you with an accurate and precise HVAC job price estimation. These two pricing methods can help you estimate your HVAC jobs and set a minimum price.

You can calculate the initial labor costs for a particular task based on the number of hours the job requires and the monthly overhead costs involved.

1.2 Material cost

Material consists of the supplies required for completing the HVAC job. You need to calculate the overall material pricing that can help you enhance the HVAC load estimation process.

The material quantity and type that your client requires may vary. So, you must dive deep into understanding the scope of the work and covering your total project material expenses.

List the general HVAC equipment required for the job, calculate the actual selling price, time and material pricing, and the total material costs.

For example, a replacement part like a drain pan or a fuse will have different pricing than a new thermostat installation. Try to keep the same selling price of the products as compared to the retail sector and calculate a selling price multiplier for better pricing of the products.

1.3 Overhead costs

All additional expenses that go into managing, promoting, and operating your HVAC business are considered overhead costs.

Overhead costs usually include costs relating to

  • Business tools and equipment
  • Utility costs and rent
  • Permits and licenses
  • Fuel and maintenance costs
  • Taxes
  • Business insurance
  • HVAC marketing and advertising
  • Compensation and benefits to employees

1.4 Subcontractor pricing

If you subcontract the HVAC job to an agency, you need to ask for the total price to accomplish the required task.

You must clearly describe the requirement to help them price the task effectively and avoid future troubles.

Once the subcontractors provide the estimate, you can add your commission or profits to the final pricing and quote the HVAC estimate to your client.

1.5 Taxes

You don’t want to pay business taxes from your net income, right? You need to consider the overall business taxes in your pricing while quoting the price to your customers.

There are two options to charge your customers for HVAC jobs: 

  • You can include taxes when setting up the price. 
    or 
  • Charge taxes for individual invoices separately.

Multiple HVAC businesses charge their customers while including taxes in the invoices, but you can also include taxes when setting up the price.

You can estimate the project’s overall cost, including taxes. This can help you remain transparent with your clients rather than adding a set percentage of tax after completing the job.

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2. Perform Thorough Market Research

Once you are done calculating and estimating your pricing factors, you can add an extra edge to your HVAC job prices by determining the average HVAC prices in your town or city.

market research

2.1 Check competitors’ prices

You can conduct thorough market research and check your competitors’ prices. Only focus on competitors that target the same segment, cover the same size of operations and align with your HVAC contracting business.

If you target residential-focused HVAC requirements, you don’t want to look for commercial-focused HVAC contractors because of the huge difference in HVAC fundamentals.

2.2 Cross-check your prices

Once you have an average of competitor pricing for your target segments, you need to cross-check with your prices.

If it’s on the extremely high side, you might risk losing your target audience, and if it’s on the extremely low side, you might lose out on profit-making opportunities.

You need to balance your pricing and align it closer to the average side. It can work if it’s slightly higher or lower, but you don’t want your prices to be at the extremes.

2.3 Essential market research elements

In addition to your competitor’s price, you should also research the following elements:

  • Your target market
  • Client’s interest
  • The most typical service inquiries
  • The most widely used services
  • Elements that give some HVAC companies a competitive edge

When working on your HVAC pricing strategy, having precise information regarding the above elements might help you succeed.

3. Fix Markup: Price Charged on Top of Your Cost

You need to determine your HVAC makeup to get a better price estimation. Markup is termed as a price charge on top of your cost. It can be measured in percentage or dollar amount.

It is closely related to your profits and can be charged separately for services and materials.

For example, you have a markup on the HVAC service price that includes overhead costs and labor costs, while you can purchase different installation and repair parts in bulk and charge a markup for them.

You can choose a markup calculator to ensure you earn reasonable overall profits for your job. Ensure that you don’t overcharge or undercharge the markup and limit your opportunity for establishing a firm hold in the industry.

4. Upselling (Up-Servicing) can Help Generate More Revenue

Offering consumers more expensive services or add-ons is known as “upselling” and is a sales practice used to increase revenue.

market for upsells

This might be promoting more lucrative services or just educating clients about the various service levels you provide.

Multiple HVAC business contractors have base services that cover the bills and add on different upsells to increase their profit margins.

Sometimes, the customers don’t realize that they require different HVAC services. Training your HVAC technicians to upsell the services can help you grow your business and solve the customers’ problems they were unaware of.

The clients have more trust in the HVAC technicians than a salesperson. They can agree to the additional services when the upsell comes from a professional in the industry.

  • You need to offer the best options for upselling. 
  • Add higher-end products like luxury cooling systems, warranties, and other HVAC products and services based on the client’s budget and needs.
  • Don’t try to sell hard, as it can increase the chances of clients limiting your HVAC services and choosing your competitors in the future. One bad experience can result in you losing a recurring client.

5. Offer Discounts

You can offer discounts on different repair and installation products required in your HVAC business. But you need to purchase your products in bulk to help you maintain profits and deliver a quality customer experience.

Ensure that you don’t discount deeply on total project materials cost and maintain reasonable pricing to secure profits and deliver excellent customer experience.

Once you offer a discounted price, you can attract recurring service opportunities because of the happy and satisfied clientele that can help you sustain the service business.

If you don’t want to invest and purchase bulk orders for multiple HVAC products, you can filter down the list for specific commonly used products in the daily HVAC servicing business that can help to operate within your budget limits.

6. Deal with Customers Wisely

You’ll come across multiple clients in your HVAC service business who will request discounted prices for different HVAC jobs. Although pricing varies based on experience and expertise in the industry, you can’t compromise below a set estimation cost.

You can’t afford to lose that client because of growing competition, so you need to figure out an alternative way to handle the negotiation of HVAC job prices.

  • Before you agree to offer discounts, you need to consider the profits margin, any upsell opportunity, the long-term scope of the project, or an alternative service within their limited budget.

Exploring these options can help you make informed and calculated decisions that won’t harm your profits or client relationships.

  • If you don’t find an alternative and are restricted with your prices, you can consider downsizing your job to help the client. Cut down some services or lower the material costs using different strategies.
  • You can offer discounted rates on the upsells and maintain profit margins in the base services. This can help you increase the overall project requirement and make the customer happy about the discounted prices and the services offered.

Considering these factors can help you price HVAC jobs for maximum profits and ensure you can provide the right estimates to your clients.

Once the clients consider your HVAC estimates genuine and within their budget, you can deliver your HVAC services based on the initial requirements and demand.

But calculating your estimates can be a hassle if you choose the manual process. You might skip a few important elements, or there are chances of human errors that can hinder your profits.

You need a professional HVAC estimating and invoicing tool, like InvoiceOwl, to help you streamline your estimating and invoicing process and remove the inefficiency and errors from the process.

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Frequently Asked Questions
  1. Is the HVAC business profitable?

    Yes. Because of the increase in residential and commercial buildings, the demand for quality HVAC service providers is increasing, and there are a lot of opportunities to make great profits.


  2. How to calculate the HVAC job price?

    The price of the HVAC jobs can be calculated considering multiple factors like labor, overhead, material, and taxes. These factors enable you to estimate your expenses for the job and give you an idea of how much markup to add to earn decent profits.


  3. What is the markup in the HVAC industry?

    The markup is the additional cost increase you do in the overall cost of the HVAC task. You can add markup for products and services separately, which can help you to increase your overall profits.


  4. How do you charge HVAC parts?

    You need to calculate the tool procuration cost of the HVAC products and add your profit margins to quote the estimate to the customer.

    Consider purchasing the item in bulk to lower the purchase price. This can help you offer a decent discount to the customer to increase the conversion rate and delivery quality.


  5. How can estimation software help the HVAC business?

    An hvac heat load calculation software can help you improve your service pricing process and accurately set the HVAC price. Based on your HVAC pricing model, you can set the initial setting in the software and remove the manual management of the estimation process.

Conclusion

In essence, pricing HVAC jobs profitably requires striking a perfect balance between knowing the cost of materials, figuring out labor costs, and taking other considerations into account. Success in the HVAC market depends on developing a pricing strategy and informing clients of your competitive prices. 

Although it might be a time-consuming process, it can be made into a more efficient procedure with the use of the best apps for hvac contractors, like InvoiceOwl. With the software, you can simplify your workflow and boost earnings by quickly estimating and printable hvac invoice template projects. It is a strong piece of software that can provide you with a competitive edge in the market and assist in growing your business.

Author Bio
Jeel Patel
Jeel Patel
Founder

Jeel Patel is the founder of InvoiceOwl, a top-rated estimating and invoicing software that simplifies the invoicing and estimating processes for contractor businesses. Jeel holds a degree in Business Administration and Management from the University of Toronto, which has provided him with a strong foundation in business principles and practices. With understanding of the challenges faced by contractors, he conducted extensive research and developed a tool to streamline the invoicing and estimating processes for contractors. Read More

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