A Definitive Guide on How You Should Price Your HVAC Services

The Basics of Pricing

When running your HVAC business, you need to keep in mind the two types of costs that serve your basis – direct and overhead. The direct cost is anything that goes into executing or performing a particular HVAC job as intended. It includes everything from ductwork and general HVAC equipment to permits and labor. On the other hand, the overhead cost keeps the business up and running every day. Your overhead costs include salary, vehicle expenses, uniforms, and employee training and trash removal.

If you don’t have any insights into HVAC pricing, both terms are likely to mean nothing to you. As an HVAC contractor, it is your main role to understand how to baseline a project and how the costs flow in the grand scheme of things. The worst thing you may do when running the business is making some assumptions. 

For instance, if you’re a small-name contractor, setting HVAC prices absurdly lower thinking you’ll gain profit from there sounds like a big joke. Take a step back and take enough time to calculate your costs. One more straightforward way to determine what to charge is by simply multiplying your overhead by a hundred. Next, divide the number you get by the value sales you make. If you want to try other ways, here are three pricing methods you can use:

1. Single Divisor Method

There’s one similarity among these three pricing methods – your set prices have to cover direct and overhead so that you can make a profit. Yet, there’s a possible risk of setting an HVAC price, especially when the price is equal to the two types of costs. It may lead you to break even where your profit may lose.

But the first method, “Single Divisor method,” leans on the idea that any HVAC services you’ll offer require a balanced amount of labor and tools. The divisor is 1.00 and with equal parts percent overhead as well as net yield before taxes.

Go follow up the whole thing by using the divisor to calculate your pricing. Also, your sales prices are calculated by dividing the particular job’s expenditures by the divisor.

2. Turning Divisors into Multipliers

You can also set HVAC services by changing divisors into multipliers. In the simplest terms, the selling price multiplier will be 1.00 and divided by the divisor, which is set to 1 as well. What makes this specific method unique is that you’re going to multiply the selling price multiplied by the job’s direct costs.

While the mathematics behind the calculation is somewhat different from the first method, you still get the same selling price. The main reason is that both estimates depend on similar assumptions – that tool and labor costs are equal with the same value of 1.00.

3. Dual Overhead method

The last method from the three basic HVAC pricing methods is none other than the dual overhead. It is unique from the first two. Dual overhead largely depends on the idea that costs of tools and labor stated in the first two methods aren’t similar or equivalent. In this method, labor is more costly in every instance, meaning it may not make sense to account equally whenever calculating costs.

It’s far more expensive for the HVAC contractor to cover worker compensation, health insurance, uniforms, and training than to recover the costs for materials and tools.

To calculate service prices using this method, find first the material overhead multiplier known as MOM. The equation will be: 

(Labor cost divided by the material cost) x (overhead cost/ (material + labor)) +1.

Next, calculate the LOM (labor overhead multiplier) using the following equation:

((material cost divided by labor costs) x (overhead cost/ (material + labor))

Then, you have to calculate the break-even selling price using the equation to figure out the minimum price you should set to avoid losses:

(MOM x material and equipment) + (LOM x labor)

Your fourth and last step will help you figure out the actual selling price to ensure your ideal profit. You may do it using the following equation:

Break-even value x profit multiplier

Pricing any HVAC Services and Turning it into Profit

1. Calculate your costs

So the very first step in pricing the HVAC services is to calculate your costs. By determining how much you need to spend, you can figure out what you need to make. The costs can be actually divided into three categories – materials, labor and overhead. 

• Labor 

It is the amount you pay your subs, employees, and even yourself for every specific job. It might eat up almost thirty percent of the revenue. Usually, the labor is an hourly rate or cost per job. If you’re not tracking how long it takes your laborers to complete jobs within allotted timeframes, you can reference your experience. Start thinking back to similar jobs, and figure out how many team members you need to get the job done.

Pro Tip: You must keep all of the vital information. With a contractor software tool like Pro Crew Schedule, everything is listed, organized, and time-tracked, including job notes, details about the crew, and even inventory.

• Materials 

Materials are made up of all the supplies you necessarily need to finish a specific job. For instance, there are replacement parts like drain pan or fuse and new thermostats. You need to use an inventory software system like Pro Crew Schedule to keep records of parts and any other job-related materials.

• Overhead

It is the mixed costs of everything you need to run your HVAC business. Overhead is usually not specific to any individual jobs. Yet, it includes licensing fees, vehicle leases, insurance, office spaces, cell phone bills and uniforms.