According to Mordorintelligence’s recent study on the HVAC services market, it was valued at USD 57.8 billion in 2020, and the number is expected to touch USD 82.5 billion by 2026. So there is scope for the HVAC business.
But most HVAC business owners assume that when their work volume increases, their profits will skyrocket, which is not always the case.
In reality, the HVAC contractors have faced losses in their business even after staying busy all year working on multiple projects.
The main problem lies in their HVAC pricing. HVAC businesses either price their service incorrectly or fail to implement the pricing accurately in their business.
Before setting prices for your HVAC services, you must figure out your costs, how much you will be profitable, and how to handle different pricing situations in the future. Though pricing HVAC jobs can consume time and effort in the beginning, it will pay off when you profit from your business.
So, this article aims to educate the importance of pricing and has an effective HVAC pricing guide to follow to price an HVAC job.
Let’s first start with the make and break point of the HVAC pricing guide, the pricing models. As it is crucial to determine how you will be charging your customers. There are two types of pricing models-
- time and material pricing
- flat-rate pricing model
Let’s understand it more briefly, shall we?
Time and Material Pricing Model
This pricing model is based on the time and material used for the HVAC job. The time and material pricing model are most used when the HVAC companies have a clear idea of what they will get from this project.
The price is determined after the job is done, so there is no upfront cost for the task. However, the pro is that it is flexible and there is no pressure to finish the work in a specific time. The technician can focus on quality over quantity in this pricing model.
But everything has pros and cons, right? Here the con is that you need to create a new estimate whenever time and material add up to complete the task.
Following is the formula to calculate time and material pricing:
Time and material pricing= Man hours rate x agree-upon rate + materials costs
Flat Rate Pricing Model
It is an ideal pricing model if the HVAC company has a clear idea of what they will get from this project. In this pricing model, you have to estimate and give the customer the charge price amount before the work starts.
So, before the task is complete, you would have known how much the work will cost you. Moreover, you and your customers will be on the same page. The cons of this pricing model is that you don’t have an exact idea how much time and labor you will require.
And due to that chances of getting an exact estimate reduces.
Following is the formula to calculate flat rate pricing:
Flat rate pricing= Hourly rate x repair time in hours + part cost x part mark-up
Basic Steps to Follow to Price an HVAC Job
Planning how to price HVAC services demands an understanding of the job, its requirements, and the cost involved. Below we have given a simple 6-step process that guides you in curating the total system price estimate for an HVAC job.
Step 1: Estimate your cost
The first step is to know your total HVAC system cost. Only when you have an idea about the amount you need to spend can you quote the right price.
Your HVAC job cost can be estimated based on the labor, material, overhead, and taxes.
The labor involves calculating how much you pay for your HVAC contractor, sub-contractor, or employees, along with a margin for yourself for a job.
According to the survey taken by Paycor, labor costs account for 70% of total business costs. This cost includes employee wages, payroll, benefits, and other related taxes.
A labor job is an hourly-based rate or cost per job. So you must have genuine information on your labor hours and labor cost.
Tip: If you haven’t tracked how much time it takes for your employee to complete a particular job, then refer to your experience. Analyze similar jobs and note down how many members are needed to complete a job.
Once you have the required numbers, calculate the following two variables:
Labor hours: Number of hours needed to complete a job X the number of employees required.
Hourly labor cost – Total employee wages, extra taxes, worker’s compensation, and other expenses related to an employee. Here 20% is a definitive markup for an hourly labor cost.
Now calculate labor cost using this formula:
Labor cost: Labor hours X hourly labor cost.
The materials here refer to the supplies required to do an HVAC job. So the overall material pricing must be calculated to curate the estimation process.
Remember, the material quantity and the type may vary depending on your client. So it is vital to acknowledge the scope of the job and try to cover your total material expenses for the job.
So you need to finalize the general HVAC equipment needed for the job, then calculate the actual selling price, time taken, materials pricing, and the total material costs.
If you subcontract the HVAC job to any agency, you must include that cost too.
You must ask for the total price to accomplish a particular task.
Note: You must quote the exact requirements, so that it helps them calculate the price for the task effectively and avoid unnecessary troubles in the future.
When the subcontractor provides you with an estimate, add your margin to the final pricing and quote the HVAC price for the job.
This is the combined cost of the extra costs needed to run your business, including phone bills, office space rest, insurance, vehicle leases, and even uniforms.
This is a crucial element to be included. No one would want to pay business taxes from their pockets. So you can include taxes in two ways: either charge the taxes separately on each HVAC invoice or include the taxes in your HVAC job pricing.
Most HVAC businesses include the tax in the invoice while charging the customers. But you can also include the taxes while initiating the price.
To summarize, calculating your HVAC cost is a crucial step, and it must include the cost of labor, subcontractor, materials, overhead, and taxes.
Step 2: Do some market research
When you are done estimating the cost of your HVAC job, the next crucial thing to carry out is market research to determine the average HVAC prices for your city. You must review both new HVAC businesses and old ones to clarify the factors based on which the pricing varies.
Here it is crucial to check if the competitors offer the same services as yours.
To check if they offer similar services to yours:
- Check the size of their job.
- Their experience in the field.
- How big their company is.
- Whether they hire employees or prefer HVAC contractors.
- Offer residential or commercial services or hybrid services.
So comparing the competitors’ pricing is essential here. For example, if your target residential HVAC unit service, you may not focus on or need commercial-based HVAC unit service due to the huge difference in HVAC fundamentals.
And there is a difference between a commercial HVAC pricing guide and a residential HVAC pricing guide and fixing the same price for both can affect the profit. So remember to keep an eye on details while comparing the competitor pricing.
Tip: If the competitor’s pricing is missing on their website, get onto a call to know their actual costs.
Once the competitor’s pricing calculation part is done, cross-check with your prices.
If the price is on the extreme higher side, you might fail to attract your target audience.
Meanwhile, if the pricing is on the lower side, you might not make a profit out of business. So, balance your pricing and align it closer to the average side.
Step 3: Decide your HVAC markup
To get a better price estimation, decide on your HVAC markup. Markup here refers to the charge you put on top of your cost. It can either be measured in a dollar amount or a percentage.
Since markup is closely related to your profits, you can charge it separately for materials and services.
For instance, if your markup on the HVAC service price includes overhead costs and labor costs, but you purchase different installation and repairing parts in bulk, that case, you can charge a markup for them.
To calculate markup, choose a markup calculator to ensure you earn reasonable overall profits for your HVAC job. Also, it is vital to ensure you don’t overcharge or undercharge the markup.
Step 4: Use strategic upsells
Your customer may not realize they need a particular service and might not be aware you provide that particular service. So by upselling, you can increase your revenue and profit.
Multiple HVAC business contractors use strategic upsells where they have a base service that covers their bills and add on different services that can increase their profit.
It is also essential to train your HVAC technicians rather than the HVAC salesperson to upsell the services because customers trust the technicians more and agree to the additional services when the upsell comes from a professional.
Step 5: Offer discounts for bulk orders
This is another essential strategy to carry out. When you offer bulk services discounts, the customer will likely grab the offer. Here you can offer discounts on different repair and installation products required in your HVAC business.
But to make a profit, you must purchase products in bulk and deliver quality customer requirements. Here you must also ensure you don’t provide major discounts. Otherwise, you will be left with no profit. To maintain reasonable pricing to secure profits and also ensure customer satisfaction.
Step 6: Handle negotiations
Client negotiations are part of a business. When you come across a client who wants one, you must decide whether or not you can provide a discount.
But if you are providing a discount, consider four important factors:
- How much profit you will make
- The scope of the job
- Whether you can offer an upsell at a discounted rate instead
- Whether you can offer a different service within the customer’s budget instead
You can also work with a client with flat rate pricing rather than offering a discount. Still, if a client is asking for a discount outlining their tight budget, consider cutting back some HVAC services or using lower cost materials without compromising on service.
Meanwhile, if your customer wants to hunt a deal, try to keep the same base HVAC service but offer an upsell at a discounted price. So it becomes a win-win for both.
Factors That Affect the HVAC Pricing
Installation of a new HVAC system cost must also consider long-term costs, including repair, maintenance, and energy costs.
However, some factors affect the total cost, which will be discussed in this section.
Age of the HVAC system
The lifespan of an HVAC unit is usually 15 to 25 years. So with time, the condition of the HVAC unit tends to deteriorate.
If you are servicing an older HVAC system, it costs more than a new HVAC system because most of the components would be worn over the years. So if any part requires replacement during HVAC serving, the HVAC replacement cost will be high. Since new HVACs have parts in good shape, they don’t cost much.
Local climate conditions
The local climate conditions are the next crucial factor that can affect costs. In the United States, if the house is in the south, it will face hot summers. So it needs an AC unit with a size capable of cooling the house during the high-temperature summers.
Meanwhile, if the house is in the northern part of the United States, it requires a larger heating capacity than a cooling unit. So the average HVAC cost is affected based on the heating and cooling of a particular place.
Type of AC system
The model and type of HVAC brand air conditioning system can affect the installation costs. The more features the unit has, the more it costs while servicing or replacing it.
The type of air conditioning system affects the AC installation costs concerning the cost of the system, its components, and the cost of professional installation.
Common AC systems are ductless air conditioning units, ducted split systems, heat pumps, and packaged central air conditioner systems.
This part of the HVAC unit in a house can affect the installation costs depending on its condition. If the ductwork has leaks or malfunctioning zone control systems, then it adds up to the HVAC replacement cost, because it doesn’t make sense to install a new air conditioner when the old one is repaired.
Also, the average HVAC replacement cost increases if more parts are replaced or repaired.
Home age and construction
The installation of heating and cooling systems and their energy efficiency rating can be influenced by the house’s age, size, construction, and how well the house is insulated.
For example, if the house is 2500 square feet, it demands a large AC unit than a smaller house. So affects the installation costs.
Also, if the house already has energy-efficient windows that are insulated and sealed well, then it requires less AC capacity to maintain a comfortable temperature.
Other factors that can affect more detailed installation costs or replacement costs of an HVAC system include foundation, attics, roof, basements, and flooring.
Download the HVAC Price List Template
The HVAC price list template helps you to keep a record of standard prices for various jobs, materials, equipment, and installations for your HVAC business.
The HVAC price list template will include
1. A detailed price list for procedures, repairs, and other job aspects
2. Separate section for discounts or price conditions
3. Organizational headers for various types of jobs
4. Notes for working in various categories
5. Information on warranties
Word Doc of HVAC Pricing List Template
Frequently Asked Questions
How much should a new HVAC system cost?
The replacement cost of a full HVAC unit ranges from $5000 to $10000. So the national average cost is $7000. Also, the total system price estimate depends on the size and brand of the HVAC system, house size, ductwork length, and the new unit’s efficiency rating.
For new installations, it costs $1500 to $12,500, including the labor cost of $500 to $2500.
Why are HVAC systems installations so expensive?
An HVAC unit is a complicated system with many internal parts that work together as a house heating and cooling system. Despite being expensive, the HVAC system is a long time investment. So installing it properly is essential.
If you try to cut costs by installing a single-zone system instead of a dual-zone system, you will face humidity issues and inadequate heating and cooling. This will cause you trouble over time.
What are the HVAC installation costs of different parts?
The HVAC unit serves both heating and cooling functions, so it has a complicated system made of different parts. Below we have listed the national average national cost for installations or replacements of different parts of HVAC unit parts.
- Air conditioner: The average cost to install an air conditioner is between $3350 and $5910.
- Heat pump: The replacement cost for a heat pump is $4000 to $8000. In contrast, replacing a geothermal heat pump is 5 times the existing price, which averages from $15000 to $35000.
- Gas furnace: Gas furnace replacement costs $1800 to $4000.
- Oil furnace: The average cost to install an oil furnace is between $4200 and $6900.
- Electric furnace: The average cost of an electric furnace is $1600 to $2500.
- Boiler: The average cost to install a boiler in your home is $1500 to $3500.
How much is an HVAC system for a 2000 sq ft house?
The average cost of an install HVAC system for a 2000 sq ft house is $7000 to $8000.
How is HVAC labor cost calculated?
The labor cost is calculated by multiplying the time they worked and on the basis of their hourly labor price. The formula to calculate HVAC labor cost is labor hours X hourly labor cost.
How much do HVAC service calls cost?
The average cost of an HVAC service call costs around $150 to $250. However, it depends on time, the problem, and will add up if more materials are required. The maximum, it will cost you around $1000.
How much should I mark up my HVAC parts?
For a good profit margin, you should mark up HVAC parts like equipment and materials between 20 to 50 percent.
HVAC contractors often face losses in their HVAC service business due to the lack of proper structuring of their pricing model. They either end up overpricing or underpricing their services and putting their business at risk. Unlike pricing a physical product, pricing your HVAC services requires market research and other factors to consider.
You can create a smart pricing list template using our step-by-step guide, but again there is no perfect pricing model for a particular HVAC service as it is subject to change on various grounds. So keeping all the things highlighted in our guide, create a pricing model that can keep your business booming with profits.