HVAC Estimating Guide: 8 Steps to Project Success

An HVAC estimate provides a detailed estimate of the costs for an HVAC installation or repair. Creating accurate estimates for the construction industry or for commercial HVAC projects is critical so that all parties agree on the costs upfront and unexpected and costly mistakes are avoided.

The estimating process involves many steps and moving parts, including:

• Thoroughly reviewing the blueprints

• Calculating material costs and labor costs

• Performing a quantity takeoff

• Factoring required profit margins into your pricing 

The complexities of construction estimates can be challenging, especially when you consider all the nuances involved:

• The variety of equipment used for commercial projects (from refrigeration units to heat pumps)

• The energy efficiency ratings of each HVAC unit

• Managing subcontractors (if it’s a sizable HVAC project)

• The project management itself

We’ll walk through the eight main steps of the commercial HVAC estimating process. Then, we’ll explain how ServiceTitan’s HVAC estimating software can help, including calculating accurate material and equipment costs, job costing, purchase order management, progress billing, and more.

Table of Contents

1. Review the bid request

   • Unique requirements

   • Project location

   • Project pacing

   • Project duration

   • Who is supplying the materials?

   • Payout terms and billing structure

2. Review the drawings and plans

3. Perform a quantity takeoff

4. Estimate your material costs

5. Determine your labor costs

   • Pricing system

   • Employees vs. subcontractors

6. Understand your overhead costs and percentage

7. Price the estimate for profitability

8. Create and deliver your proposal

   • Include the right level of detail

   • Submit in the format specified by the client

   • Follow up

How to Conduct Successful HVAC Estimates

Step 1: Review the Bid Request

Commercial HVAC estimating typically starts with reviewing a bid request put out by the general contractor. At a high level, you’re seeking to understand:

• What is the builder or client requiring of you?

• Are you willing and able to meet all of their parameters?

Key factors to keep in mind include:

Are there unique project requirements that you need to account for?

In the construction industry, there are many different scenarios where developers or general contractors will require certain parameters from their subcontractors. These details are extremely important because they can impact your bottom line. 

Examples include:

• Liability insurance: Does the builder require you to carry specific liability insurance? If you don’t have that insurance, are you willing to invest in it? And how does that affect the pricing of your HVAC bid?

• Warranty periods: What is the warranty period they’re requesting? Understanding this is essential to determine the reserve you’ll need to set aside to pay for that. 

• Change orders and adjustments: What are the builder's policies on change orders and adjustments throughout the course of the project? 

• Manufacturers: What manufacturers is the builder specifying? Do you have established relationships with them to get the best pricing possible? 

• Customizations and Selections: What kind of selections does the builder allow? For example, are they going to specify fixture selections or let homeowners choose? Are you allowed to mark up fixture upgrades? (← Something we’d recommend.) Are you pricing in a warranty reserve on HVAC units that are more easily damaged? These all need to be taken into account when pricing your bid.

• State regulations: Does the state in which you’re bidding have specific requirements related to journeymen on the job, or certifications that you or your HVAC contractors need? Can you meet those requirements?

• Miscellaneous requirements: Are there any other miscellaneous requirements that might affect your HVAC costs? For example, if you’re working on a project at a school and all of your HVAC contractors need to have background checks — are you pricing your bid to account for those extra costs? 

If you aren’t exceptionally thorough while reviewing the bid request specifications, it’s easy to mistakenly become contractually obligated for certain things that you either weren’t prepared to do or didn’t account for in your bid pricing. 

Will the location of the project involve special requirements?

It’s important to consider where the project is and what type of ground it’s taking place on. For example, if you’re bidding on an air conditioning installation job in Texas that’s building on bedrock, you may need specialty contractors to come out and help you break through that rock. If you didn’t anticipate this expense and account for it in your pricing, you could be looking at significantly diminished profit margins. 

What are the expectations around project pacing?

You also need to take pacing into account. What is the builder’s expectation for the pace of the work? How many starts per week and for how much time? Can you keep up with that?

If you jump into a job with a production builder and they want the job done in three days but you’re only prepared to do it in seven days, that spells bad news (stress, potential loss of a job, loss of future jobs with that contractor, etc.). So, ensuring you can manage the pacing of the job before you create and place a bid is essential.

What is the duration of the project? Is there flexibility to adjust your bid if costs change over the course of a longer-term project?

Part of your fact finding when you’re bidding for a commercial HVAC job should be how long you’re anticipating the job will take. You have to be more careful with a job that’s going to take three years than a job that’s going to take three months because you have more volatility in your labor force, gas prices, material costs, taxes, etc. 

Timeline is an important topic to clarify before developing your proposal and bidding on the project is: 

• If the project takes place over a longer time period, will the builder allow you to adjust your prices accordingly as your costs change? 

• How tightly are they going to hold you to the confines of your estimate? 

• And can you plan to have price increases at specific dates?

This is something you can and should consider writing into your contract. 

Who is supplying the materials?

We see a lot of situations where builders or developers elect to supply the materials for their projects. Often this will be framed as something that saves you money. However, all they’ve really done is take away some of your markup opportunity. This can cause you to lose money if you are not careful.

This is because developers often want to purchase the materials but have them shipped to you, leaving HVAC contractors on the hook for receiving costs, warehousing the materials, delivery costs, and other expenses associated with the materials. 

So, this is another important factor when reviewing a bid. If a developer says they’ll supply the materials, you need to make sure you ask them exactly how that will be handled, which parties will be responsible for which costs, and then factor that into your bid pricing accordingly. 

Note: In general, we recommend that if a developer wants to purchase the materials, they should be responsible for warehousing and transporting the materials to the job. 

What payout terms and billing structure are you agreeing to?

Payout Terms

It’s essential to look at the payout terms that are defined in the HVAC bid request to make sure that they’ll provide you with enough cash flow to sustain you all the way through the trim stage of the project. If you think there is any risk of not having enough money when it comes time to buy all of your fixtures, you need to negotiate to have those terms changed to suit your needs. 

For example, you might request a 40% payment upfront and another 40% at the rough-in stage. That way, you can front-load your payments to ensure the cash is there to buy all of your fixtures at the trim stage, and you don’t need to worry about getting a line of credit or going into debt to get through the project. 

Billing Structure

Understanding what’s expected of you when it comes to billing is another important factor to keep in mind. For example, are they expecting progress billing or AIA-style billing? Because that will likely drive up your overhead costs. 

Progress billing is more difficult and labor intensive, and requires a higher-skilled and higher-paid employee to manage that process. Therefore, you need to account for that in your pricing. 

Step 2: Review the Drawings and Plans

While an HVAC bid request provides a blanket specification for the project you’re bidding, you may have multiple sets of plans and blueprints that need to be reviewed. For example, if you’re working with a production home builder, they might have 20 models with 20 sets of plans that your estimating staff needs to review and submit on one proposal to be considered for that project.

In addition to doing an accurate HVAC takeoff (discussed next), a key thing to keep in mind when reviewing plans is looking for unique features that might cause the designs to vary from your standard practices. Failing to account for these can cause issues on the job and diminish profit margins.

Step 3: Perform a Quantity Takeoff

Alongside reviewing the project plans is performing an accurate takeoff to determine your counts of HVAC units, HVAC systems, and other equipment or HVAC materials (e.g. ductwork) you’ll need for the job. 

When it comes to performing quantity takeoffs, many contractors use estimating solutions such as Trimble MEP or other HVAC estimating software to manage this process. Others rely on custom-built Excel spreadsheets. 

Using a takeoff software solution is definitely an advantage. But regardless of how you do your takeoff, having a construction estimating system that works for your company and ensures you get your counts right is really important.

Step 4: Estimate Your Material Costs

Once you’ve determined your material counts during takeoff, you can add up those materials and their associated costs to get your material cost estimate. The most important aspect of calculating this correctly is ensuring that your material costs are up to date, but many HVAC contracting businesses lack a good process for this.

A common method is to send an Excel spreadsheet with their material pricing to their supplier and request that they make updates so that it reflects current pricing. However, these spreadsheets often aren’t updated for every single HVAC job, and therefore many contractors end up pricing services based on out-of-date information.

Ideally, you should update your spreadsheet prior to calculating your bid for each project. This is one area where HVAC contractor software such as ServiceTitan can provide significant value. 

For example, with ServiceTitan’s HVAC pricebook — which integrates directly with top industry supplier catalogs for HVAC, plumbing, and electrical — every line item that’s added to an estimate automatically reflects the most up-to-date pricing from the supplier. There’s less room for error when calculating pricing for your materials and subsequently your final bid (and much less work involved in managing and updating your pricebook). 

Step 5: Determine Your Labor Costs

Next up is determining your labor costs. There are two key factors to keep in mind during this step:

1. What pricing system are you using?

2. Are you paying employees or subcontractors?

What pricing system are you using?

For construction work, a common method of pricing labor in HVAC is the piece-rate system. Rather than paying based on labor hours, which makes it difficult to control costs, contractors will pay based on the work output of their HVAC contractors.

In commercial HVAC, a best practice for pricing labor is to calculate a billable labor rate for profitability, and then use that in pricing flat-rate services. 

Are you paying employees or subcontractors?

A second factor to consider when determining your labor costs is whether you’re paying your own employee or using a subcontractor.

If you’re paying your own employee, you have to provide trucks, gas, liability insurance, and all of the other tools they need to do their work. Whereas if you’re using a subcontractor, you have to pay them more than you would your own employee, but you don’t have the additional burden of supplying all of their vehicles, equipment, tools, etc.

Regardless of which model you choose, these payment amounts need to be considered while calculating your labor costs in order to account for enough burden to guarantee profitability of your estimate. 

Step 6: Understand Your Overhead Costs and Percentage

It is difficult to overstate the importance of knowing your overhead costs — the ongoing operating expenses of running your business, such as office staff and executive payroll, rent, insurance, utilities, software, etc. If you don’t have an accurate sense of what your actual overhead is and a process to account for that in your bid pricing, then you’re not going to make money. 

So, it’s essential to know your overhead percentage — the percentage of your annual revenue that goes toward paying all of your fixed and variable costs, which ideally are broken out in your profit and loss statements — and apply that in your pricing calculation for the bid. 

Step 7: Price the Estimate for Profitability

Once you have determined and added up the three core aspects of your project costs discussed above (labor costs, materials, overhead), you can calculate your total cost. The most common methods for this are the multiplier method and the divisor method. 

With the multiplier method, you simply multiply the total estimated project cost by your desired net profit margin. So, if your estimated project costs are $100,000, and you want to hit 20% net profit, the calculation would be: 

Bid price = Costs x (1 + Profit percentage) = $100,000 x (1 + 0.20) = $120,000

Alternatively, with the divisor method, you divide your total project costs by the inverse of your desired profit margin. Using the same example, the calculation would be:

Bid price = Costs / (1 - Profit percentage) = $100,000 / (1 - 0.20) = $125,000

As you can see, the divisor method is designed to add a little bit more money to your bottom line. It is generally the preferred method because it can help to maintain profitability in cases where unexpected costs are incurred. 

With that said, it is important to understand and consider what your market can bear when choosing your method of pricing. For example, if you’re bidding on a project in a region with very high competition, you might choose to use the multiplier method to remain competitive.

Step 8: Create and Deliver Your Proposal

Creating a proposal is first and foremost about outlining the scope of work for the HVAC services that you are going to provide. In order to keep your proposal professional, you should follow basic best practices such as using spell check, making sure your proposal looks branded, and ensuring all of your documents are attached.

Beyond that, here are a few other considerations to keep in mind as you develop your proposal. 

Include the Right Level of Detail

A good proposal strikes a balance of providing enough compelling detail to communicate the value in what you can offer the client without giving away your competitive advantage. If the builder were to show your proposal to a competitor, you wouldn't want them to be able to glean too much information about how they could compete with you. 

Submit in the Format Specified by the Client

Different developers and contractors have different formats in which they want you to submit your proposal. So, when reviewing the bid request as discussed above, it’s also important to note and follow the format that they specify for your submission.

For example, some customers may request that you upload your proposal through an online portal. If that’s the case, you shouldn’t just send a PDF proposal to their email — that might automatically rule you out. 

Likewise, different customers may request that proposals are broken out in different ways. These are requests you’ll want to be sure to follow. 

Make Sure You Follow Up

Finally, following up on your proposals with the point of contact is incredibly important. It shows initiative and care. Proposals are often received more favorably this way. And you’ll close more jobs in the long run. 

How ServiceTitan Helps Streamline HVAC Estimating and Project Management

We built ServiceTitan’s HVAC software solution to support contractors through the entire process of HVAC estimating and project management.

Here’s a walk-through of some of our construction management features that have been designed specifically for HVAC, electrical, and plumbing contractors. 

The Project Overview Page

Building a new estimate within ServiceTitan is easy to do from the project overview page where you can:

1. Enter all of the basic new HVAC project information (project name, contact information, customer phone number, etc.).

2. View at-a-glance project job costing and expense details that update automatically throughout the course of a project.

3. Initiate key project actions such as generating a new purchase order, application for payment, invoice, and more.

The data displayed in the project summary and expense tables are all based on the estimate you create at the beginning of the job. 

Create Accurate Estimates

Once all the necessary information has been reviewed and collected, the estimate page allows you to add all of the specific tasks, equipment, and materials that will be needed to do the work. Users have the option to draw from pre-built job estimate templates or build estimates from scratch. 

For example, if you have a standardized quote template for a commercial plumbing installation, you can use that as a base and then adjust the fine details accordingly to save you some time during estimate creation.

Tasks, materials, and equipment can all be tagged with color-coded project labels to organize the project details and make everything easy to visualize. 

Once an estimate is complete, it can be printed, emailed, or exported in PDF format and sent off to the client. 

Initiate Requisition and Purchase Orders Within Your Estimate

When the estimate is sold, all of the details you’ve set up in the estimate are automatically integrated into the rest of the project management workflow. For example, you can initiate a requisition of equipment and materials right from within your sold estimate.

For example, let’s say at the beginning of a project, you want to start the process of ordering your permits and materials for your HVAC work — you can select those items right from your estimate, which will lead you through a workflow to create the purchase orders you’ll need. 

In the purchase order workflow, the line items are automatically populated from your estimate. And you can simply select your vendors and shipping locations for each material to complete your order details. 

Then, you can save that order to create a transaction, and send those purchase orders off to your vendors — without ever leaving ServiceTitan. 

Automate Project Tracking and Job Costing

As you move throughout the job — creating purchase orders, logging labor hours, processing change orders, receiving progress payments, and so on — your project summary and expense tables make automatic calculations that take all of your project’s progress into account.

So, instead of constantly needing to update a series of spreadsheets every time labor costs and material costs are incurred, this is done automatically for you in real-time, based on work that’s completed and entered into the system. 

If we continue with our example from above, and you’ve made your initial purchase order of permits and materials, the software’s automation functionality means your project summary table is instantly updated to reflect those expenses:

You can view a more detailed breakout of your actual costs versus your budgeted construction costs.

This will automatically update as you accumulate expenses from materials, equipment, and labor hours. And it will display your margins in dollar and percent form to help you track your job costing and profitability throughout the course of your project. 

You can also access a table breaking down your expenses in further detail:

You can click into any line item and see the exact source of where that expense came from (e.g., which technician logged those hours, or which purchase orders and vendors a given set of materials came from). This allows you to easily check your numbers and feel confident in the sources of your data.

When it’s time to send applications for payment and invoices at each stage of progress billing, this can also be easily accomplished from the project tracking page menu:

Easily Create Applications for Payment and Invoices

The initial estimate you created also informs and populates your continuation sheet in your application for payment so there’s no need to reinvent the wheel for every asset that needs to be created throughout your project:

When you want to send a payment application, you can easily generate one by selecting the billing period and the percent of each line item you want to bill.

Then, you can generate a PDF payment application with the details automatically filled out, and send it off to your client for review. The detail of the continuation sheet makes for a bill that’s much easier to defend in the event of pushback from construction companies or general contractors. As a result, subcontractors are able to get paid faster and avoid cash flow issues.

When applications are accepted, it’s just as easy to generate an invoice for that progress payment. And, when payments come in, you can update your accounts receivable through our QuickBooks or Intacct accounting integrations. 

Ready to Try ServiceTitan for Your Commercial HVAC Estimating?

If you’re interested in learning more about how ServiceTitan’s cloud-based platform can help you manage and grow profitability in your HVAC contracting business, schedule a free call with us to see a personalized demo of the features and functionality we’ve discussed throughout this post.