If the pricing of individual HVAC jobs is not done properly and accurately, HVAC businesses can lose money (which then makes running a profitable HVAC business difficult).
Specifically, in our experience from working with hundreds of HVAC companies, these two pricing issues are common:
HVAC businesses often price their services incorrectly, making it impossible to achieve profitability.
Even when services are priced correctly, their prices aren’t implemented accurately throughout their business (through estimates and billing).
This pricing and cost guide will provide guidance in addressing both of these issues as well as a holistic overview of how to price HVAC jobs. Below, we’ll cover:
At the end of this post, we’ll also explain how ServiceTitan — our comprehensive HVAC flat-rate software — helps to optimize pricebook management and ensure that techs and office staff provide accurate estimates and invoices for every single job (whether that be HVAC system installations, recurring services, HVAC maintenance calls, or repair work).
HVAC Pricing Models
Before we dive into the specifics of the two typical pricing models used by HVAC businesses, there are many elements to consider to ensure you have a healthy profit margin, including:
Billable and unbillable hours
Competition from other local providers
Costs of a new HVAC system versus the replacement cost
HVAC installation costs
HVAC service pricing
Energy efficiency (SEER rating)
Rebates available to the customer
If HVAC contractors don’t spend the time considering these factors and meticulously crunching the numbers, making a profit will be a challenge.
Most HVAC companies calculate their prices using one of two pricing models:
Hourly Rate (Time & Materials): Costs are based on the time spent performing the work, and for materials used in the job.
Flat-Rate: Charges one fixed rate for a service instead of charging by the hour and materials used.
Each pricing type offers advantages and disadvantages for not only your company and employees, but also your customers. Let’s consider the pros and cons of both.
Pros of Hourly Rate (Time & Materials)
For the Customer
Customers understand hourly rates (or T&M pricing) and use it as a baseline for comparable work.
Some customers appreciate an itemized list of exactly what’s included in their home repair bill.
Billing hourly tends to work better for clients with long-term projects, rather than short, sporadic jobs.
For the Contractor
Allows you to track the exact number of hours working on a job, and invoice the customer on completion or at certain phases on bigger jobs.
Hourly rates allow you to account for changes and other variables (and charge for them) as they arise.
Your techs, CSRs, and other employees know their hourly rate and how many hours they need to work each week to reach a certain level of pay.
Cons of Hourly Rate
For the Customer
Customers may feel compelled to stand watch over your techs to make sure they’re not wasting time.
Techs who don’t perform at a high level may cost customers more money for less work.
Unexpected changes and other variables may significantly increase the cost of the project.
Customers prefer predictability, rather than uncertainty of the outcome.
For the Contractor
Charging by the hour requires keeping detailed accounts, and many contractors stay too busy to do this regularly and accurately.
Billing hourly provides no incentive for your techs to perform quickly and efficiently, which means your company may be losing out on new revenue.
T&M pricing limits your profitability, but pricing focused on production boosts your revenue potential.
Nagging techs to correctly invoice customers remains one of your essential duties.
Pros of Flat-Rate Pricing
For the Customer
Answers two important questions: What’s wrong and how much will it cost?
Closes the door on price concerns because they know the fixed cost in advance.
Eases the pressure of a home-service call, removing the need to closely monitor the tech’s progress.
Eliminates repair bill surprises, even if a tech needs more time to complete the work.
Simple and easy for customers to understand, and for your techs to sell.
For the Contractor
Rewards high performance and efficiency, allowing your HVAC company to book more jobs per week and earn more revenue. Time savings = more profits.
Allows you to set prices based on the true value of your services and scope of work.
Eliminates the problem of unapplied labor (underperforming techs).
Allows you to sell a service with a result, with no need to justify your hourly rate.
Shortens the billing cycle, allowing customers to prepay the fixed cost or pay the tech on site for completed work.
Cons of Flat-Rate Pricing
For the Customer
With less itemization for your flat-rate fee, customers may view it as a sales gimmick or upselling.
It doesn’t allow for customers to negotiate or haggle over the price.
The service may seem overpriced, especially if the customer doesn’t understand the value your company brings to the job.
Creating a high-pressure environment to perform may leave your clients feeling like your techs rushed through the job.
For the Contractor
If the job takes longer than estimated as part of your flat-rate costs, you may end up earning less than your regular hourly rate.
Clients may insist on hourly invoicing, or want to haggle over your flat-rate pricing.
Flat rates are approximate, so you may get locked into a certain price even though the job turned out to be more complicated than you originally thought.
With emphasis placed on performance, slower techs may struggle to earn.
Slow periods, especially for HVAC techs, may require creative job-reallocations to meet performance goals.
Learn more about flat-rate vs hourly pricing.
Take a look at our flat-rate pricing template which includes a flat-rate pricing calculator.
Using Hourly (Time and Materials) vs. Flat-Rate Pricing
While some HVAC contractors continue to stick with an hourly rate pricing model, based on our experience working with dozens of HVAC companies, the most successful businesses use the flat-rate pricing model.
We briefly outlined the pros and cons of each model above, but the two most significant disadvantages with the Time & Materials approach are:
1. Justifying Hourly Rates
HVAC contractors inherently understand that an hourly work rate incorporates all of their overhead costs, plus some take-home pay for themselves. They also know that the latter makes up a minority of their revenue: If they’re charging $200 or $300 per hour, most of that cash is going to be absorbed by expenses.
But for a homeowner — particularly a homeowner who makes an hourly wage themselves — an HVAC contractor’s Time & Materials rate can cause serious sticker shock. To someone who makes $35 or $50 an hour (and who’s not in the trades), it can be tough to understand why a service would cost hundreds of dollars, and it may be easy to mistake that service as a “rip-off”.
Without having run your own business, it’s simply very difficult to wrap your head around the numerous costs that an hourly work rate reflects. For HVAC contractors, that can often make a homeowner feel suspicious that they’re being taken advantage of — and less likely to sign on as a customer.
2. Encouraging Poor Performance
With Time & Materials pricing, HVAC technicians who work slowly — whether as a result of inexperience, insufficient training, disorganization, or laziness — run up the bill, even if they’re doing subpar work. That goes for any job they’re assigned to: HVAC replacement, AC unit or oil furnace installation, central air or HVAC unit maintenance or tune-up, cooling system warranty service, HVAC repair, etc.
Simultaneously, a tech who’s fast, organized, skilled, and well-trained — the kind of employee who finishes assignments quickly without sacrificing quality — can end up generating less revenue for their boss.
The result of these misaligned incentives is often lower-quality HVAC services, reputational damage, and fewer overall jobs getting completed.
The Benefits of Flat-Rate Pricing
In contrast, implementing flat-rate pricing solves both of these problems. By simply providing a flat rate for services, there’s no room for customers to get held up on hourly rates.
Customers know exactly what a job will cost them — regardless of how long it takes. So there’s no need to sit around watching the clock, or worrying about the final tally of their bill, providing for a much-improved customer experience.
And techs are incentivized to execute jobs efficiently, encouraging them to tackle more jobs in a day, resulting in higher revenue.
3 Make-or-Break Factors for Setting Accurate HVAC Pricing
1. Price Based on Value (Not Competitor Prices)
Rather than price for value, too many service businesses set prices according to their competition. But when HVAC contractors compete with one another on price alone, they get into a race to the bottom — lowering prices to a level that makes it impossible to maintain profitability.
Using competitor pricing as a yardstick for average cost can seem like an inviting solution because you don’t have to do the work to really figure out what the optimal pricing is for your business (based on your costs, and your goals for profitability, reputation, service quality, and more).
But doing this work is worth the effort. It’s what all of the most successful HVAC businesses do.
2. Factor Unbillable Time into Labor Rates
Labor rate calculations are the source of some of the most common HVAC pricing errors. Very often, these mistakes come from failing to account for the time employees spend on non-billable tasks, which have a significant impact on the cost of doing business.
Factoring in the time employees spend working outside of customers’ premises is crucial for setting profitable pricing.
Beyond holidays, vacations, and sick days, businesses also need to consider:
How much time do techs spend on training every year?
How many hours are they driving, in meetings, planning, etc.?
How often do they wash their trucks, and how long does each wash take?
To maintain profitability, it’s essential to factor these types of non-billable work tasks into the prices your customers pay.
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3. Factoring in Membership Agreements
It’s tough for HVAC contractors to compete these days without offering maintenance agreements to homeowners — and most do, often discounting their services by 10% or 15% as a loyalty incentive. Among other things, membership agreements make for an effective marketing tool. But they can trip up HVAC businesses when it comes to pricing.
Generally speaking, the issue is that contractors often apply their membership discounts on top of their standard prices. And while this might seem like the right thing to do, it actually has the effect of diminishing the work that went into coming up with profitable flat-rate prices.
Instead, HVAC contractors need to incorporate their 10% or 15% membership discounts into their standard prices, so that their membership prices are their baseline prices.
Put another way: Customers who do business outside the terms of a membership agreement should be charged at a premium.
The Challenges of Implementing HVAC Pricing (and How ServiceTitan Solves Them)
There are two core operational challenges involved with implementing the best HVAC pricing across your business:
1. Keeping HVAC Prices Up-to-Date
First, as costs of materials, supplies, and wages change, keeping pricebooks up to date requires constant monitoring and manual updating.
If you’re using paper documents or spreadsheet templates (as many businesses do), these updates are tedious and time-consuming, taking office staff away from revenue-generating work, and leaving plenty of room for manual error.
There’s also a lag time between when changes are made and when they’re accessible by field and office staff, which causes delays in the implementation of pricing updates.
2. Creating Accurate Estimates & Invoices
Second, even when prices are consistently updated, they’re often not translated accurately onto estimates and invoices. For example, techs make miscalculations or misread pricing that leads to delivering inaccurate estimates to customers. Or information is entered incorrectly during invoice creation, displaying pricing that doesn’t reflect the total cost of the job.
These problems can have serious adverse affects on your bottom line.
Here’s how it works:
#1: Streamlining Pricebook Management with ServiceTitan
Regardless of whether you use Time & Materials or flat-rate pricing, ServiceTitan offers a number of features that make pricebook management easier (and more effective) than the traditional mix of paper documents and spreadsheets.
“Your HVAC pricebook is the foundation for everything you do in your company,” says Kathy Nielsen, owner of Operations Excellence. She has worked in the skilled trades for 20 years, including leading a large HVAC company as general manager. “Your HVAC pricing guide drives your tech efficiency, profitability, reporting, truck replenishment, and inventory.”
With ServiceTitan, HVAC contractors can use the digital tools we’ve created to quickly, painlessly, and easily edit their pricebook to keep up with changes. And whenever edits are made, they’re immediately accessible by field techs and office staff through our desktop and mobile apps.
Prices can be adjusted for individual services or items — air conditioning system installation or thermostat repair, refrigerant replacement or heat pump, condenser, or compressor swap, etc. — for single jobs, or on a long-term basis.
All of the common equipment and materials pricing can be easily edited: air handlers, blowers, evaporator coils, gas furnaces, fan motors, drain pans, heat exchangers, new furnaces, circuit boards, ductless units, and more.
Or, global changes to service pricing can be easily implemented across their entire pricebook: member discount, visit fee, add-on pricing, labor rate, and surcharge, for instance.
This capability allows contractors to skip the confusing and time-consuming process of recalculating the correct price for every one of their services and HVAC system costs separately.
Most HVAC contractors who use ServiceTitan like to link the materials and equipment required for particular services directly to those pricebook items — HVAC equipment models to HVAC installations, ducting materials to ductwork, air conditioners to AC installations, and the like. But, if they prefer, they can also adjust material prices alone, as distinct from the projects in which they’re commonly used.
With our Pricebook Pro option, contractors get direct access to equipment catalogs from top HVAC industry suppliers. Items from the catalogs, complete with images and product descriptions, can be linked to users’ pricebooks, so that the estimates they create feature the exact makes and models they will actually be using in their jobs.
#2: Seamlessly Integrate Your Pricebook with Estimate & Invoice Features
Creating an HVAC Estimate with ServiceTitan
Instead of a tech or office manager looking at a printed pricebook or spreadsheet to reference a price range, then transferring that information onto other documents when creating estimates (and making manual calculations that are prone to error) — they simply select services when building an estimate, and all of this is done for them.
Prices, photos, manufacturer videos, and product info can all be accessed in a couple of taps along with recommendations to maximize revenue, such as an open estimate that needs following up or an opportunity to upsell to a new membership contract. Techs can build estimates via ServiceTitan’s mobile app and present them to customers on site so they can be approved and e-signed on the spot.
As a result, it takes less time to generate estimates — whether it’s created from the field or office — and errors from data entry or miscalculation are essentially eliminated.
HVAC businesses can avoid costly errors related to underbidding jobs, and save thousands of dollars over the course of a year.
For customers who don’t approve estimates immediately, ServiceTitan lets you automate the lead follow-up process with emails and text reminders that give them a way to conveniently accept the HVAC estimate online. This frees up your technicians’ and office staff’s time to deal with other customers.
“A lot of customers need time to swallow that pill, and so we need persistence in following up. Call back time and time again to see if there’s more information we can give them,” says Barry Palmer, CFO and co-owner of All Pro Air in Riverside, California.
“Persistency is definitely a big key component,” Palmer says of how to successfully close an estimate or bid. “At the end of the day, the customer is trusting us to help guide them in picking the best system and solutions for them.”
At All Pro Air, the technician who created the estimate is responsible for following up, and because they know their paycheck depends on it, they’re good about documenting it. They check to make sure all of the customer’s questions are answered and gently remind them to take action.
“They know who they need to follow up with, and so they can log that data into ServiceTitan. Make the calls, resend quotes, or make new quotes,” Palmer says. The interconnected software manages customer profiles, reporting data, field dispatch, incoming calls, staff interactions, and automatically sends customer reminders.
Creating an HVAC Invoice with ServiceTitan
The same, seamless integration and workflow applies when it’s time to generate invoices. Instead of office staff translating information on a customer estimate to an invoice when a job is complete — which, again, is time consuming and error prone — invoices can be automatically generated with all of the relevant information from the job.
With ServiceTitan, HVAC technicians don’t have to spend time pulling together disparate pieces of information such as hours worked, materials used, estimates given, etc.
With ServiceTitan’s free Invoice Generator Tool, HVAC techs can generate the invoices themselves, while they’re in a customer’s home via the ServiceTitan mobile app. By inputting the relevant information into a customized invoice template, this can be sent to the customer there and then via text or email.
Techs can also take payments from customers by capturing checks and credit cards via their mobile tablet camera, or you can add a credit card swiper. This is convenient for customers and means you get paid faster.
Invoicing and accepting payments in this way saves time and looks professional. Plus, it significantly reduces mistakes like pricing errors or lost paperwork. Invoices can be created quickly and easily, and the payment received before your HVAC technician moves on to their next job.
Note: If you already use accounting software, ServiceTitan’s invoicing software can be integrated with QuickBooks, so you can ensure all your financials are accurate, up-to-date and easy to access. Read more tips here on how to integrate QuickBooks with ServiceTitan.
Other Ways HVAC Businesses Can Increase Profits
Assuming you’ve followed the suggestions in this post to ensure each job is profitable, you can also increase your revenues and therefore annual profits by focusing on the following key marketing activities to bring in more customers:
Direct mail gets your message right into the customer’s hands. ServiceTitan lets you design, print, mail and track the results of each direct mail campaign.
Email marketing is cost-effective and powerful. ServiceTitan’s Marketing Pro lets you contact specific customers in your database with targeted campaigns, such as sending maintenance reminders to customers with an AC system.
Customer reviews are essential to boost your online reputation and build trust. ServiceTitan makes it easy for customers to leave a review with a built-in notification tool that automatically sends a survey request after each job has been completed.
ServiceTitan’s Marketing Pro is an automated solution that uses your customer data to target specific profiles to bring in more leads and bookings.
Learn more about maximizing profit for your HVAC business in these posts: 16 Marketing Strategies for HVAC Companies Why HVAC Companies Choose ServiceTitan to Manage Their Online Reputation How to Grow Your HVAC Business
Ready to Streamline Your HVAC Pricing?
As we’ve discussed throughout this piece, getting your HVAC pricing right — correctly accounting for labor costs, materials, etc. — is only half the battle to maintain profitability and thrive as an HVAC business. It’s just as important that your pricing is implemented accurately throughout your operation.
If you can address both of these challenges, it can be transformative for your business — helping to reduce costly errors and overheads, increase revenue, and improve the overall experience for your employees and your customers.
Want to see ServiceTitan in action? Schedule a call with us to learn more about how our software can streamline your pricing and help you grow your business.
ServiceTitan HVAC Software
ServiceTitan is a comprehensive HVAC business software solution built specifically to help service companies streamline their operations, boost revenue, and achieve growth. Our award-winning, cloud-based platform is trusted by more than 100,000+ contractors across the country.