If all the other people are happy with their service and pricing, why do these one or two get so upset?
Feeling ripped off is a legitimate feeling, and sometimes companies (or even rogue technicians at an otherwise good company) do take advantage of customers by charging them for things they don’t need. But sometimes there’s a misunderstanding there – and like most great misunderstandings the reason is probably based on a lack of information. In this article, we’ll break down how most HVAC service pricing works to help bridge the disconnect that happens occasionally between HVAC service companies and their customers.
Flat Rate Price Book
Some types of home services contractors charge “time and materials”, which is calculated by multiplying the hours spent by an hourly labor rate, then adding that to the cost of the materials used. But these days nearly every residential HVAC company instead uses a “flat rate price book” to determine their pricing for each individual customer. A flat rate price book is just a (very long) list of pre-determined prices for every possible type of repair.
There are several price book companies who publish industry price books, and most larger HVAC companies subscribe and/or have their own version of the price book. This means that within reason, most service companies are operating from a similar pricing basis, with a few changes and adjustments.
What is the benefit of a flat rate price book?
In short, simplicity.
Larger HVAC companies have dozens or hundreds of technicians roaming around solving customer problems. The technical side of their craft requires skill and experience. Creating a relationship with the customer requires skill and experience. And just doing the work requires long, hot or cold days to get the job done. The last thing a company (or any one of its technicians) wants to do is spend hours and hours training each technician on the details of how to properly estimate each repair price, and then retraining them every time something changes.
The flat rate price book provides a consistent and repeatable method for profitably pricing repair work. The technicians don’t have to worry about whether they have accounted for enough time or materials, their customers have been given a quick and firm price, and the company knows each of their customers is getting the same price (minus any appropriate discounts).
So how does it work?
Let’s say the technician has determined that the customer has a problem with the wiring between the thermostat and the unit. Instead of then trying to figure out the price of the required amount wire, of the wire nuts, of an unknown amount of labor, etc., the price book allows the technician to find an appropriate match in the price book for “Replace Loose/Burned Wiring” (this is a real example!) and then just relay that information to the customer for a go/no go decision.
As long as there are not evident complicating factors, whether the job is big or small the technician would quote and bill the customer the fixed price in the price book for replacing loose/burned wiring.
The technician can then focus on doing the repair properly, not on how much to charge or how long it’s taking him.
So What’s the Problem?
The problem is there can sometimes (fortunately not often), be a disconnect with a customer over what is a fair price to charge.
One example of this disconnect can happen when a capacitor needs replacing, which is a common repair job. A “start capacitor” is used to give an electric motor an added boost of torque to get it spinning at the required RPM quickly. These capacitors have a relatively short expected lifespan on HVAC systems and are often replaced.
The price in the price book is determined by both the size of the capacitor and the approximate time it will take to install. This price might be in the $150 range for common HVAC capacitors (see our area pricing comparison guide for more info on the Raleigh, NC area).
Most customers will intuitively understand that this cost covers not just the part itself but the fact that a person with the knowledge and skills to diagnose and fix the problem was made available and sent to their home to fix it, by people working at a company that needs to make enough money to stay in business and stand behind their work. If the homeowner chose to call an HVAC company rather than fixing it themselves, then this set of knowledge, skills and availability is an essential part of the service provided.
But some customers won’t get this, and out of fear of getting taken advantage of, they might go find that they could have ordered their specific capacitor on Amazon for maybe $9. This type of customer immediately goes into orbit and thinks they have been ripped off. The technician did not say the capacitor cost them $150 (because a company that charges only its parts cost would go out of business very quickly), only that the cost of the capacitor AND the labor to install was $150. Maybe that doesn’t matter to the customer. Maybe the customer says, it only took you 10 minutes to install the capacitor, so $150 is outrageous.
Here’s What’s Really Happening
Let’s put ourselves in the shoes (or work boots) of the business owner though to see how he or she is looking at the same repair. No business owner is putting down a deposit on the latest Tesla Roadster solely on the basis of this one capacitor replacement. The reality is far more sobering– And it’s about responsibly making sure the business can continue to operate.
Would this customer be willing to pay as much as $30 for a $9 part plus 15 minutes of work? Let’s do a comparison of how that would work out for a business versus that “outrageous” $150. An estimation of the total cost to the company to come install that one capacitor at a customer’s home can be broken down as follows (there will of course be variations depending on the particular company and customer):
HVAC Cost Comparison Chart
|Capacitor Replacement Cost to Customer |
(revenue before taxes, not including sales tax)
|Total Burdened Cost of Skilled Labor per Service Hour|
(includes portion of salary or hourly pay for service time including drive time, plus taxes, insurance & benefits, vacation, bonuses, etc.)
|General and Administrative Costs|
(includes office & warehouse space lease, customer care team, phones, electricity, management, liability insurance, legal, interest, taxes, etc.)
|Marketing Costs to Acquire and Maintain Customer Relationships|
|Amortized Cost of Van per Service Hour|
(includes loan payment, insurance, gas/oil, tires, repairs, etc.)
|Cost of Part from Supplier||($9)||($9)|
|Carrying Cost of Parts|
(the cost of carrying enough inventory on the truck and in the company warehouse to have the right part when needed)
(reserve amount in case something related fails and the tech has to come out and perform an additional repair for free)
|What’s Left (Profit/Loss)||$10||($110)|
As you can see, if a company were to routinely charge too low a price for having a skilled technician drive to a customer’s home and install a capacitor, it would go into debt quickly, and any customers who wanted to rely on them in the future would find themselves high and dry when the company went out of business. HVAC businesses fail all the time, especially since there are costs to staying open and available 365 days out of the year, including beautiful spring and fall days when indoor air doesn’t need much heating or cooling to be comfortable.
When a customer looks up the part cost on the Internet and doesn’t understand all the costs that go into actually getting a qualified service technician to do work at their home, and just, it’s no wonder they could feel taken advantage of. But with knowledge comes understanding, and we hope this guide will help save a few customers the anguish of thinking they should be able to find lower prices for quality service work.