Cost of running an HVAC business
I hear this question or a related comment all the time from customers. While a customer only sees the bottom line, a business calculates their part replacement prices on several different factors. Each factor has to be taken into account. However, with the rapid development of online shopping and outlets like Amazon.com, the customer is more aware of wholesale prices than ever and this causes some confusion to customers that are uneducated in the cost of running a business. Running a customer service business takes a lot of overhead (cost of daily operations). Let’s go over some of them.
Insurance
Insurance rates cost HVAC companies an arm and a leg and cost more every year. This is necessary however, to protect HVAC companies from lawsuits (which also grow every year). You see, every time you have a technician in a clients’ home and working on potentially deadly piece of equipment, that company takes on that liability and needs to be insured for that. Lets’ not forget about health insurance, fleet insurance for their vehicles and building insurance for their home base, which brings us to the next overhead cost.
Vehicles
HVAC companies need a fleet of vans and trucks for their technicians, installers and other personnel. All of these vehicles require purchase, maintenance, fuel and insurance.
Employees
HVAC companies need to employ technicians, installers, managers, secretaries, attorneys, accountants, and IT specialists. Each of these employees needs a phone and/or a computer and carries a critical role in the company and each requires a salary or hourly wage. Let’s also not forget that a company owner deserves to be rewarded for their risk and hard work too!
Parts
Wholesale, E-Commerce sites have about a quarter of the costs involved in selling you a part. However, when it comes to HVAC service, you aren’t paying for just the parts, are you? You are paying for everything listed above and the comfort associated with the expertise that comes with an HVAC part being the correct part and installed correctly. You are also getting a warranty that you will only get if installed by a licensed HVAC technician.
Many HVAC companies have also combined the cost of labor and the part to make a single, flat-rate price. This is a formula created to give the customer an exact dollar amount of how much a job will be before the part is ever touched. The price is determined by taking the cost of a company to purchase the part, add in their mark-up, then an average time it takes for the given repair, and round up 30 min. So, if a repair has an average time of 15 minutes, you make it 45. This is to cover the occasions that a piece of equipment is more difficult to work on than the average. It also covers the time difference between technicians. Some technicians can work very quickly, while others work more slowly than the average due to personality, age, and experience. Flat rate pricing is good for the customer because you get no surprise at the end when you are presented with the bill, whereas if you were told a part was $100 and you agreed to have it replaced but did not take into effect that the labor was going to be another $180.00 and after-tax, ended up costing you over $300.00! Flat-rate pricing takes care of that. So, whether it takes the technician 30 minutes or 3 hours to complete the repair, you are paying the same price. Consequently, if you got an amazing, senior technician who works quickly and efficiently, the job only takes 15 minutes, the company made a killing and you walk away displeased and complaining about the price.
Flat-rate vs. parts + labor
In my experience, I have had the pleasure of working for companies that have used the standard pricing format and ones that have evolved into the flat-rate pricing model. I can tell you that both can work effectively if the technicians are properly trained and in good communication with the customer. The issue with the standard way is that customers can only be given an exact part cost to them and the labor is only estimated and many technicians take more than enough time needed for a repair to “milk” the job-creating more revenue or are inexperienced and cause the job to take longer than it should. With regards to Flat-rate pricing, some companies will use this to their advantage to present a customer with “super inflated” part and labor costs. They will then use these inflated costs to persuade the customer into purchasing new equipment. Why would you spend $1,000 to replace your blower and capacitor when you could put that money towards a new furnace right?!
At FixMyFurnace.com, we aim to bridge that gap between customers attempting to save money on parts, and hiring professional HVAC contractors to repair for you. We do this by employing seasoned HVAC technicians to help walk you through the trouble-shooting or repair process with our VIRTUAL DIAGNOSTIC feature to insure you diagnose the issue correctly, get the correct part you need and determine if a licensed Contractor is necessary.
