Pricing & Estimating
Your Work

Flat Rate vs Time & Material

Two fundamental pricing models exist in HVAC contracting. Understanding both - and when to use each - is essential for profitability.

Time & Material (T&M)

You charge for actual hours worked plus parts at cost plus markup. Simple to implement but creates uncertainty for customers and can reduce your efficiency incentive.

• Pros: Easy to calculate, protects you on difficult jobs, familiar to customers
• Cons: Customers worry about runaway costs; slows technicians (less incentive to be efficient); harder to quote jobs upfront
• Best for: Complex diagnostic work, service calls where scope is uncertain

Flat Rate Pricing

A fixed price per job or per task, regardless of time spent. Professional HVAC companies almost universally use flat rate pricing.

• Pros: Customer knows cost upfront; rewards efficiency; easier to communicate value; higher perceived professionalism
• Cons: Requires a developed price book; must accurately estimate labor time; unusual situations may not fit the book
• Best for: Most residential service work, replacement jobs, maintenance calls

Building Your Price - The Correct Formula

Many new contractors simply guess at prices or copy competitors - and lose money doing it. The correct approach starts with your actual costs:

Step 1: Calculate Your True Labor Cost (Labor Burden)

Your hourly cost per technician is NOT just their wage. Add:

Step 2: Calculate Your Break-Even Rate

Add overhead costs to labor cost:

• Vehicle payment + insurance + fuel + maintenance
• Tools and equipment depreciation
• Office/phone/software costs
• Advertising/marketing
• Insurance (GL, commercial auto)
• Your own salary/drawings

Example: If your annual overhead is $60,000 and you plan to bill 1,500 hours per year, your overhead per billed hour is $60,000 ? 1,500 = $40/hour.

Step 3: Add Profit Margin

Profit margin should be 15-25% of revenue for a healthy HVAC business. This funds growth, equipment purchases, slow seasons, and your retirement.

Example calculation for a $25/hr technician: Labor burden $35 + Overhead $40 = Break-even $75. With 20% profit margin: $75 ? 0.80 = $93.75/billed hour minimum. Most residential HVAC contractors charge $100-$175/hour depending on market.

Parts Markup

Parts are not a pass-through cost - they carry overhead and risk. Standard HVAC parts markup: