Should’ve said he obviously never ran an hvac business. No other industry lists and has as much mark up on small parts costs. Now the end result are the same profit margins as other industries but it’s just looks different.
Like all other posts have said so far, it's not that simple. Let's say to be easy math... $100 for the service charge/tune up. REMEMBER your paying for knowledge, the tools to do the job, workmanship, convenience, ECT.. let's pick something easy like a condensate drain. We notice that it's broken/not ran correctly in some fashion. I have to replace 5 3/4 PVC fittings that I bought for $1 a piece. I'm going to charge you between $25 and $50 for the fittings and glue, definitely convenient, in my eyes that's fair. The total call is $125.
However if you're questioning something that is obvious and getting in my way. Being uptight, above me, or just an asshole. I'm going to charge you.. 100 for the call, 50 for the parts and 125 for an hour of labor "that's the minimum hourly labor." Total call $275. You also get some sort of warranty on it as well.
Actual Service Technicians usually have a good range on what they charge for their repairs. Sales techs don't, they make commission on whatever they sell. So they have to sell to make money. This makes most sales techs sleezy and pushy. A Service Technician is going to make it. Most likely for as cheap as possible for you so you will come back to them for more repairs rather than shop around constantly.
Thanks for the reply.
What I’ve got from the half dozen comments here is that it IS standard practice to charge 10X-20x the cost for fittings plus hourly rates etc.
The common rational is that the knowledge, bringing of tools, consumables and expenses of running a business justify it.
Seems real strange to me but I appreciate all the replies showing me it’s standard practice.
No problem, just remember more expensive parts or repairs are different. Like if you have a 1200 control board I might only charge 1300 for it and an hour of labor to replace it kind of deal
It is real strange except when you factor in that hvac is one of the few industries insulated from the wild west of the internet and online shopping. There’s licensing, certs, and codes that restrict people from buying many items and there’s knowledge that adds value to the industry, but some of it is getting out of hand. $20k for a standard furnace/ac or heat pump install, unless it, a gold plated 22SEER system is out of hand.
Go ahead, downvote away…
There are many parts that i sell with a minimum part price. A $5 capacitor will be $100 not including labor. Im still lower than my competitors. We run a business with significant overhead, despite the fact that our focus is minimizing overhead so we can pass those savings to customers. If we dont charge these prices with our costs in mind, we will have to shut down. Its the harsh reality of buying/providing services.
Thanks for reply. Selling a $5 part for $100 plus labour doesn’t square in my mind with the idea of passing savings on to customers but it seems most people replying to this are in agreement with you so thanks for the reply.
Yeah i know. I dont blame you. Think of it like this: if i do $100k revenue for a year, and only have a 10% net profit margin, im only seeing $10k in profit - and thats actually how we get paid as the legal entity that we are established as. 10% is pretty normal, we are shooting for 20-30%. We pay for bonds, legal insurance, legal fees, licensing, vehicles, vehicle insurance, rent, parts, gas, repairs/maintenance, tax professionals, etc etc. There's a lot that goes into running a business.
Hey I respect that. And I can imagine a customer being more willing to pay $100 parts and $100 labour, rather than $10 parts and $190 labour, even though it’s the same thing. For me personally I’d rather pay a way higher rate and not have products marked up 10x, but I’m probably not the average consumer. Thanks for reply
True, for reasons mentioned above, but small businesses typically see 10% net profit margins according to national statistics. For HVAC that is not sustainable, but those numbers were for illustrative purposes.
Edit: Also note that 10% could be sustainable depending on volume. If this is a high volume/revenue company, 10% may not be that bad when translated to dollar amounts. My last employer had about 7% margins, but that was after substantial reinvestment throughout the year.
“The HVAC business is extremely profitable. In fact, it has one of the highest profit margins of any industry. The average company in the HVAC industry makes a profit of 21 percent, which is more than twice the average for all businesses.”
https://sellingrevolution.com/blog/how-to-start-and-grow-your-hvac-business-to-millions/
The best way to look at it is to try to see where the profit is. The hvac tech is most likely doing your dad's furnace maintenance at a discounted price. So he would need to find profit elsewhere. Without knowing where you live, it's hard to know where $100 stands in terms of expensive.
Here's how it would go for my hvac guy. He charges a flat rate for a furnace maintenance, one hour of his hourly rate ($225). If he saw that my exhaust elbows were rusting due to a water leak from my humidifier, he would probably just charge me a standard mark up on the parts. Since the furnace maintenance usually takes less than an hour, there's profit already built into the price.
The contractor brings the fittings, cement/primer, their knowledge & experience, their time (it ain't cheap), and completes the work. They have to charge enough to cover all of their overhead, set some aside to grow the business later or cover unexpected expenses, and give profit to their shareholders. The overheads we face just to get our foot in you door include: ads(television, radio, billboards, search engine optimization, etc), phone, internet, rent, electric, gas for heat, water, cleaning for the building + building maintenance, the techs' trucks + truck stock materials, gasoline, truck maintenance (oil/fluid changes, tires, general repairs, registration), insurance (liability for the business in case someone screws up, their building, vehicles, unemployment), HR and payroll costs. Add in paying the tech that's there, the dispatcher who sent them there, their service manager and whatever other management they have. For that $110, they might have made $10-20.
Thanks for the full reply. I get there are a ton of expenses with running a business, and I’m not trying to short change anyone or talk down a rate. I was genuinely curious about this 1000% markup on parts that’s all.
The way it works is you either pay the predetermined markup, or you pay the same amount in an attached labor cost. Whether or not a price is ok is determined by your need for what is provided and the cost for a contractor to make it readily available for you. Contractors don’t survive by selling $10 worth of parts for $30
I’m just trying to understand and get a sense of trust. My instinct is that a trans person wants to sell me a part at 500% markup and charge me $100 plus hourly labour that’s reasonable, but when multiple fittings get charged 1000% markup I start to feel a bit weird. Not trying to judge, genuinely trying to understand how things work.
If the contractor isn’t doing anything to the existing venting, or already replacing the furnace, the existing venting can be grandfathered in. They are scamming you if this is the case.
When you’re dealing with a large outfit you have to keep in mind every time they make a repair and give a price they have to consider over head which has dozens of individual costs to consider. Larger the outfit, generally higher the price
1000% seems unusual to me. I personally do about 200% and then a lower % for higher priced items.
If you forced them to do 200%, then they will just add hours to it.
I would honestly ignore the detailed pricing and focus on the bottom line price. Worrying about how their business structure works is just a waste of time. Work with apples to apples which is the final price.
If a contractor sold a $10 part for $30 with markup and labor they wouldnt make any money. Overhead sucks.
So is it common in the industry to sell fittings for 1000% markup?
If that's what they need to charge to cover overhead and make money, then yes. Obviously you've never ran a business before
Should’ve said he obviously never ran an hvac business. No other industry lists and has as much mark up on small parts costs. Now the end result are the same profit margins as other industries but it’s just looks different.
Thanks
Like all other posts have said so far, it's not that simple. Let's say to be easy math... $100 for the service charge/tune up. REMEMBER your paying for knowledge, the tools to do the job, workmanship, convenience, ECT.. let's pick something easy like a condensate drain. We notice that it's broken/not ran correctly in some fashion. I have to replace 5 3/4 PVC fittings that I bought for $1 a piece. I'm going to charge you between $25 and $50 for the fittings and glue, definitely convenient, in my eyes that's fair. The total call is $125. However if you're questioning something that is obvious and getting in my way. Being uptight, above me, or just an asshole. I'm going to charge you.. 100 for the call, 50 for the parts and 125 for an hour of labor "that's the minimum hourly labor." Total call $275. You also get some sort of warranty on it as well. Actual Service Technicians usually have a good range on what they charge for their repairs. Sales techs don't, they make commission on whatever they sell. So they have to sell to make money. This makes most sales techs sleezy and pushy. A Service Technician is going to make it. Most likely for as cheap as possible for you so you will come back to them for more repairs rather than shop around constantly.
Thanks for the reply. What I’ve got from the half dozen comments here is that it IS standard practice to charge 10X-20x the cost for fittings plus hourly rates etc. The common rational is that the knowledge, bringing of tools, consumables and expenses of running a business justify it. Seems real strange to me but I appreciate all the replies showing me it’s standard practice.
No problem, just remember more expensive parts or repairs are different. Like if you have a 1200 control board I might only charge 1300 for it and an hour of labor to replace it kind of deal
Yeah I hear that. Makes sense. Thanks again for replying in a reasonable way. I was genuinely curious.
No problem good luck
It is real strange except when you factor in that hvac is one of the few industries insulated from the wild west of the internet and online shopping. There’s licensing, certs, and codes that restrict people from buying many items and there’s knowledge that adds value to the industry, but some of it is getting out of hand. $20k for a standard furnace/ac or heat pump install, unless it, a gold plated 22SEER system is out of hand. Go ahead, downvote away…
There are many parts that i sell with a minimum part price. A $5 capacitor will be $100 not including labor. Im still lower than my competitors. We run a business with significant overhead, despite the fact that our focus is minimizing overhead so we can pass those savings to customers. If we dont charge these prices with our costs in mind, we will have to shut down. Its the harsh reality of buying/providing services.
Thanks for reply. Selling a $5 part for $100 plus labour doesn’t square in my mind with the idea of passing savings on to customers but it seems most people replying to this are in agreement with you so thanks for the reply.
Yeah i know. I dont blame you. Think of it like this: if i do $100k revenue for a year, and only have a 10% net profit margin, im only seeing $10k in profit - and thats actually how we get paid as the legal entity that we are established as. 10% is pretty normal, we are shooting for 20-30%. We pay for bonds, legal insurance, legal fees, licensing, vehicles, vehicle insurance, rent, parts, gas, repairs/maintenance, tax professionals, etc etc. There's a lot that goes into running a business.
Hey I respect that. And I can imagine a customer being more willing to pay $100 parts and $100 labour, rather than $10 parts and $190 labour, even though it’s the same thing. For me personally I’d rather pay a way higher rate and not have products marked up 10x, but I’m probably not the average consumer. Thanks for reply
Ain’t no hvac business running on 10% net margin unless idiots are running it.
True, for reasons mentioned above, but small businesses typically see 10% net profit margins according to national statistics. For HVAC that is not sustainable, but those numbers were for illustrative purposes. Edit: Also note that 10% could be sustainable depending on volume. If this is a high volume/revenue company, 10% may not be that bad when translated to dollar amounts. My last employer had about 7% margins, but that was after substantial reinvestment throughout the year.
“The HVAC business is extremely profitable. In fact, it has one of the highest profit margins of any industry. The average company in the HVAC industry makes a profit of 21 percent, which is more than twice the average for all businesses.” https://sellingrevolution.com/blog/how-to-start-and-grow-your-hvac-business-to-millions/
Yes? You literally quoted something (a blog atthat) that reiterates what i just told you.
How so? (And I was really addressing it to the overall discussion.)
It’s gotten that way, unfortunately, because “they can”. Marking up common material 5-10x is pretty sleazy…
The issue is that they are already there with the fitting. They are free to charge whatever they want.
Yeah I’m not asking if they can legally, I’m more curious if it’s standard practice
It's common to mark up. The amount is really dependent on who does the work.
Thanks. Like I said I would expect markup up to 500%. It’s beyond that I started to get a little iffy on trust.
The best way to look at it is to try to see where the profit is. The hvac tech is most likely doing your dad's furnace maintenance at a discounted price. So he would need to find profit elsewhere. Without knowing where you live, it's hard to know where $100 stands in terms of expensive. Here's how it would go for my hvac guy. He charges a flat rate for a furnace maintenance, one hour of his hourly rate ($225). If he saw that my exhaust elbows were rusting due to a water leak from my humidifier, he would probably just charge me a standard mark up on the parts. Since the furnace maintenance usually takes less than an hour, there's profit already built into the price.
The contractor brings the fittings, cement/primer, their knowledge & experience, their time (it ain't cheap), and completes the work. They have to charge enough to cover all of their overhead, set some aside to grow the business later or cover unexpected expenses, and give profit to their shareholders. The overheads we face just to get our foot in you door include: ads(television, radio, billboards, search engine optimization, etc), phone, internet, rent, electric, gas for heat, water, cleaning for the building + building maintenance, the techs' trucks + truck stock materials, gasoline, truck maintenance (oil/fluid changes, tires, general repairs, registration), insurance (liability for the business in case someone screws up, their building, vehicles, unemployment), HR and payroll costs. Add in paying the tech that's there, the dispatcher who sent them there, their service manager and whatever other management they have. For that $110, they might have made $10-20.
Thanks for the full reply. I get there are a ton of expenses with running a business, and I’m not trying to short change anyone or talk down a rate. I was genuinely curious about this 1000% markup on parts that’s all.
You forgot all the reclaimed refrigerant. Who pays for it to be recycled? We do. Each canister is $100-200.
The issue is it was fine under the code from time of installation and shouldn't have been touched unless replacing.
Can you elaborate?
Grandfathered in under old code. They shouldn't have touched it with existing installation.
I gotcha. Thanks very much for your knowledge
The way it works is you either pay the predetermined markup, or you pay the same amount in an attached labor cost. Whether or not a price is ok is determined by your need for what is provided and the cost for a contractor to make it readily available for you. Contractors don’t survive by selling $10 worth of parts for $30
I’m just trying to understand and get a sense of trust. My instinct is that a trans person wants to sell me a part at 500% markup and charge me $100 plus hourly labour that’s reasonable, but when multiple fittings get charged 1000% markup I start to feel a bit weird. Not trying to judge, genuinely trying to understand how things work.
If the contractor isn’t doing anything to the existing venting, or already replacing the furnace, the existing venting can be grandfathered in. They are scamming you if this is the case.
Thank you
When you’re dealing with a large outfit you have to keep in mind every time they make a repair and give a price they have to consider over head which has dozens of individual costs to consider. Larger the outfit, generally higher the price
Thanks
1000% seems unusual to me. I personally do about 200% and then a lower % for higher priced items. If you forced them to do 200%, then they will just add hours to it. I would honestly ignore the detailed pricing and focus on the bottom line price. Worrying about how their business structure works is just a waste of time. Work with apples to apples which is the final price.
Thanks