5 minute read
Calculating HVAC Maintenance Price Plans for Two or More Systems
BY RUTH KING FINANCE
When pricing maintenance plans for additional (second and third) home heating and cooling systems, you should know as a business owner, it is not merely about cutting your maintenance price for the first system in half.
Why? Simply put, unless you plan on performing only half the maintenance on the additional systems, you must charge for the full-service work you plan to provide. The only fee you should ever be leaving off the plan for additional systems, is a travel expense. When pricing maintenance plans for additional home heating and cooling systems, you should know as a business owner, it is not merely about cutting your maintenance price for the first system in half…you must charge for the full-service work you plan to provide.
STEPS TO SETTING UP A MAINTENANCE PRICING PLAN FOR ADDITIONAL HVAC SYSTEMS
As a heating and cooling home contractor, you must make certain assumptions when setting up price points for your business. It is the only way to remain competitive and profitable. Below are some reasonable assumptions that can and should be included in your maintenance price plans for additional systems maintenance.
HOME HVAC SYSTEM 1 Sample - Assumptions:
• Total time for heating and cooling maintenance service is 4 hours, including travel. • The technician hourly rate is $20/hr. • Overhead cost is $30/hr. • Material cost is $5 • SPIFF is $10 per system. • Net profit is $5/hr.
Sample Price Plan for the First System:
• Labor: $80 • Overhead: $120 • Materials & SPIFF: $15 • Profit: $20
Price: $235
As you see, I based this on a $5 net profit per hour estimate because your maintenance plans must at least break even. At $5 an hour, you will have some breathing room when you hire a technician who earns more than $20 an hour while performing maintenance during the slower season.
ADDITIONAL HOME HEATING AND AIR SYSTEMS
The only expense not included in additional systems maintenance pricing, is travel. Let’s go on a reasonable assumption that travel is one hour of the four hours, keeping in mind that each maintenance visit is 30 minutes.
• Total time for heating and cooling maintenance service is 3 hours. • The technician hourly rate is $20/hr. • Overhead cost is $30/hr. • Material cost is $5. • SPIFF is $10 per system. • Net profit is $5/hr.
Sample Price Plan for Additional Systems:
• Labor: $60 • Overhead: $90 • Materials & SPIFF: $15 • Profit: $15
Price: $180
Based on reasonable assumptions for a two-system home, the price to your customer is $235 plus $180 (or $415 total).
CONTRACTORS: HOW TO REMEDY UNDER-PRICING FOR HVAC MAINTENANCE VISITS
Now that you know how to formulate a set of price plans for the first and additional systems maintenance, you might need to correct any erroneous underpricing from the past. What do you do if you have been charging only half-price for additional systems? Raise the price. Do nothing else before you raise the prices. You may lose clients. It’s an almost inevitable possibility. If you feel like that may be a concern however, try reaching out to your customers first.
How do you explain the price increase to your existing maintenance customers with two or more systems? 1. Recognize the inevitability that you will lose some maintenance customers when you raise prices.
Accepting the discomfort of this business growing pain, is the only way to grow your business and increase profit moving forward. Based on experience, even the most loyal customers will try to find a cheaper solution. However, if they walk away, remember unprofitable customers aren’t a true loss. If they are maintenance customers and they aren’t contributing to the profitability and growth of your business, they are no longer good for your business. 2. Send your customers notice of the price increase. This is best achieved through an email or telephone call. My personal tip: Allow a customer to renew their maintenance plan for an additional year if they agree to renew by a certain date. After that, and in subsequent years, the price will revert to the new rate. Many customers will renew early. Put these added funds into a savings account. You may need them as you are performing the maintenance over the next year. 3. Consider implementing monthly recurring billing. The increase is less of a shock for customers who pay monthly. Based on the previous example, if you had been charging $117.50 for the additional system, the customer’s maintenance price would be $352.50 annually or $29.38 a month for a two-system home. Then, if you were to raise the price for the additional system to $180, the maintenance price would be $415 a year or $34.58 per month. An increase of about $5 a month which is much easier for a customer to digest.
Note: When you send the notices out to customers, be sure to mention the monthly price payment plan.
EDUCATE YOUR HVAC TEAM – THEY ARE THE FRONT LINE OF YOUR BUSINESS
Lastly, always educate your team about the price increases as well as the reason for the need to do it. Explain the changes to your technicians and office staff. If they understand the need for the increase because you had been losing money, they will more likely act as a loyal frontline representative for your business if and when any small talk of price or price increases, comes up with customers. In the running example we have been using, explain the numbers to the entire team. Demonstrate to your workers that you have been losing $62.50 ($180-$117.50) on each customer who has two systems in their home. Technicians and staff members, if they are smart, will recognize and empathize with the fact that the company can’t continue to lose money. It won’t be good for business and may in fact affect their own employment. Once they understand the reasoning behind the price increase, they will accept it and be loyal to the brand. As a home heating and cooling contractor, your brand and your team reps also act as your best calling card; this is especially important if in fact technicians and staff are looped into discussions regarding upcoming price increases for future additional HVAC home systems maintenance. u
Ruth King has more than 25 years of experience in the HVACR industry and has worked with contractors, distributors and manufacturers to help grow their companies and become more profitable. Contact Ruth at ruthking@hvacchannel.tv or at 770-729-0258.
