As for me, their disadvantage is my advantage. I don't mind telling you. And frankly, in this day and age, if you really want to know you can find out whether I tell you or not.   In writing this I hope to attract smarter than average customers. So read on and learn how this trade comes up with its prices.

Labor Rates

When you go to the auto repair shop and see a labor rate on the wall, do you believe what it says? In most cases you shouldn't. They may say they're charging $100 per hour. But when it comes time to tally your bill there's a book or CD that tells them how many hours to charge for. If they happen to perform the repair quicker than what the books says then that's just too bad. It's not especially hard for a good mechanic to bill out twelve hours of work in an eight hour day. The book said he could. That's $1,200 a day in labor charges when business is good. (Business isn't always steady, so it's not like they make $1,200 a day five days a week.) Since you're not there to observe actual repair times, you're in no position to quibble about the fact that $1,200 charged for eight hours of work means your actually paying $150 an hour.

Since you're typically at home with the repairman, heating and air companies can't bill you for imaginary hours. Plus, HVAC shops have the added challenge of drive time between calls. An HVAC contractor is lucky to keep a service man working in-home for six hours out of an eight hour day. So to make the same $1,200 a day as an auto shop, HVAC shops have to charge $200 an hour. Even then the auto shop is better off because they don't have a fleet of vans to pay for and maintain. To make the same profit on service as an auto shop, HVAC companies have to charge $225 or even $250 an hour. And they do. They just hide it by telling you that they don't charge by the hour. Most HVAC companies have gone to flat rate pricing to hide their real hourly rate.

You shouldn't be surprised by those rates. They are the norm for big HVAC companies that work out of expensive metro areas. I visited a home recently where the customer showed me another HVAC company's invoice. That company's trip fee was $69. The trip fee would have been waived if the repair was performed. The quoted repair price was $595. The part that needed to be replaced has a wholesale cost of about $100. The entire trip including the repair, paperwork, furnace checkout, etc. could have been completed in an hour. If we grant the contractor a typical 100% markup on the part, that customer would have paid over $350 an hour for labor. If for some reason the tech was there for ninety minutes then we're back down to the $250 an hour I mentioned above.

I have looked at a number of trades and have come to the conclusion that generally speaking with large companies in the SF Bay Area you are paying $150 to $200 an hour for service. New equipment is another matter. Given the meager profits that most companies pull down, they truly need to charge that much (more on that below). They just don't want you to know it. Who can blame them? You'd balk at the notion. So they hide that number inside flat rate pricing models and high part prices. There are always going to be exceptions, especially with small operators. But the exceptions don't break the rather expensive rule.

Part Prices

With most flat rate companies you'll never hear what the part costs. They'll insist that flat rate pricing means they don't charge by the part. They often claim to not even know what the retail price of the part is. Usually, on that last count at least, the average employee is telling the truth. Just like auto shops, flat rate HVAC shops have books that tell repairmen how much the repair is. The company owner will tell the publisher of the price book what he wants his hourly rate and parts markup to be. But of course employees are kept in the dark about such numbers. It's not hard to reverse engineer the price book and figure it out, especially for insiders. But few repairmen bother to. They'd rather not know. Being able to honestly say "I don't know." is a lot easier than having to tell you.

So what are they actually charging for parts? In the old days there was a rule of thumb that said a retailer should double his money. That simply means that if it costs a buck, we sell it for two. Sam Walton changed that rule forever, at least when it comes to household commodities. A lot of what Walmart sells costs them seventy, eighty, even ninety percent of what they sell it to you for. But in the HVAC world the double your money rule has endured and even gone the other way. Older markup sheets I've seen mark inexpensive parts up by five. If the part costs $3 then you pay $15. The scale slides of course. If the part costs $30 then you pay $90 (x3). Once the part reaches $100 you pay $200 (x2). Finally the scale stopped at $150, where everything after that was marked up by 1.8. As I say, that's older markup sheets. Newer versions in use today mark parts up even higher.

That may seem outrageous and possibly even crooked, but it most certainly is not. Is the convenience store crooked for charging $1.00 for something that costs 25 cents at the wholesale club? Hardly. The convenience store owner earns his keep just the same as you and me. He needs to charge that much to pay his bills and have a decent income, just as an HVAC shop does. Few HVAC contractors are getting rich. In fact, by survey roughly half of the shop owners out there made more working for someone else than they do working for themselves. The real problem isn't high prices. I'll get to the real problem a few paragraphs down.

New Equipment Prices

When it comes to the price for new equipment installations, the double your money rule has held up pretty good. It's simple. If the on site costs for a new furnace or air conditioner is $1,500 then the customer pays $3,000. On site costs include the cost of the new equipment, labor, permits and so on. The other $1,500 goes to pay overhead. And there's a lot of it! Support staff, workman's comp, advertising, taxes and the like represent a huge burden.

On smaller jobs those numbers tend to hold up fairly well. On bigger jobs those numbers start to break down. When business is booming almost no one except backyard mechanics will discount their price. But if business is slow and a shop just wants to keep their employees working, they can take a job that costs them $5,000 on site and charge just $8,000 rather than $10,000. That's less money to pay for overhead. But sometimes that's better than having nothing for your employees to do.

Where the numbers really start to break down is in the quality of the work. The more labor intensive a job is, the more opportunity there is to cut corners. It is quite literally the case that some of my installations have taken twice as many man hours as a competitor would have taken. The installation page explains why it sometimes takes me so long. Combine the difference in man hours with the willingness of some contractors to discount heavily in hard times and you can see why bids can vary so drastically.

High prices aren't the real  problem.

My problem with the $595 company mentioned above or any other contractor isn't the prices they charge. My price would have been no more than $450, but I don't fault them for making enough to pay the bills. Big companies have big expenses. Even with such seemingly high prices the average HVAC shop only makes a few points profit. Truly successful shops make a "whopping" ten percent profit. There's absolutely nothing wrong with that. The problem is not what the $595 company charges. It's how they get there. It seems like almost everything they do from start to finish is based on some form of lie or manipulation:

The low trip fee? It's bait and switch. Waiving the trip fee? There's no such thing. Highly trained specialists? Not the way you think. No charge for after hours service? Technically yes, in reality no. That's just the service call experience. Then they pile on. Getting you signed up on a sometimes worthless maintenance agreement is a top priority. Pushing new equipment is always a must. Installing it right? Not a must. And of course the crown jewel of this dirty laundry list is duct cleaning, which is almost always worthless and often damaging.

Parenthetically, I find it laughable that they sell maintenance agreements by saying your existing equipment will be more efficient and last longer. Then they turn right around and start pushing new equipment (often while doing the maintenance!) because your old stuff is supposedly so inefficient when it's only ten or fifteen years old! In the SF Bay Area your HVAC equipment can last well over twenty years if it's not abused.

At the risk of being redundant: There is nothing unethical about a high price, especially when you have the power to say yes or no. I personally don't need to charge $200 an hour to make a living. However, some big companies do. I don't fault them for charging so much. Their faults lie in the fact that their greed won't allow them to give you the truth so that you can make an informed decision. They themselves are so tangled in the web they've woven that they don't even know the truth. So they hustle new equipment and sell bogus services all while believing they're doing you a favor in the process.

My Prices

When it comes to new equipment installation, I use essentially the same formula as most others. The biggest difference is I almost never discount my prices, even when business is slow. As a one man operation there is no pressure to keep employees busy. I'd rather sit at home and play on the computer or clean the garage than do charity work on a prospect's behalf. J What that means is that my prices for installation are typically in the ballpark of a large contractor's full retail price. The real difference between us is that I only sell you what you actually need and I do it right.

Fees for diagnosis, maintenance and inspection are spelled out on the linked pages. When it comes to repair prices I present a flat rate bill like most. However, unlike most I'm happy to give my customers a time and materials breakdown when they ask. So what is that breakdown? You, dear anonymous reader, are (so far as I know) not a customer. :^) Suffice it to say that it's not $250 an hour. It's not even $150 an hour. It's just enough to make a modest income, more modest than most people imagine a business owner making.

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