Labor Rates

I'm sure you've noticed the labor rate posted on the wall of your local auto shop. Do you believe what it says? You probably shouldn't. The sign may say they're charging $100 per hour. But when it comes time to tally your bill there's a book or software that tells them how many hours to bill you for. If they happen to perform the repair quicker than what the book says you still get charged for book time. It's not especially hard for a good mechanic to bill out twelve hours of work in an eight hour day. 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.

The situation is different for HVAC contractors. First, since you're typically at home with the HVAC repairman he can't bill you for imaginary hours. Second, an HVAC repairman has drive time between service calls. He may spend six hours or less at customers' homes. To make the same $1,200 a day the auto shop does an HVAC shop would have to charge $200 an hour. Third, the HVAC shop has a fleet of vans to pay for. To make the same profit on labor as an auto shop an HVAC shop would have to charge $225 or even $250 an hour. Some do. They just hide it by telling you that they don't charge by the hour. Most HVAC contractors use flat rate pricing to hide their hourly rate.

Those rates may be shocking at first. But they are the norm for big HVAC companies, plumbers, mechanics, etc. located in expensive urban and suburban areas. I visited a home recently where the customer showed me another HVAC contractor's invoice. The diagnosis was a bad combustion motor. The quoted repair price was $595. Knowing what the part costs I did the math. Had the job gone quickly the customer would have paid $350 an hour for labor. Had the job taken longer the customer would have paid the $250 an hour I mentioned above. I've seen many of those invoices over the years. One of my reviews on Yelp is from a different customer that needed the exact same repair. She was quoted over $700.

I have looked at a number of trades and have come to the conclusion that generally speaking most large companies in the S.F. Bay Area are charging $150 to $200 an hour for labor. I've also taken several classes that ostensibly teach contractors how to run a good business. $200 an hour on up is their recommended "internal hourly rate". Given the tiny profits most companies make, they actually do need to charge that much. They just don't want you to know it. Who can blame them? You'd balk at the notion of paying $200 an hour. So they hide the hourly rate inside a flat repair price. There are exceptions of course, especially with small operators. But those exceptions don't break the expensive rule.

Part Prices

With most flat rate companies you'll never hear what the part costs. The person you're talking to will probably claim to not even know what the part's price is. The average employee that says that is probably telling the truth. Just like auto shops, flat rate HVAC shops have a book or software that tells repairmen how much to charge. The company owner tells the book's publisher what he wants the hourly rate and parts markup to be. The average employee is kept in the dark about those numbers. It's not hard to reverse engineer the book and figure it out. But in my experience few repairmen bother to. They'd rather not know. Being able to say "I don't know." is the easiest way out of answering the question.

So what are they actually charging for parts? Old timers tell me the rule of thumb used to be "double your money". If it cost a buck then they would charge two. When it comes to commodities, Sam Walton changed that rule forever. A lot of what Walmart sells costs them seventy, eighty, even ninety percent of what they sell it to you for. But when it comes to HVAC service the double your money rule has endured and even gone the other way. Old markup sheets I've seen have sliding scales that start at five. If the part costs $3 the customer pays $15. If the part costs $30 the customer pays $90. If the part costs $100 the customer pays $200... and so on. Some markup sheets in use today are even worse.

That kind of markup is nothing new. Homeowners have been paying it for decades. What's changed is the internet. In most cases a homeowner can now find and buy HVAC parts online cheaper than I buy them locally. That's led to some haggling. Many homeowners assume contractors should mark things up like Walmart - that is to say, very little. Meanwhile the cost of doing business has skyrocketed, which means markups have risen.

New Equipment Prices

When it comes to the price for new equipment installations the double your money rule has held up pretty good. If onsite costs for a new furnace or air conditioner total $1,500 then the customer might be quoted $3,000. Onsite costs include the cost of the new equipment, labor, permits and so on. The other $1,500 goes to pay overhead. There's a lot of it. Support staff, workman's comp, advertising, taxes and the rest represent a huge financial burden.

On smaller jobs those numbers tend to hold up fairly well. On bigger jobs they 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 $5,000 onsite and charge $7,500 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 things really start to break down is in the quality of the work. It's not like the low bid contractor is happy about being low bid. He's well aware of his razor thin margins. So most low bidders cut as many corners as they can to compensate. The more labor intensive a job is, the more opportunity there is to cut corners. Some of my installations have taken twice as many hours as a competitor would have taken. The installation page explains some of the reasons why it takes so long. Combine the difference in man hours with the willingness of some contractors to discount heavily in hard times and it's no surprise that bids can vary drastically.

High prices aren't the real  problem.

All these high prices may seem outrageous and perhaps even crooked. $200 an hour for labor?! $4000 for a job that has onsite costs of $2000?! A pox upon them all you say!!! ;^) If you feel that way, I get it. I really do. When I first entered the trade I was very uneasy with the bills I presented customers. I worked fast food as a teen and had rarely asked for more than $20. Asking for ten to twenty times that much was a hard adjustment to say the least.

Nevertheless, it was and is necessary. There's nothing wrong with charging enough to pay one's bills and have a little left over. Few contractors do more than that. By survey roughly half the HVAC shop owners out there made more working for someone else than they do working for themselves. As for superstar companies that are featured in trade magazines, the very same ones that charge $200 an hour or more, many of them make around ten percent profit. There's nothing unethical about making ten percent.

The real problem in this trade isn't the seemingly high prices. My problem with the $595 company mentioned above or any other contractor isn't (usually) the prices they charge. I actually defend their right to charge a high price. It's how they get there and what they do after they get there that I take issue with. It seems like almost everything "superstar companies" and the wannabes 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 BAM! They kick it up a notch. Getting you signed up on a sometimes worthless maintenance agreement is a top priority. Pushing new equipment whether you need it or not 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 sometimes damaging.

Those nearly universal practices are the real problem. A seemingly high price that results in a mere ten percent profit is, by comparison, almost charitable.

My Prices

When it comes to new equipment prices I use essentially the same formula as most others. The biggest difference is I almost never discount my prices. That puts my prices for installation in the same ballpark as that of the large contractor's full retail price, sometimes higher. The difference is I only sell you what you need and install it better than any of them could ever hope.

When it comes to repair prices I present a flat rate bill like most. Unlike most I'm willing to give my customers an equivalent time and materials breakdown. Generally speaking it goes something like this:
-The first twenty minutes include a trip charge, so those twenty minutes are charged for as if they were forty minutes. Trip charges have been around forever. Driving takes time. Time is money.
-The rest of the time is charged for at the normal hourly rate and rounded off in quarter hours. That's another old tradition.
-The part's price is typically double the part's cost. I don't triple or quintuple. Once the part's cost hits $100 it's typically less than double.
-Add those three items up and we have a price. For example, I typically charge around $475 for a combustion motor that goes for $600 to $700 elsewhere.

As of this writing my labor rate is $120 an hour. That doesn't make me cheap by any stretch. It just makes me fair. Well... in my highly biased opinion I'm fair. :-) I'm also better stocked and equipped than anyone I know.

If you can find someone comparable for less then please pass me his or her name. I've been checking the competition for years. The ethical, highly skilled, well stocked cheap contractor is a myth. If you can find one you can probably find Sasquatch. ;^) The ones that sound cheap at first usually cost more in the end. The few that are actually cheap are usually untrained parts changers that occasionally get lucky. They are just as often unlucky, as are you when that happens.

You're buying a service. You're buying knowledge. The tools and parts are almost incidental compared to the person holding them. Would you trust your health to a low bid doctor? Then neither should you trust your home's safety to a low bid contractor.

Fees for diagnosis, maintenance and inspection are spelled out on the linked pages. If you call me with an idea of what you need I can probably give you a ballpark price over the phone. I'm happy to do so. I do my best to treat you the way I'd want to be treated, so I'll give you as much information as I can upfront.

Haggling?

All this openness might tempt some to haggle. Please don't. It won't work. :-) I don't begrudge anyone who's looking for a deal. I wish you well in that search. As for the rest, I give you unprecedented access to information in hopes of making this case:
I offer an unmatched service at a fair price. That's the best deal you're going to find.

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