How to Set Your HVAC Labor Rate (Without Copying the Shop Down the Street)
"What's everyone charging per hour?" is one of the most common questions owners ask each other. The answers don't help much, because the other shop's rate was built on the other shop's costs. Two companies in the same town can need very different rates to make the same money.
Step 1: Add up the year
List everything the business has to pay for in a year, whether or not a job comes in.
- Technician wages, plus payroll taxes, workers' comp, health insurance and paid time off
- Your own pay. If you leave this out, the business only looks profitable.
- Vehicles: payments, fuel, insurance, maintenance
- Liability insurance, licenses and bonds
- Rent, utilities, phones, software
- Tools and their replacement
- Marketing
- Office staff, bookkeeping, accounting
Leave out parts and equipment for specific jobs. Those are priced on each ticket.
Step 2: Count billable hours honestly
A full-time tech is paid for about 2,080 hours a year. You will not bill 2,080 hours. Take out:
- Vacation, holidays and sick days
- Drive time
- Shop time, restocking and meetings
- Training
- Callbacks and warranty work
- Slow weeks in spring and fall
What is left, divided by paid hours, is the billable percentage. Most owners guess high. Pull last year's invoices and timesheets and work out the real number. The technician capacity calculator helps with this.
Step 3: Break-even rate
Break-even rate = yearly costs ÷ billable hours.
At that rate, the business pays every bill and makes nothing.
Step 4: Add profit
Profit is not your paycheck. Your pay is already a cost in step 1. Profit is what lets the business replace a truck, get through a slow season and grow.
Rate = break-even rate ÷ (1 − profit margin).
Worked example
These are example numbers to show the arithmetic, not a recommendation.
| Item | Amount |
|---|---|
| Yearly costs, two techs and an owner who runs calls | $420,000 |
| Paid hours, three people in the field | 6,240 |
| Billable percentage | 55% |
| Billable hours | 3,432 |
| Break-even rate | $420,000 ÷ 3,432 = about $122 per hour |
| Rate at a 15% profit margin | $122 ÷ 0.85 = about $144 per hour |
Change the billable percentage from 55% to 65% and the break-even rate drops to about $104. That is why filling the schedule and cutting drive time matter as much as the rate itself.
Use the break-even labor rate calculator to run your own numbers.
From hourly rate to prices
If you bill time and materials, this is the rate on the invoice. If you use flat rate, it is the labor rate behind every task in the price book. See flat rate vs. time and materials.
Common mistakes
- Copying a competitor. Their costs are not yours. They may also be losing money.
- Leaving out your own pay.
- Assuming techs bill 40 hours a week.
- Setting the rate once and never revisiting it. Insurance, fuel and wages go up. Re-run it at least once a year.
- Cutting the rate to win work. A rate under break-even loses more money the busier you get.
FAQ
What is a good billable percentage for an HVAC tech?
It varies with drive distances, seasonality and how well dispatch fills the day. Measure your own from last year's records, then work on raising it.
Should install labor and service labor use the same rate?
Many shops price them separately, because installs are bid by the job and service is priced by the task. The method is the same: costs divided by billable hours, plus profit.
My number is higher than what others charge. Now what?
Check the inputs first: is overhead too high for the number of techs, or are billable hours too low? If the numbers are right, the rate is right. Compete on response time, reviews and quality. See competing with low-price HVAC companies.
Sources
HVAC Cheat Sheet is published by 90 Leads, a marketing company that works with home service businesses, including HVAC contractors.
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