Here is something most HVAC business coaches charge $500/hour to explain: many contractors undercharge for their work, often by a lot. And the reason is simple: they don’t know their real costs.
You know what you pay your techs. You know what parts cost. But do you know what it actually costs you to roll a truck? Most don’t. And that gap between what you think it costs and what it actually costs is where your profit disappears.
Step 1: Calculate Your Real Cost Per Hour
Before you price a single job, you need to know what it costs you to operate for one hour. Not just the tech’s wage — everything.
Your Annual Overhead (the stuff you probably forget)
The ranges below are example estimates, not survey data. Replace them with numbers from your own books. For a wage reference, the Bureau of Labor Statistics reports a median annual wage of $61,010 (May 2025) for heating, air conditioning, and refrigeration mechanics and installers, before benefits, payroll taxes, and workers’ comp.
| Cost Category | Annual Estimate |
|---|---|
| Tech wages (loaded — include benefits, workers comp, taxes) | $55,000-$85,000/tech |
| Truck payment + insurance + fuel + maintenance | $12,000-$18,000/truck |
| General liability + umbrella insurance | $5,000-$15,000 |
| Office rent/warehouse | $12,000-$36,000 |
| Software (FSM, accounting, marketing) | $3,000-$12,000 |
| Marketing and advertising | $12,000-$60,000 |
| Tools and equipment | $2,000-$5,000/tech |
| Training and certifications | $1,000-$3,000/tech |
| Uniforms, supplies, office admin | $3,000-$8,000 |
| Owner’s salary | $60,000-$150,000 |
The Math
Take your total annual overhead and divide by your total billable hours.
Example — 5-tech HVAC shop:
Total annual overhead: $650,000 Total billable hours: 5 techs × 6 billable hours/day × 250 workdays = 7,500 hours Cost per billable hour: $86.67
That’s what it costs you to exist for one hour of billable work. If you’re charging $95/hour, your profit margin is $8.33/hour — about 8.8%. Before taxes. That’s not a business, that’s a hobby.
To hit 20% profit margin, you’d need to charge $108/hour. To hit 25%, you need $116/hour. And that’s before parts markup.
The Billable Hour Reality
Notice we used 6 billable hours per day, not 8. Your techs work 8 hours but they’re not billing for all of them. Drive time, lunch, training, morning meetings, parts runs — these eat into billable time. Be realistic about this number or your pricing will be wrong.
Billable hours per tech per day vary by shop, and most land well under 8. Use a lower number (5-6) if your service area is spread out, and a higher one (6-7) if your service area is tight and you have good dispatching. Measure your own.
Step 2: Time-and-Materials vs. Flat-Rate
Time-and-Materials (T&M)
You charge an hourly rate plus parts cost with markup. The customer pays for however long the job takes.
Problems with T&M:
- Customers hate the uncertainty. “How long will it take?” “I don’t know.” That’s anxiety-inducing.
- Fast techs get punished. Your best tech finishes in 45 minutes and bills $95. Your slower tech takes 90 minutes and bills $190 for the same repair. That’s backward.
- Pricing disputes. “Why did it take 3 hours?” creates arguments.
- Revenue cap. You can only bill the hours your techs work. No leverage.
Flat-Rate Pricing
You charge a set price for each repair regardless of how long it takes. The price is based on average time + parts + overhead + profit.
Why flat-rate wins:
- Customers know the price upfront. No surprises. Trust increases.
- Fast techs earn you more per hour. Efficiency is rewarded.
- No pricing disputes. The customer agreed to the price before work started.
- Consistent margins. Every job hits your target profit regardless of speed.
Many HVAC companies have moved to flat-rate pricing. If you’re still on T&M, you may be operating at a disadvantage.
Step 3: Build Your Pricebook
A pricebook is your list of every service with a pre-set flat-rate price. Building one is work — expect it to take dozens of hours for a complete HVAC pricebook — but it’s the foundation of professional pricing.
How to Price Each Task
For every repair in your pricebook, calculate:
Labor: Average time for the task × your billing rate per hour Parts: Your cost × markup (higher multiples on small parts, lower on big-ticket parts) Overhead allocation: Built into your billing rate Profit margin: your net profit target
Example — Replacing a capacitor:
- Average time: 30 minutes (0.5 hours)
- Labor at $120/hour billing rate: $60
- Capacitor cost: $12
- Parts markup (5x on small parts): $60
- Total price: $120
- Your actual cost: ~$55 (30 min of tech time at true cost + $12 part)
- Profit: ~$65 (54% margin)
That margin looks high, but it has to cover the diagnostic call where the tech spent 45 minutes and the problem was a tripped breaker the customer should have checked. It has to cover the callback when the new capacitor fails after a week. It has to cover the 20 minutes of drive time before and after.
Good-Better-Best Options
For every major repair, offer three options:
Good: Fix the immediate problem. “Replace the failed capacitor — $120” Better: Fix + prevent related issues. “Replace capacitor + clean condenser coil + check electrical connections — $245” Best: Fix + upgrade. “Replace capacitor + full AC tune-up + add surge protector — $389”
Many customers choose “Better,” some choose “Best,” and fewer choose “Good” when it’s presented next to the other options. Many contractors find this lifts the average ticket, so test it and track your own average.
This is where software like ServiceTitan and Coolfront shine — they present these options professionally on a tablet, making the selection process easy for the customer and natural for the tech.
Step 4: Handle the “You’re Too Expensive” Objection
Every contractor faces this. Here’s how to handle it:
Don’t lower your price. Lowering your price tells the customer your original price wasn’t fair. Instead:
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Explain the value. “That price includes the repair, a 1-year warranty on parts and labor, and priority scheduling if anything goes wrong.”
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Offer the lower-tier option. “If budget is a concern, the basic repair is $120. It solves the immediate issue. The $245 option adds preventive maintenance that protects your system long-term.”
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Offer financing. For large repairs or replacements, partnering with a financing company (GreenSky, Wisetack, Synchrony) lets customers pay over time without reducing your revenue.
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Let them walk. Not every customer is your customer. If someone thinks $120 for a capacitor replacement is too much, they’ll also think $1,200 for a blower motor is too much. Do you want that customer long-term?
Step 5: Review and Adjust Quarterly
Supply costs change. Labor costs change. Market rates change. Review your pricebook quarterly:
- Update parts costs from your suppliers
- Adjust labor rates if you’ve given raises
- Compare your prices to competitors (mystery shop occasionally)
- Review your actual margins per job category — are you hitting your targets?
Software with pricebook management (ServiceTitan, FieldEdge, Coolfront) makes this process manageable. Manual pricebooks in spreadsheets work too, but they’re harder to update and distribute to techs. If you’re exploring this area, our How to Train Your HVAC Techs on New Software guide covers it in detail.
The Pricing Mindset Shift
Stop thinking of yourself as selling repairs. You’re selling comfort, safety, and peace of mind. A homeowner with a dead furnace in January doesn’t care about the cost of a flame sensor — they care about their family being warm tonight.
Price your work to reflect the value you deliver, the expertise you bring, and the cost of running a professional operation. If your prices are fair and your work is excellent, the customers who value quality will find you. And those are the only customers worth having.