Cal Berry

Cal Berry

former Vice-President of Sales and Marketing - Retired at cfm Distributors, Inc.
Cal is a former Vice-President of Sales and Marketing for cfm Distributors with over 30 years’ experience in the HVAC industry.Now retired, he still assists cfm as an educational helper in HVAC product knowledge and marketing.
Cal Berry
A person with two paths to choose from, and one side has more money than the other.

Include Profit, You’re Worth It! | HVAC Pricing Series Part 6

Profit is not a four letter word, but loss is, and no one wants to lose money. That is why when you set the right price for almost any job it should include profit. Profit is the amount of money that you decide you want to make on a job. Profit is why you went into business in the first place: to make money to support your family and to be able to live the lifestyle you want to have. However, many HVAC dealers are afraid to set Right Prices in order to charge enough to make the profit they want to make and need to make.

So, how much profit is enough? Interestingly, the average profit for HVAC dealers in the $500,000 to $1,000,000 range is about 2.3% based on data provided by the banking institutes. Therefore, on a $4000 job the entire amount of profit comes to about $92; and, for a $600,000 HVAC business, the average yearly profit is only $13,800.  That is just the average, 50% of the businesses out there make LESS than that. These statistics are the main reason that HVAC dealers go out of business. If you look at all the literature published by the HVAC trade associations, magazines, consultants, and if you read the books published by successful HVAC owners you will find that most of these folks recommend that an HVAC business should strive for at least 10% profit, and preferably 15% profit.

Aren’t you worth at least a 15% profit? Absolutely! HVAC dealers are one of the few businesses that actually still come out to the home to perform their work. You show up in a valuable vehicle filled with thousands of dollars of parts and tools. You have the extensive training that is required to be able to perform your jobs. You are required to be in compliance with a multitude of governmental regulations. You are responsible for the comfort and health of the customers you serve. More importantly, you are responsible for the safety of your customers. After all, you install and service equipment that can potentially kill people in multitudes of ways. You tame fire, you harness gas, you deal with high pressure gases, you vent carbon monoxide, you harness water and you route electricity in lots of voltages and amperages. Then why do most HVAC dealers think they are not worth enough to enjoy a decent profit.

From the practical side, a 15% profit also allows the HVAC dealer to run a good, responsible business. By having enough profit, you can pay your employees a decent salary with decent benefits. You can offer health insurance, vacation, and sick leave. You can afford to train your employees better so they are more efficient, and so they can do a better job for your customers. Most importantly, a decent profit allows you to stay in business for years to come; thereby, providing your customers the long term value and commitment they deserve.  The great bonus is you get to have a decent income to provide for your families and to retire with a reasonable nest egg.

Now that you know you are worth 15%, let’s do the same math we did above but with this proper profit percentage. Now, if you do a $4000 job your profit will be $600. And if you have a $600,000 company, your profit for the year at 15% will be $90,000. You will finally be making the kind of profit necessary to have a responsible business with good salaries, benefits, and where your customers will feel your long term commitment to them.

In the next article, I’ll dive deeper into some tips on how to include profit, and how seasons can affect a profitable pricing structure. If you have any questions about how to include profits to your right price, let me know in the comments below. You can also contact cfm directly @cfmdistributors on Facebook and Twitter, or call us toll-free @ 1-800-322-9675.

A person with two paths to choose from, and one side has more money than the other.

Can You Change Your Costs | HVAC Pricing Series Part 5

If determining the right price for a specific job you are bidding requires that you know the direct costs and the overhead costs for that job, how do you find and figure those costs? And if those costs are too high, how easily can they be lowered?

We have already discovered, in a previous article over direct costs, that the costs you have because you get the job are fairly easy to determine. You already know the prices of the equipment, parts and materials you will use because those are published by your suppliers. You know the cost of the subcontractors you will use because they have already bid the job you are working on or have established prices for that work. You know what the charges are for permits and you have a pretty good idea what your freight costs will be. Once you gather all those direct costs together you can add them all up and determine a dollar amount for your actual direct costs for that potential job.

But, if you feel those costs are too high what can you do to lower them? In reality, not much. Sure, you can go to different suppliers and perhaps lower your equipment, parts and material costs. But how often can you do that? Certainly not on every job you bid, and changing suppliers comes with its own set of costs: familiarity with the part numbers, training on the equipment, new people and processes to figure out, new sales and technical people to work with. So eventually you choose your suppliers and stick with those suppliers because they offer the best all-around value for your company. This all leads to the fact that you have very little opportunity to change or reduce your direct costs. So, in summary, direct costs for a specific job are easy to determine and don’t change much.

Figuring your overhead costs for a specific job is a little more complicated. Overhead costs are basically all the other costs in your company that are not related to the actual jobs you get. But, you have to get jobs and the sales dollars those jobs provide in order to pay for the overhead costs (and the direct costs for that matter.) As we discussed before, in a previous article over overhead costs, it is fairly easy to determine the overhead costs for the entire company. They come from the invoices or bills you receive for such items as utilities and rents; or, they can be seen on the bills you pay for such things as taxes and governmental items.

And frankly, just like direct costs there is very little you can do as a business owner to reduce overhead costs; because, once you elect to have an overhead cost, it is difficult to reduce that cost. For example, if you decide to move out of your garage and rent a building for your company, then the new rent you are paying doesn’t go down as time goes on. In fact, it usually goes up. Or if you decide to hire a dispatcher for your company that expense doesn’t usually go down over time, it usually goes up (unless you decide to eliminate that position). Sure, you can diligently watch some expenses such as cell phones or warranty or unapplied labor and successfully manage (reduce or keep constant) those expenses, but normally overhead costs are constant and, if anything, are increasing every year.

So, as we have already stated, at the end of the year, all of your individual overhead costs are compiled into different categories and then added together to come up with a total amount of all the overhead costs. This compilation of all your overhead costs is usually shown on your financial statement as overhead costs, overhead expenses, or operating expenses. There is a specific dollar amount that is known and shown for these overhead costs. That amount is also shown as a percentage of your total yearly sales (also called revenue) for your company. For example, a company has total yearly sales of $300,000 and total yearly overhead costs of $90,000. $90,000 divided by $300,000 equals 30%. In this example, this company has overhead costs that are 30% of the total yearly sales.

It is this overhead cost percentage that will be used in the mathematical formula to determine the right price for a specific job. You use the overhead cost percentage to figure the right price because you know that the total overhead costs for your company are a percentage of the total sales. Therefore, the overhead costs for any one specific job have to be the same percentage as the overhead costs for ALL the jobs we have or will have (total yearly sales for the company.)

But, there are many companies that do not have financial statements. Therefore, those companies can’t determine the total overhead costs and the total overhead percentage they should use to figure the right price. So how is that overhead cost percentage determined? Over the years lots of data has been gathered from lots of different companies that give business owners a very good estimate of what the overhead cost percentage will be for most types of HVAC companies. The data shows that the overhead cost percentage is different for different types of activities within an HVAC company. Usually, the overhead percentage is highest for the service portion of an HVAC company, a little lower for the replacement portion, and lowest for the new construction portion. This is proven by the fact that the service portion of an HVAC business has a lot more overhead costs compared to the new construction portion: costs such as more warranty expense, more travel time, more unapplied labor, more vehicle expense.

The data also shows that these overhead cost percentages don’t change much for different companies. Therefore, based on the job you are pricing, you can use an average overhead cost percentage and be very close to accurate for your own company. Of course, it is always best to use your own overhead cost percentage when determining your right price for a specific job. Which makes it even more important for your company to have an accurate financial statement to be able to determine that overhead cost percentage. However, if that is not available for your company, then below are some average overhead cost percentages that can be used with confidence to determine your right price.

Service  40 to 45%
Replacement  28 to 35%
New Construction  22 to 28%

If you have any questions about setting the right price for your company, or determining your overhead and direct costs, let me know in the comments below, I’d be happy to try and help. You can also ask them on our Facebook page,, or tweet us @cfmdistributors. In Part 6 of this HVAC Pricing Series, I’ll start to get more into how profits contribute to finding the right price for your business.

A person with two paths to choose from, and one side has more money than the other.

Overhead Costs | HVAC Pricing Series Part 4

There are two kinds of costs in any company: direct costs and overhead costs. In our last article, Direct Costs | HVAC Pricing Series Part 3, we covered some of the more common types of direct costs you have because you get a job. In Part 4 of this Finding the Right Price HVAC Series, we turn our focus towards overhead costs — which are the costs you have whether you get a job or not.

Overhead costs are all the costs you have in your company that are not specifically related to a job. These costs are varied and in a few cases they are difficult to identify and determine. But most of these costs are pretty straightforward and here are some examples: rent or mortgage payments on your shop, utilities, employee benefits, advertising, insurance, shop furniture and equipment, office supplies, some types of taxes, office salaries and FICA taxes, vehicles, gas and vehicle maintenance, training, travel and entertainment expenses, governmental compliance expenses, legal and accounting expenses, communications expenses, computer and software expenses including ongoing support/training, consumer financing expenses (points paid). These overhead costs are easy to determine because they have invoices, bills and paychecks associated with each of them.

The Top Four Hardest to Determine Overhead Costs:

Cell Phone Expenses:

Cell phone expense has grown into one of the biggest expenses in a service based HVAC company. Your employees use their cell phones in an amazing variety of ways to help themselves and your company, everything from driving instructions to tech support on the job to receiving their next service call. It is important to continually update to the latest phones and phone service to be able to take advantage of the latest technology. However, it is just as important to be diligent in watching these expense to be sure they are paying for themselves in increased production and to be sure that you are getting the best service and coverage for the lowest price. It is up to you to monitor the cell phone service providers to be sure you are getting the most for your money.

Owner Salary Expenses:

When the owner of the business actually works in the field on specific installation jobs or when he runs service calls, the dollars he earns for that work are considered direct costs and need to be shown as part of those direct costs when setting the right price for a job. However, as the business grows the owner usually is less active in actual jobs and spends more time “working in the office.” Therefore, it is usually appropriate to split an owner’s salary into both direct costs and overhead costs based on the estimated percentage of both office work and field work.

Warranty Expenses:

Most new HVAC companies neglect to accrue dollars into a warranty expense account. However, in any service business, especially HVAC businesses, warranty expenses are real and reoccurring expenses. In fact, most HVAC companies actually offer their own warranty for most of their work, usually a one year parts and labor warranty on most jobs performed. But, techs don’t always fix things correctly or install equipment properly, equipment will break down occasionally, service parts don’t always work. It costs you money to send someone back to a job, so a smart business owner will accrue dollars into a warranty expense account to cover those future expenses. Oftentimes that accrual will be as high as 2% of the company’s total sales (revenue).

Unapplied Labor Expenses:

This is one of the largest overhead costs in most service companies, and one that is almost always overlooked. Unapplied labor expense happens when you pay your employees that normally work on specific jobs for work that is not specific to any job. This is most common for installation or service techs. Examples of unapplied labor include paying your techs to come into the shop every morning to get their daily assignments, drive time to and between jobs, time to pick up parts at a supply house, training, and employee meetings. Many of these expenses are good and necessary, but these expenses add up fast and need to be watched carefully. Every business owner should be diligent about reducing unapplied labor. Every business owner should track unapplied labor and include those expenses into their overhead costs. The best tip I can give a business owner is to NOT have techs come into the shop except when absolutely necessary: route your employees to their first jobs by text or email or computer communication from their homes.

Overhead costs are accumulated and calculated into a multitude of different categories, many of which were discussed above. Those categories are then added together to get the final overhead cost for a company. That final overhead cost is then used specifically in the calculation of the right price for any job. That final overhead cost is generally shown as a percentage of company’s total sales.

The right price you set for any job must cover the entire amount of the direct costs you have for that specific job. And, it must cover its share of the overhead costs. No one job will cover all the overhead costs for the company for the entire year, so each job must cover its fair share of the overhead costs. Therefore, all the combined jobs you get during the year will cover the entire amount of overhead costs the company will have for that year.

Now that we’ve established a general understanding of the types of costs, the next article in the series will help you look at your options to consider when trying to change your costs. I recommend using our free direct costs worksheet, download link provided below, to assist you in determining what some of your costs are. If you have any questions or comments over direct or overhead costs, or any general pricing or HVAC topic, let us know in the comment section below or give us a call toll-free at 1-800-322-9675.

A person with two paths to choose from, and one side has more money than the other.

Direct Costs | HVAC Pricing Series Part 3

Part 1 & 2 of the series covered Pricing Awareness and What is the Right Price. Part 3 will start to take a deeper look into how we can begin thinking about where your bottom line is before you can find the right price point for your products and services. To do this, there are two kinds of costs in any company: Direct Costs and Overhead Costs. Direct costs are the costs you have because you get a job, while overhead costs are the costs you have whether you get a job or not.

Direct costs happen because you actually get a job and you have to buy things to perform that job. These kinds of costs would include most, if not all of the following tasks. Each of these items should be written down and have a cost assigned to it so that there is a record of the materials used on the job. Writing down these amounts makes sure that you don’t forget anything and they act as a permanent record of what you estimated was needed on the job. Having that record helps you do a better estimation for the next job.

The six most common Direct Costs:


For a typical HVAC company examples of these items could be furnace, coil, condenser, line set, thermostat, pad, whip, disconnect, wiring supplies, fluing supplies, brazing supplies, gas piping supplies, sheet metal supplies, grills and registers, drain supplies, repair parts, cleaning supplies. Freight costs to deliver these materials to your company or the job site are also included. The costs for each of these items are easily found from your invoices or receipts. Usually you have a very knowledgeable idea what the specific material costs for a specific job will be before the job is performed.


These costs are incurred when you hire another contractor to do part of the job. Examples of subcontractors are electricians, chimney sweeps, plumbers, cranes, core cutters and others. You will know before you set your price exactly what the cost will be for these subcontractors because they have bid the job and given you a price (or you can reasonably estimate their prices because of your experience.)


These are the state, federal or local permits needed to perform the job legally and to code.


These costs are the actual costs of the labor to perform the job. These costs are probably the hardest costs to estimate to be able to come up with the Right Price as they have the largest elements of the unknown. How long will it really take to do a specific job? Who will perform the labor on the job, the fast guy or the slow guy? Do we need a helper on the job? Will we run into unexpected problems such as rain, heat, breakdowns, illness, and customer issues? Most experienced HVAC professionals have a pretty good idea how to estimate the labor for any job based on the prior performance of their techs (or themselves) on similar jobs. So, based on experience determine the number of hours of labor to complete a job for each tech and multiply those hours times the labor rate of each tech. That labor rate should include the fringe benefits you pay such as taxes, FICA, health insurance, vacation, sick leave, etc. So if you pay a tech $10 per hour base rate and he also gets $5 per hour in benefits, that tech has a labor rate of $15 per hour. If it will take 20 hours to perform the job, then multiply 20 hours times $15 per hour to get a total labor cost of $300. When in doubt add a few hours to the job.

Specialty Equipment/Tool Rental or Purchase:

These items could include scissor lifts, fork trucks, unloading equipment, jack hammer rental, lifting devices and others. Oftentimes, an owner will include a portion of the replacement costs of the specialty equipment/tools if the company actually owns the items.

Sales Commission:

This is the money that is paid to your salespeople once the sale is made. It is only paid if there is a sale so it is considered a direct cost.

Once you have written down all your direct costs, add them all together to come up with a final dollar amount. Knowing your actual (or professionally estimated) direct costs is a key number in the mathematical formula used to determine the Right Price for your job. Obviously, the right price must cover the direct costs incurred to perform the job or you will lose money on the job.

Download cfm”s Direct Cost Worksheet to make figuring out your direct costs a little easier. In the next article, Overhead Costs | HVAC Pricing Series Part 4, I will cover overhead costs in more detail, and help you to better understand the complexity that they too add to your price planning. If you have any questions or comments about direct costs, let us know in the comment section below or contact us directly at 1-800-322-9675.

A person with two paths to choose from, and one side has more money than the other.

What Is The Right Price? | HVAC Pricing Series Part 2

In the previous article, “Pricing Awareness,” we discussed how difficult it is to know what price to set for any job you sell.  Will you get the job at that price?  Will you make a profit at that price?  Will you have any profit at that price?  Will you lose money at that price?  Did you forget any costs when setting that price?  The pricing fears go on and on. 

But in actuality, setting the Right Price for any job is really not that hard if you use some basic logic and knowledge to set that price.  So let’s look at the five basic factors that are required for setting the Right Price.

The Right Price is not necessarily the price that gets the job.  Huh?  That doesn’t make sense: if the price you set doesn’t get the job, was it really the Right Price?  This will make more sense when we look at the other factors that go into setting the Right Price for a job.  So, we will come back to this after we look at a few of those other factors.

The Right Price must satisfy the financial constraints of your company.  This is really the important factor for any business if it wants to be profitable.  So what are the financial constraints of your company?  First and foremost, you must recover your costs.  The Right Price must be high enough to cover both your direct costs and your overhead costs.  (We will further define both of those costs in a different article.)  Secondly, the Right Price must allow for some profit for your company.  Profit allows you to fund your future growth and it allows your company to be a great place to work for you, your employees and your customers.  So, the Right Price must be high enough to cover your profit as well as you costs.  The key to setting the Right Price is knowing exactly what the financial constraints of YOUR company really are. 

The Right Price is always determined using simple math.  This simple math can be easily taught and easily learned.  It can be repeated over and over so you will always come up with the Right Price for any job you do. 

There is only ONE Right Price for any job.  That Right Price will cover the financial constraints of your company including what you feel is the appropriate amount of profit at that given time.  And since it uses a simple mathematical formula based on those financial constraints, then there is only ONE right Price for YOUR JOB!

But here’s the rub: your financial constraints are not the financial constraints of your competitor(s), the other folks that are trying to get the same job.  Your competitor’s costs may be lower or higher.  He may not need or want as much profit as you.  He may not even know what his costs are on a job.  He may not even know if he is making money or losing money.  So, his price will NOT be your Right Price.  Therefore, the only rational, prudent way to set your Right Price is to base that Right Price on your company’s needs, costs and profit.

Which takes us back to the first basic factor in setting the Right Price: the Right Price is not necessarily the price that gets the job for your company.  Your competitor will get his fair share of the jobs, even if his prices are exactly the same as yours (or if they are higher or lower than yours.)  That is because people make choices based on lots of factors, with price being merely one of them.  The Right Price for your company must cover all your costs and your profit.  But that Right Price may not be the one that gets the job. 

Finally, the Right Price may change depending on the time of the year or the needs of your company.  First, your Right Price should always cover the costs of the job.  But, at different times of the year the needs of your company will change.  For instance, it is difficult to even find a job to bid on in the cold months of January and February.  Your company may consider bidding a job with a lower profit level in those months compared to the hot summer months when your techs are very busy.  In fact, you may decide to set your Right Price with no profit at all just to be able to keep your techs working.  Conversely, in the hot summer months your Right Price may increase because all your techs and all your competitors’ techs have plenty of work and the market will allow you to make more profit.  The point is that your Right Price can change based on the needs of your company, but it is YOU that is determining what that Right Price should be at any given time.

The important thing to remember is that the Right Price should always cover your costs and the Right Price should always be calculated using the same mathematical formula. 

In Part 3 of the series, “Direct Costs,” I will begin discussing the different types of costs and their affect on finding the right price.   If you have any questions or comments about finding the right price, leave them in comment section below or contact cfm directly at 1-800-322-9675.

A person with two paths to choose from, and one side has more money than the other.

Pricing Awareness | HVAC Pricing Series Part 1

Knowing the Right Price to use when you set a price for a job is difficult to determine. Will you be too high, or too low? Will you make any money? Will you be fair to your customers? Will you be fair to your company, your employees and yourself? Will you get the job? Will your competitors be higher or lower than you? Do you need the job to pay your bills?

And perhaps you always wonder about your pricing after you get the job. Could you have sold this job for more? Should you have added more profit to the job? Will there be ANY profit on this job? Will you even know if you made a profit? Will there be unforeseen problems on the job that will cause you to lose money? Will you get paid on time, or paid at all?

If you have asked yourself any of these questions, then you know there is really not any one perfect answer to know if your price is the “right price”. So, here are some situations to consider that could help you be more “price aware”.

Your pricing may be too low if:

  1. Your sales are steady or growing and your profit is dropping
  2. Very few people discuss or complain about your prices.
  3. You are popular with shoppers who are driven by price
  4. Many of your sales come from Yellow Page or mass marketing leads

Your pricing may be too high if:

  1. More than 20% of your customers/prospects discuss or complain about your prices being too high
  2. Your sales are flat or dropping
  3. Selling a job is getting harder to do
  4. People who buy on quality are asking you to justify your price
Pricing awareness can help you feel more comfortable with the prices you set for your jobs. If you find yourself in some of these situations, you can consider raising or lowering your prices to better fit your market at that time. However, as you will read in future articles, you should actually set your Right Price based on the financial constraints of your company. And you should use a repeatable mathematical formula to figure your correct Right Price on every job you bid.  Part 2 of the series, “What is the Right Price?,” will cover the 5 basic factors required for setting the Right Price.
Why Flat Rate Pricing is Good For an HVAC Company?

Why Flat Rate Pricing is Good For an HVAC Company?

Flat Rate virtually eliminates all field pricing errors. Having published prices allows the tech to easily and quickly transfer the correct price and job description/number to the invoice in clear concise form.

Flat Rate gives the company a more professional image because all prices are published in an easy to read, concise and professional looking price book. The homeowner “feels” the professionalism in this document.

Flat Rate will reduce company receivables drastically because every tech can now bill AND COLLECT on every job because he knows the Flat Rate price and the Diagnostic Charge before he completes the repair. Techs will be expected to bring home cash, checks and charge tickets for every repair they perform.

The Flat Rate price can and should include the dealer’s cost for using a credit card. That cost should be built into the repair price. This allows the dealer to accept credit/debit cards, the preferred way of paying for most homeowners.

Flat Rate will dramatically increase Maintenance Agreement sales, thereby increasing company value now and in the future. Maintenance Agreements also create “Customers for Life”.

Flat Rate allows the company to charge the same price to every customer for the same repair eliminating confusion and overcharge issues.

Flat Rate can and should include travel charges, usually built into the Diagnostic Fee. This allows travel charges to be easily increased or decreased depending on fuel costs.

Flat Rate brings in higher profits for the company allowing the company to carry out its primary goals of excellent customer service, excellent trained service techs and better benefits for employees.

Collecting Payments Process Blog IMG

Collecting Payments – The Process of Getting Paid

Creating a good credit and collections process is always hard for any small business, especially a service business like heating and cooling. Whenever an HVAC company runs a service call and does not get paid immediately after performing the repair, then they have extended credit to a customer. And when you extend credit to a customer you give that customer a loan, just like a bank gives a loan. You have become a bank for your customer, and when you give that loan there is no real timetable for when you will get paid or if you will get paid. Therefore, having a credit and collections process is vital to the financial health of any HVAC company.

A good credit and collection process starts with having a consistent approach to collecting your money. This guarantees that your process for extending credit and collecting payments is the same for every customer. The best way to be consistent is to write down your processes and communicate that information to your employees and customers. Below I’ve laid out a list of some of the best processes you can use to aid your business in becoming more consistent in collecting payment for products and services your company has provided.

  • Collect payment when work is completed

  • The first and most important process is to collect payment on all service calls as soon as they are finished. Strive for at least a 90% collection rate (95% is better) on every service call. This same practice will also apply to all replacement sales the day they are finished. This can be accomplished by having your installers pick up the check when the job is complete; or, by requiring your salesperson to do a final job walkthrough and collect on the job upon completion. The key to collecting on replacement sales is to tell the customer in the beginning when they sign your sales contract that you will need to have full payment upon completion of the job. The main focus here is to ensure your employees know to collect payment as soon as the work is complete.

  • Accept credit cards as a form of payment

  • Accept all major credit cards. By accepting credit cards you can expect and get payment at the completion of any job. We live in a world where almost everyone pays by using a debit or credit card. There is a cost to your company for accepting credit cards, usually around 3 to 4%, so just build that cost into your pricing. Frankly, if you don’t take credit or debit cards in this day and age, your potential (and current) customers will not do business with you.

  • Don’t delay mailing out billing statements

  • If you need to send out a bill for a service call or replacement system, send that bill within two days of completion of the work. The longer you delay in sending out your billing, the longer the customer will take to pay you. Just realize that as soon as you send that bill you have said to your customer it is ok if you take up to 30 days to pay you. Is that what you really want? Instead, always collect upon completion.

    If you do send out bills, your credit terms (when you expect normal payment from your customers, usually 30 days or less) need to be clearly stated on every work ticket, sales contract and invoice so that your customers have no confusion about when payment is due. Your billing statements must also specify a time frame when those bills will become past due. Normally the due date is 30 days from the invoice date. If the customer has not paid you within those 30 days, then you should immediately call that customer and arrange a SPECIFIC time when the bill will be paid. In some instances it may help your ability to collect by offering to pick up the payment from the customer’s location.

  • When to submit past due statements to collections

  • Determine a time when a customer is so far past due that you no longer do work for that customer until he has paid his bill in full. Normally, that cutoff date would be 60 days. If you are not paid in 60 days after repeated attempts to collect your money, then stop all current and future work immediately. If after 60 days the customer has not paid his bill, send a formal letter to the customer stating that he has 15 days to pay his bill before he is turned over to collections. If 15 days has passed without payment, contact your collection agency and turn over the collections to them. The collections agency will charge to collect your past due bills, but that is better than getting nothing for them. Choose a collections agency that only gets paid when they actually collect the amounts owed to you.

Pitfalls and Concerns for Implementing Flat Rate Pricing

The most common reason dealers give for not implementing Flat Rate is “Flat Rate won’t work in my town (market, area, etc.).” Frankly, this is simply not EVER the case. Flat Rate will work in any market, any town (even very small towns) and any area. Just try it; you’ll like it, and your customers will like it even more. And your bottom line will like it best of all. If it doesn’t work you can always go back to the pricing you used before. However, 98% of companies that convert to Flat Rate never go back.

Flat Rate implementation is a huge change for any company and it is very scary. The owner is usually worried that he will lose all his loyal customers because his price will be too high. Again, this is simply not the case. As said before, customers love Flat Rate. With any change, it will take a few months for everyone to get used to the new system. Techs will make mistakes in the beginning and that’s OK. Flat Rate pricing may need to be adjusted for some repairs. Invoices may need to be changed. However, the techs and the management team will grow to love the new system and embrace it very quickly.

Flat Rate implementation requires training and diligence. It requires convincing the techs that it is good for the customers first and foremost, as well as being good for the techs and the company. There will be complaints from some employees, just like there is push back for any “new change” that an owner implements. Keep working with your staff in explaining the benefits for everyone involved.

Owners and techs sometimes think they are “gouging” their customers which will affect their reputation. This is just not the case either. Owners and techs are worth the higher prices found in Flat Rate because they offer amazing services and value to the homeowner. They want the company to be there in the long run and in order to do that, the company must make money. Besides, a dealer does not have to charge unreasonable amounts, but, instead, a fair amount to cover the companies costs and profits. Furthermore, Flat Rate pricing is flexible enough that a dealer can change prices on some price sensitive repairs to ease the gouging fears of his techs.

Techs often don’t want to change to Flat Rate: it’s new and foreign to them. They feel they are forced to “communicate” more with the customer. Sometimes they view themselves as “salesmen” when asked to discuss Maintenance Agreements with customers. They don’t really want to collect money at the end of every repair. The dealer’s biggest challenge is working with the techs to accept and offer Flat Rate. However, patience and training will pay off in the end because techs will gradually accept the new system and grow to love it, especially when they see that customers love it.

Flat Rate implementation usually requires computer literacy. If a dealer is not very good with a computer, or staff members struggle with computer software implementation, then it is probably best if that dealer uses preprinted Flat Rate books.

One final word of caution, do not implement Flat Rate pricing in the slow times of the year. Implementation is better in the busy months because customers need the dealer’s services quickly and are more open to new ways of pricing. Techs are busier and they won’t have time to complain about the new pricing. By the time the busy season is over, everyone in the company will be used to the new system and will see its benefits.

Learn how to use flat rate pricing with these 8 pricing categories

Determining a Price with Flat Rate Pricing

First of all, keep in mind that the only price the customer will see is the one final price.  The customer will not see the breakdown of materials and labor that were used to determine the final price.  With Flat Rate pricing, gone are the days where the dealer will “break out” his pricing for a customer.  So, like any price, we will focus on six major cost categories below to set the flat rate price.

    The Six Major Cost Categories

  1. Labor Rate
  2. Most dealers use the highest labor rate they pay to their top service tech as the basis for their flat rate labor. Some dealers use an average of the labor rates they pay all their service techs.

  3. Estimated Time for Specific Repairs
  4. This is where most dealers get wrapped around the axle and this is the reason that most dealers do not implement flat rate pricing. It’s hard to determine what the estimated time is to do a specific repair.  There are lots and lots of variables.  But if a dealer goes back and evaluates his repair tickets over a year’s period, he will see that in about 85% of the tickets, the repair time is about the same on each ticket.  In about 15% of the tickets, the time is longer or shorter.  So, use the time on the 85% of the tickets.  Your increased profit on 85% of the jobs will more than overcome the “loss” on 15% of the jobs.
         – A far bigger loss to your company would be to not implement flat rate pricing.

  5. Labor Markup
  6. This rate should cover profit on labor, taxes, social security, vacation, sick days and unapplied labor hours. Most dealers do NOT charge enough to cover these things, so we recommended that dealers closely evaluate these expenses to better determine a more accurate rate to use.

  7. Parts and Equipment Repair Expenses
  8. A dealer shouldn’t get hung up on the exact cost of every repair item purchased. They are usually within a few dollars of each other wherever they are purchased.  Plus, most generic parts for any size of HAVC equipment are pretty close to the same price.  Granted, a 1 HP blower motor is more expensive than a 1/3 HP blower motor, but does it really matter?  Just use the 1 HP price for all of them and have one repair for any blower motor.  The one instance where this does not work is in OEM parts which are usually quite a bit higher in price than generic parts.  Therefore, have one price for generic blower motors and one price for OEM blower motors.  Don’t forget the cost of freight in the cost of ANY part (both regular freight and having to pick up a part at the supply house).

  9. Parts Markup
  10. There are several charts published showing different parts markups. These are usually based on the cost of the part and the mark up usually gets smaller as the part’s cost increases.   It is far better to have more “levels” of markup based on cost rather than less.

  11. State and Local Taxes
  12. Be sure to include the appropriate state or local sales tax for the parts and/or repair in the total price of the repair.