This article was
designed for the HVAC, refrigeration, plumbing, electrical, and appliance
repair contractor. The subject matter is also appropriate for many other
service and repair industries.
If you are not pricing
correctly, forget about marketing, sales, hiring, or whatever. They don’t mean
anything. Pricing is your first and top priority! The subject can be
complicated and really deserves a lot more coverage than this article was
designed to bring. While there is no substitute for detailed financial
analysis, here are some general rules.
Service
Department Labor
Your regular labor rate
should be five times greater than the average base pay (direct wage to tech
with no taxes or benefits) of your technicians. If the owner runs service
calls, the pay should be what this person could make if working for someone
else. If you use time and material pricing (not recommended),
the challenge is going to be quoting your hourly rate to “telephone shoppers”
and others. People will always criticize your rates because they compare
your hourly rates to their hourly pay at work.
Service
Department Parts
You should markup parts according to your cost.
Generally lower cost items should be marked up higher than higher cost items.
Use a multi-value markup schedule from about 6.0 to 1.75. We have one available
at www.easystreetinc.com, item number FCA027.
Installation Department MESO
For residential and light
commercial replacement work total up your cost on all equipment, materials, and
sub-contracting. Divide
this number by .65 for a 35% gross profit margin.
Install
Department Labor
Carefully calculate the total number of labor hours by
technician and multiply this number by the base pay of each respective
employee. Divide this number by .33 for a 67% gross profit.
Never markup labor the
same rate as MESO (materials, equipment, sub-contractors, and other direct
expenses). The overhead burden on labor is much higher than MESO.
Target
Gross Profit Margins
Here are some gross profit
margin rules of thumb for you to consider. Please note these are rules of thumb
and should be used with caution. Your own conditions must be considered.
Service: Residential
60-70%. Commercial 55-60%.
Replacement:
Residential without Sales Commission 38-46%. With Commission
45-55%.
Commercial
Replacement: Design Build 26-36%. Plan and Spec 20-25%.
New Construction: Multiple Family 22-27%. Tract 23-27%.
Custom 24-34%.
Service
Sales Per Truck
A lot of clients ask us how
much should each truck bill out in service work. Here is a rule.
Residential Service:
One Tech $185,000 or higher. Two Techs $215,000 or higher.
Commercial Service: One Tech $205,000 or higher. Two Techs
$245,000 or higher.
Replacement Sales (installation truck): One Tech $225,000. Two
Techs $275,000 or higher.