View the 2 minute video from Wayne Atkins here.

By Wayne Atkins
The HVAC Business Doctor^® 

How do you price your service labor rate? Whether you use “time and material” or “flat rate,” there has to be a method. But which metrics should you use to price your labor rate correctly?

The best way is to calculate your costs for a service call. First find out what your average labor cost is by adding up all your technicians’ hourly rates and tacking on at least 40% to 50% for fringe benefits and unapplied time. Using that method, let’s assume your average labor rate is $30 per hour.

Next, add up all your service vehicle expenses including depreciation and divide by 12 months, then divide by the number of vehicles. The average for most companies in the U.S. is $13 per hour. Combine the technician and vehicle expenses, and the total cost to put a technician in the field is $43 per hour.

Adding up all the costs

If your labor and vehicle costs are similar to the example above ($43 per hour), now you know what you should be charging the customer. In many cases, a time and material rate near or over $100 will scare off customers. It’s a perceptual barrier that’s difficult for them to overcome. This is one of the reasons why many dealers have converted to flat rate. If you haven’t yet, you should consider it. 

Flat rate is not evil. It’s just a different way to price your services. The car industry has been using it for many years. It allows you and your firm to make more profit and pay better wages to retain your technical staff. I highly recommend that you at least investigate flat rate for residential service if you’re not already using it.

Good luck selling!