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Question DetailsAsked on 12/17/2013

HVAC Itemized Estimates versus Exorbitant Flat Rate - Do all HVAC providers hide behind the "flat rate" mantra?

I am not shopping for the lowest price. I am shopping for service and value. Any provider not willing to itemize their services is hiding behind "we provide a service." And, I know the HVAC industry blogs promote the "flat rate" as being fare. Unfortunately, too many consumers are unwilling to do a little math and determine your industry's labor rates are exorbitant.

I am more than willing to pay a fare and reasonable price. However, the quotes I have received have a parts prices more than two times the cost for the part (from an HVAC supplier) and labor range from $250 to $305 for a 20 minute service.

We gladly, and often, pay a premium for service and products when we perceive real value. We do not pay what we feel to be exorbitant prices. It is a "red flag" when any provider unwilling to itemize their estimates.

Is this a losing battle and should I "pay the flat rate"?

Roger

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6 Answers

0
Votes

As an HVAC contractor I always itemized the parts, labor, and taxes. The part of your question that interests me is the parts markup.

At Starbucks we pay $1.60 to $4.00 for a .25-.50 cup of home brewed coffee. We pay 150- 300% markup on clothes, and 200-500% on jewelry. That bottle of wine at a restaurant is marked up about 300%. How about theater popcorn and hotel convenience room stock. And these businesses do not deliver to your home unless you pay more.

The service tech brings you the part, installs it, and guarantees it for a stated period of time. The HVAC service contractor is adding a normal markup of 100% to 300% for the parts, depending on the cost of the part. Lower cost...Higher markup. Higher cost...lower markup. This is fairly typical of any service contractor who provides home service. Seems fair to me!!!


Source: Experience

Answered 5 years ago by PoppyRoss

0
Votes

Roger, I apologize for not answering all of your question. The $250.00-$300.00 labor rate is exhorbitant!!! In Southern California the labor rates normally average $120.00 per hour. In my area it averages $90.00. That rate applies to any portion of an hour. If you hire a service contractor under a flat rate charge, ask for an up front complete parts. labor, and tax breakdown. This would not be an itemized list but you would know their rates. Have them include the truck charges and any other fees too.

Remember, the customer is in charge. If the contractor or service tech does not treat you accordingly, then get someone else to do business with.



Source: Experience

Answered 5 years ago by PoppyRoss

0
Votes

Poppy,

Thank you for the response. I had drafted an 3-4 paragraph response to the first comment but no need discus "opportunity cost." ;)

FYI - Three local HVAC contractors told me they don't itemize so the "don't have to charge sales tax.” One went so far as to put in writing that "nothing shady is going on.” From what I can tell, if you do itemize, you are the exception.

Markup on any product, or service, is the premium paid for convenience and perceived value. Note the word: "perceived." Gladly willing to pay for someone with experience to dirty their hands, I will pay the premium for convenience. However, when looking at the numbers, time to complete the task, experience required to execute the task, and cost of materials; charging the equivalent of $750 per hour alters how the service is perceived. (20 mins x 3 x $250 = $750)

I was able to find a local provider who is more than $140 (flat rate) less than the next closest estimate. Now I have to decide if the low cost service will be quality/value or just pay the premium.

Roger

Source: Extensive Services Experience

Answered 5 years ago by Guest_9262087

0
Votes

Not to try to excuse the truly exhorbitant charges some contractors charge, especially repairmen - I agree some of the charges are way out of line - but remember you are essentially dealing with what is commonly called "desperation pricing" in the marketing business - people will pay through the nose because they want the service. I read an article yesterday on a web-based car service in New York City - forget the name, but it sounded like regular car owners serve as "private car service" operators - anyway,the pricing is supposedly set by demand, and during the recent snow storm a ride across downtown was going for $350 ! And of course you have Starbucks markups, but consider that the store cost and labor probably cost 5 or 10 times the cost of the actual drink contents. You are paying for a wide selecdtion of components, convenience, and brand name - not a cup of coffee.

Other services like plumbers have similarly high markups like HVAC repairmen - and with some justification - consider how long about 75% of the parts in the truck driven by a repairman sit there unused, but how upset customers would be if they did not carry a fair supply of commonly used parts.

I was talking to an appliance repairman about a month ago whose company contracts to Sears to do their repairs in this area - they are required to stock the 500 parts in highest demand, and of course that list keeps changing, so they end up with over a thousand parts in stock, which is a pretty substantial inventory cost, on top of normal overhead like phone answering staff and office and shop and vehicle, etc. Also, a lot of those parts go out of production and are not used in new models, so while some are life-savers in keeping an older appliance or piece of equipment going, many end up collecting dust forever and are never used. He uses a tablet to track service calls and punches in start and end time when he arrives at and leaves each job. I asked him how much time he actually spends on jobs as opposed to traveling between jobs, doing paperwork, restocking the truck every night, etc. His system keeps a running tally, and it ends up he spends about 40% of his time on the repairs, and the rest on non-billable time including restocking, traveling, and missed calls - where he shows up but the owner was not there to let him in. Missed appointments alone constitute about 15% of his time ! So, there is some excuse for rates about twice what the direct labor rate is, and a pretty good markup. One of the problems with markup on parts is that most parts these days are shipped item by item, Amazon - so each part has restocking costs plus essentially all come only by UPS or FedEx now, so each part may have freight that is as much or more than the cost of the part itself. One of the problems with just-in-time stocking and the trend to carrying less stock on hand.

The other item, as you mention, is people seem to be happy with a flat rate structure, where it acts sort of like insurance - some pay a lot more than needed and some a lot less, but a flat rate makes billing easy and makes a lot of customers happier because it generally negates the feeling they get of being nickle and dimed to death with fully itemized bills on top of the service call charge. All you can do is find a provider you are happy with over time and trust to bill fairly and charges by the hour plus parts, then stay with him and hope he does not retire soon. My unscientific impression - the companies with 6+ field wrokers are goin gto the flat rate scheme, the small owner-run companies and one mann outfits tend to stay with the bill what the kob takes method.

Answered 5 years ago by LCD

0
Votes

As I see Roger you can always spend the time to do the research and locate the part yourself, pay the shipping and/or take the time to go and pick it up, then make some calls and find someone who you think might be competent enough to install it and scheduke them to cone over sonetime or you may even be capable of doing it youself. But you'll have to understand that you now own the part so you'll be providing your own warranty on it as well. If the part fails due to a defect or manufacturing issue you' ll have to make numerous phone calls and try and get someone to provide a replacement part and cover it at no charge right? And then if you are successful and eventually get to the right person who will actually help you do this, you will then have to follow their company policy on returning the defective par;, fill out the proper paperwork, take it to your local shipping company package it up along with the properly filled out paperwork pay for shipping and then wait for them to decide if it qualifies for credit before they eventually send you the credit, meanwhile your waiting to get the new part and hopefully making arrangements to have someone to come over and reinstall it for you.

This is just one of the many senarios you could be faced with. However if you have it replaced by a qualified reputable company they will have a fully trained technician with millions of dollars worth of liability insurance drive their moble warehouse on wheels right to your door step at you convenience, and they will also stand behind their repairs no matter what the cost is for the replacemsnt part, this my friend is only one of the many benefits of upfront pricing.


My Observation, EWH

Answered 4 years ago by Guest_9197800

0
Votes

After reading the question and subsequent answers, it is important to remember that the customer is not billed for what we do, as much as he is billed for what we know. What we know takes education, passing many tests, maintaining certifications, and continuing education.


Most states and cities of any size require an HVAC company to have a Master of Mechanical Systems (or similar title) on staff in order to work on HVAC systems. I live in S.W. Missouri, and our city requires 10,000 documented hours as an apprentice before you can sit for the journeymans test, and 10,000 documented hours as a journeyman before you can sit for the masters test. The Master is responsible for the work of the apprentices and journeyman working under his license, and answers to the client and the supervising governmental agency.


Our business is no different than most when it comes to how much time does it take to perform as task. There are times when the one hour allowed for a task can be reduced to 45 minutes, and sometimes that hour stretches into two due to unforeseen difficulties. Just as most fixed price AC installations can be accomplished in eight hours, others will take six, and some may last for two days. Is the six hour install a client rip off, or does the client receive more value if it takes two days?


The less expensive is not always the best buy, and the more expensive fix doesn't always cost more. If the cheap bid is not apples to apples with your high bid, the difference is price may mean a difference in the scope of work. If the cheap company is flooded with cheap work, they may be too busy to respond to a "call back" time period that satisfies your comfort needs. While you may find that the more expensive company will respond immediately, even at 3:15AM Sunday morning.


There is good reason that the most successful and enduring HVAC companies in most cities and towns, have upper tier pricing. All of this being said is from someone that has been in the HVAC business for nearly 40 years...and remember, you can hire whomever you want!


Mike,

Springfield, MO


Answered 3 years ago by mikewhitney




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