Pricing Strategies for Elite Plumbing, HVAC, and Electrical Businesses

Pricing Strategies for Elite Plumbing, HVAC, and Electrical Businesses

Protect your customers and your profits when pricing a plumbing, heating, air conditioning, well, electrical or water conditioning service, repair, installation, or any other home service job by following this Be Elite In Trades On Point Pricing Guide. 

This guide for home service contractors is long and gets deep into the weeds on the specifics of how to calculate the selling price of any plumbing, HVAC, or electrical job that you do, no matter if your focus is service or major new construction work. Here is some extra motivation to take control of your company’s pricing today.

This guide is 100% written by a human that happens to also be a lifelong owner and operator of highly successful plumbing contractors, HVAC contractors, well & water contractors and electrical contractors throughout the US.

Key takeaways discussed & supported in this guide:

  • The methods taught in this pricing guide focus on ethical pricing practices that are designed to protect both your customers from over paying and your home service business’s bottom line profitability.
  • Focus on how to set prices for any plumbing, HVAC or electrical job, service or repair regardless of if you charge by the hour or flat-rate. We break out how to set your hourly rates, how much to mark up your average costs, how to cover additional materials, as well as how to ensure competitive pricing that is in line with plumbing industry standards.
  • Pricing your home services using the methods taught in this guide will result in fair prices for your customers and employees, while providing the profits needed to reward the company’s future and financial growth. 
  • The principles in this guide apply to the plumbing, heating, air conditioning, water well, and water treatment industries and can be used in multi-trade home service businesses as well.

How MUCH to charge is different than HOW you charge

This guide focuses on HOW MUCH TO CHARGE for plumbing, HVAC & electrical jobs, services, repairs, and really all things home or trades services related. 

The debate boils down to the method used to take the prices you charge to the market in this decision: is it better to charge your customers by the hour for plumbing services (time & material pricing) or provide an all in one price upfront for services (flat-rate pricing)? This debate is covered independently in this article where we dissect the differences between these different ways to take your prices to the market. Link to article 

Be fair to your customers and company by keeping COGS below 50% of the selling price of the job

COGS, also known as the cost of goods sold, refers to the direct wages and labor paid to complete the work and the specific parts, equipment and materials used during the job. Keeping both labor and materials below 50% will ensure that you are selling your plumbing services at a 50% or higher gross margin.  

  • Manage your non-loaded labor costs to less than 25% of the total selling price of the job. 20% is ideal.
  • Keep your cost of materials, parts & equipment to a maximum of 25% of the selling price of the job.

⇒ Request a free copy of the Elite Trades’s On Point Plumbing Pricing Calculator ⇐

The Three Most Important Reasons to Price Your Projects Correctly 

The #1 reason small businesses fail is due to a lack of cash flow

At the absolute core of a company’s cash flow is how it prices its services. If a home services job is priced too low, there simply won’t be enough profit left at the end of the job to create any extra cash flow. 

Sources for this static include: 

U.S Small Business Administration- Why do businesses close? 

Investopedia- The 4 most common reasons a small business fails

Price is the most common complaint after service is complete

This is true for all common pricing methods (time & materials pricing and flat-rate pricing) used by home service contractors. At the core of almost every customer complaint or concern that comes up after a plumbing or HVAC service is complete is the price of the job. Often the customer will not lead with the price concern but it does play a factor in every customer service situation.

Charging customers fairly (and being charged fairly if you’re a customer) is paramount 

To the elite contractors we work with, there is nothing more important to them than their reputation. These contractors want to charge customers fairly for plumbing jobs and leave their clients feeling that they got a fair value, not ripped off. If you want to deliver a high level of customer satisfaction through simple and upfront dedication to customer service, then make your prices for service plumbing or any type of plumbing work guide your clients toward outstanding customer service.

Don’t let these common hurdles hold you back from pricing the home services you provide fairly  

So if pricing services properly is critical to both customer satisfaction and your business’s financial health, why don’t more plumbers focus on their pricing method? 

Lack of discipline:

Most plumbing, HVAC and electrical business owners blame a lack of time on why they haven’t taken control of their pricing methods. But in reality, the problem is a lack of discipline to make time. Building a pricing process that protects your customers and the profits of your plumbing company is hard, and it takes time. Do the work now and your customers will reap the benefits. 

ELITE TIP: Elite Trades can shoulder a ton of this load with and for you. Want to learn about our price book building services?

Lack of financial data and other information: 

The formula to price plumbing repairs, heating repairs, cooling repairs and electrical repairs is really very simple but the input to put into a pricing calculator requires additional data and the ability to calculate overhead costs, profit margins, hourly rates and more. We will cover the required data point throughout this pricing guide and provide guidance and ways to estimate some data points in their absence.

No way to keep pricing organized:

Fair and balanced pricing is based on real factors inside your plumbing company such as labor costs, benefits, material & equipment costs. As these things change, as well as your company’s overall efficiency, your pricing needs to adjust up and down accordingly. Because of the absence of a tool to help organize and adjust pricing over time, many simply forgo it all together. 

In 2024, the options to keep pricing and price book information organized are endless.  

ELITE TIP: Contractor software such as Service Titan, HouseCall Pro and a ton of other products have built in price books that make this much easier. Need help implementing a price book into your software? Get in touch with us.

The 4 components that combine to determine the selling price of your services

  1. Labor- Labor is the time and effort component of the equation and makes up the lion’s share of the intangible value of all of the plumbing jobs that you complete.
  2. Material & Equipment Costs– This is the tangible part of the plumbing repair, install or job and should include all of the parts, fittings and installation materials that you will consume while completing the job.

 “Keep your labor and materials costs (COGS) below 50% of the total selling price of the job in order to have a financially healthy company.”

  1. Overhead- The overhead of the business is all of the costs (not directly related to performing the work) required for the business to operate. 
  2. Profit Margin Expectations– Also known as a net profit margin, it’s the bottom line of what’s left over after all of the related and unrelated costs have been covered.

“Your company’s overhead and profit margin expectations are used to calculate how much you should charge for the labor and hard cost components of your plumbing jobs.”

Calculating how much you should charge for the labor component of your services (Long Version)

Not interested in learning math and theory? No problem, skip to the short version here. 

Regardless of the pricing presentation method used to determine your billable rate, what you are going to charge for the labor component, also referred to as setting hourly rates when time and material pricing is used, is a very important part of ensuring your pricing is set up properly.

Start by calculating your fully loaded tradesperson labor costs

ELITE TIP: If your home service company offers multiple trades, it’s both more accurate and more ethical to perform this calculation on a per trade basis. 

As a home service business owner providing plumbing, electrical, heating & air conditioning and/or well & water conditioning services, you very well know there is a lot more that goes into your labor costs than just wages. Fully loaded labor costs look at the entire employment package offered to the tradesperson in addition to their hourly base rate. This calculation combines the benefit burden of the plumbing, HVAC, electrical or water technician with their actual wages to show the true total cost per hour worked per tech.

  • Tradesperson wages or hourly base rate (use your highest paid plumber, HVAC or electrical techs)
  • Dollar value of any performance pay, ie: commissions, spiffs, bonus, etc.
  • Dollar value of paid time away from work
  • Company’s cost of insurance- include health insurance, dental, vision and life insurance if you provide it
  • Company’s contribution to retirement accounts (IRA & 401K)
  • Dollar value of any other fringe benefits you offer. Common examples include: cell phone reimbursement, uniform stipend, etc.

How to calculate your fully loaded labor costs

Step 1– Convert all of the values above into hourly figures. 

  • Divide any monthly totals by 173 to convert to hourly costs. 
  • Divide any annual costs by 2080 to convert to hourly. 

Step 2– Add the total of all plumbing labor calculations together

What to do if you don’t have this information?

Knowing your fully loaded cost of labor is a critical base to ensuring you’re not charging your customers too much or too little for services, repairs and installs. If you don’t have the exact number, please reach out to us for help. 

Estimating your fully loaded labor costs

If you don’t have the exact number, you can use an estimate, but do so with caution. Some home service companies estimate their fully loaded labor cost by multiplying the wages paid x 2 – 3 depending on the overall amount of benefits offered. 

Determine your billable hour efficiency loss

A company’s billable hour efficiency reduces down to two factors which we don’t cover in depth in this guide. 

  1. Mix of business- Companies that perform more project-based trade work such as major remodels, new construction and other long duration work have a higher billable efficiency. On the other hand, if you are a residential service contractor, simply by the nature of the work you offer and travel time between jobs, it will reduce the number of hours you have per day to invoice for. 
  2. Your degree of operational excellence- How good you are at running your business can make or break your billable hour efficiency no matter what your mix of business is. To find out how you can add serious value to your home service business, contact Elite Trades today.

How to calculate your billable hour efficiency

If you are currently changing hourly for your plumbing, HVAC, or electrical services, calculating your billable hour efficiency is simple. 

  1. Pull invoices from the past 3 months
  2. Add up the total amount of plumbing labor hours you charged your customers for
  3. Pull payroll records from the past 3 months
  4. Add up the total number of hours you paid to all of your plumbers
  5. Divide the total hours charged by the total hours paid to get your billable hour efficiency

What is the typical billable hour efficiency for home services business?

Depending on the degree of operations and the mix of services offered by a plumbing, HVAC or electrical contractor, a typical billable hour efficiency would be between 55% and 70%. Convert your actual efficiency into efficiency loss by subtracting it from 100. Example 70% billable efficiency = 30% efficiency loss.

Calculate your overhead

A trades service business’s overhead consists of all expenses that are incurred by the business that are not directly related to performing the actual work or services that are sold. Overhead expenses are incurred by the company regardless of any sales of plumbing services that happen. Here are some examples of common overhead expenses a plumbing contractor has:

  • Marketing & Advertising
  • Office staff
  • Phones, internet & other communications
  • Software expense
  • Accounting
  • Licensing fees
  • Credit card and financing fees
  • Trucks, tools & equipment costs

The simple way to calculate the rough overhead of your plumbing, HVAC, electrical or well business

If your books are organized and updated, you can quickly determine your total overhead costs with a simple calculation. This calculation is best done using a long time sample such as a previous year. At a minimum, you should calculate this using three months of accurate financial data.

“Overhead = Total Revenue – (Cost of goods sold + Net Profits) 

Take this number and reduce it to an hourly cost.

To do that: Overhead per hour = Total annual overhead / (number of tradespeople x 2080)

What is your target net profit margin

There is nothing to be ashamed of if you have a profit target for your home service business. In fact, having a profit target is critical to the overall success of a company. But what should that net profit target be and how do you set it? Here are some things to keep in mind when setting your net profit target.

  • Needs to be obtainable
  • Needs to be fair for the customer and employees
  • Needs to be a fair reward for the company
  • Needs to cover and finance organic growth
  • Needs to be reinvested back into the business to upgrade trucks, tools, etc.

Gross profit margin determines how much bottom line profit is left

Gross margin is the amount of money that is left over after the direct costs associated with the job are paid. Gross margin trickles down the financial statement (profit & loss report) and covers the company’s overhead costs. What is left over is profit for the company. 

What is a fair and ideal net profit margin goal for a plumbing, HVAC or electrical company? 

The minimum a home service business operation should be targeting is 10% net profit margins, while most of the best operators are able to achieve the ideal profit margin of 17%-25% bottom line net profit.

What should the target gross profit margins be for plumbing, electrical, heating & air jobs? 

The gross profit margin for trades services should be between 50% and 65% depending on the scope of work. Targeting this gross profit margin plus running a fiscally responsible company will make a 20% profit margin obtainable at scale. 

Calculate the gross margin required to cover your costs and develop the expected profit

Still with us? Good for you! Let’s recap what we have done so far.

  1. We know our “all in” direct labor costs (this combines our hourly wage with total benefit package)
  2. We know the amount of labor that we are paying out but not collecting for
  3. We know how much per hour it costs us to operate our company, even if the phone doesn’t ring
  4. We have established a fair and balanced profit that we are aiming to achieve

The linchpin to the whole question- How much should we charge for labor? This comes down to setting your gross margins. 

Gross margin is the amount of money that is left over after the direct costs associated with the job are paid. Gross margin trickles down the financial statement (Profit & Loss Report) and covers the company’s overhead costs. What is left over is profit for the company. 

Basic formulas for calculating your plumbing labor billable rate (short version)

Advanced formula (explained in detail above)

Selling price of tradesperson labor = ((Fully loaded labor cost x billable efficiency loss ) + ( overhead per hour) x desired net profit))

Basic formula for calculating tradesperson labor rates

This basic formula or rule of thumb used to calculate how much you should charge for labor in your home service jobs has been tried and true for 25 years. It shouldn’t be a substitute for running the actual calculation, but it can be used in a pinch or as a baseline in establishing your labor rate. 

“Selling price of tradesperson labor = non-loaded labor cost x 5” 

Calculating how much you should charge for parts, materials and equipment

Our On Point Pricing method accounts for the overhead of the business in the labor and effort component, which makes calculating how much you charge for the actual materials, equipment and parts much easier. 

Should you have a sliding scale for parts markup?

This is perhaps the most common question we get from plumbing, HVAC, electrical and water conditioning contractors alike when it comes to figuring out how much they will charge on top of material expenses for the parts component of pricing their services. At Elite Trades, we believe that simple is better and believe two tiers for parts markup is plenty. Here is an example of a sliding scale parts markup, in case you choose to use one.

$0.00-$25.00 x 5

$26.00-$50.00 x 4

As the cost of the part or material item goes up, the amount of markup goes down. 

And so on. This can get very confusing and tedious, which is why we don’t recommend it. 

Shoot for a 55-65% gross margin on parts & materials

Miscellaneous parts, fittings and materials are relatively low cost items and can support a higher gross margin. Because the effort to order a $5 part is no different than a $500 part, less expensive parts are still worthy of a markup. 

Selling price of materials = (parts & material cost + sales tax paid to vendor) / .45 – .35

Sell plumbing, heating, air conditioning, and water treatment equipment for a 40-50% gross margin

Equipment such as furnaces, air conditioners, water softeners, water heaters and other more expensive items sold at higher gross margins can result in pricing your home service company out of the market. When it comes to equipment, try and stay at a 50% margin, but realize some jobs will require you to markup large items a little less in order to remain competitive. 

Selling price of equipment = (equipment cost + sales tax paid to vendor) / .65 – .50

Pulling it all together:

Combining the selling price of labor & materials together to quote service, replacement, and installation jobs

Selling price of the labor component + selling price of equipment, materials & parts = How much you should charge for a home service job

So far, we have now covered how to come up with a cost-based pricing for your services that are based on your business goals as well as your financial goals. Let’s now cover how to keep your finger on the market dynamics and competitive landscape to ensure great customer service for your customers, as well as healthy profit margins for your company. 

Touching on the methods and tools used to charge your customers

Hourly Rate Model vs. Flat-Rate Model

Our in-depth article about flat-rate pricing models, hourly rate models, time & materials and the pros and cons of flat-rate pricing and cost-based pricing programs. 

If you’re in the service plumbing, HVAC or electrical business and selling repairs, replacements and installations, it’s best to combine all of your plumbing projects into a flat-rate book. The country’s most elite trades companies have found that they (and their customers) are better off when an exact price is quoted upfront directly out of a flat-rate book (digital or printed plumbing work guide) than using the hourly rate model for service plumbing. Up front, flat-rate pricing requires effective client communication and when executed properly, leads to high customer service. 

On the other-hand, if your workload primarily consists of new construction, remodeling or other project based work, you may find that time & materials pricing fits your business model better due to the detailed breakdowns it provides, ease of quoting and the lack of client communication required during the estimating phase of the client interaction. 

Price books for elite trades companies

Software for plumbers, electricians and HVAC contractors is plentiful, all with unique ways to calculate and present hourly rates, flat-rates or any other method for pricing jobs. 

Not only does Elite Trades offer a free price book calculator and plumbing price book builder, but we are experts at working with and in the industry’s leading price book softwares such as Service Titan & HouseCall Pro

Additional Resources for Setting Rates, Improving Operations and All Things Home Service Business

At Elite Trades, we get into the weeds with our clients who are commonly the owners of plumbing, HVAC, electrical or multi-trades home service businesses. One of the first things we do when we start working with a new client is audit their pricing methods, price guides and how they present estimates to clients. Learn how the work Elite Trades does has contributed to the profitability of some of the best home service companies in the industry. Contact us today.

Eric Smith - Founder & CEO of Elite Trades

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