HVAC Flat Rate Pricing: Build a Book That Holds 50%
Most flat rate price books I open in a shop between $1M and $10M were built on someone else's numbers. The owner bought a book, or copied a competitor, or accepted the software vendor's default multipliers, and the tasks have sat there for three or four years while technician wages moved from $24 an hour to $32. The book still looks fine on the invoice. It has stopped holding margin.
Flat rate pricing only works when every task price is built from your own loaded labor rate, your own billable efficiency, your own parts cost, and your own overhead per billable hour. This article walks through that build with the full arithmetic for a hypothetical $2.4M, six-truck HVAC company, and prices one task (a run capacitor replacement) so it holds a 50 percent gross profit floor with technician labor inside cost of goods sold.
When you finish, you will be able to compute your loaded labor rate, price any task in your book from four inputs, spot the three errors that quietly drain margin, and run a review cadence that keeps the book current when wages and parts move.
Why flat rate beats time and material
Time and material billing puts the customer on the clock. Every minute the tech spends looking up a part number or walking to the truck is a minute the homeowner is paying for and watching. The homeowner has no way to judge whether two hours was fair. That uncertainty shows up as pushback on the invoice, weaker reviews, and a CSR who spends the afternoon explaining charges.
Flat rate gives the customer a price before the work starts. The fast tech and the slow tech charge the same number for the same task, so the price attaches to the job. In the shops I have worked with, moving from time and material to a properly built flat rate book raised the average service ticket by 20 to 35 percent within two quarters, and billing disputes nearly disappeared because the customer approved the number up front.
For the owner, the bigger benefit is control of margin. With time and material, gross profit on service depends on how fast each tech works that day. With flat rate, gross profit is baked into the book. You decide once, on paper, that a capacitor replacement carries 65 percent gross profit, and every one of those calls carries it. That is the only practical way to manage HVAC gross profit margin across six trucks without standing over each invoice.
A flat rate book also fixes the pricing conversation for the tech. Techs hate quoting hourly. Most of them undercharge because they feel the customer watching. Give them a book price on a tablet and the quote becomes a statement instead of a negotiation.
The four inputs behind every task price
Every task price in an HVAC price book comes from four numbers. If you cannot state all four for your own company, the book is a guess.
Loaded labor rate
Start with the technician's hourly wage. Add burden: payroll taxes, workers comp, health insurance, retirement match, paid time off, uniforms, and training hours. In residential HVAC a typical burden range is 22 to 35 percent of wage. A $32 an hour tech with 28 percent burden costs you $40.96 for every hour you pay him, whether he is on a roof or standing in a supply house line.
Billable efficiency
Billable efficiency is billable hours divided by paid hours. It absorbs drive time, parts runs, meetings, callbacks, training, and the hour the dispatcher could not fill. A typical range for residential service is 50 to 65 percent. At 55 percent, each billable hour has to carry 1.82 paid hours. That is why the loaded labor rate per billable hour is the loaded wage divided by billable efficiency, and it is the most underestimated number in any price book. Your service software can pull it. If it cannot, your dispatcher can build it from time stamps in a week.
Parts cost with markup
Use your actual invoice cost from the supply house, including freight and any restocking fees you eat. Then apply a markup schedule that slides with cost. Small parts carry a high multiple because the labor around them is short and the callback risk is the same as on a big part. A typical schedule: parts under $25 at 3.0x to 4.0x, $25 to $100 at 2.5x to 3.0x, $100 to $500 at 1.8x to 2.2x, over $500 at 1.4x to 1.6x. The markup is how the book pays for warranty stock, the truck inventory sitting in the parking lot, and the part that gets dropped on the driveway.
Overhead per billable hour
Take total annual overhead (rent, office payroll, trucks, fuel, insurance, marketing, software, owner salary, everything outside direct labor, parts, equipment, and subcontract) and divide it by annual billable hours. This number tells you what each hour on a customer's property has to contribute before you make a dollar. For a company running 46 percent overhead on revenue, it is often larger than the loaded labor rate, which surprises every owner the first time they see it.
The arithmetic of a task price: a worked example
Take a hypothetical company, Ridgeline Heating and Air: $2.4M in revenue, six trucks, six technicians, tech wage $32 an hour, burden 28 percent, billable efficiency 55 percent, overhead $1.1M a year. Here is the build of the two rates that drive every price in the book.
| Line | Math | Result |
|---|---|---|
| Loaded wage per paid hour | $32.00 x 1.28 | $40.96 |
| Paid hours per year | 6 techs x 2,080 | 12,480 |
| Billable hours per year | 12,480 x 55% | 6,864 |
| Loaded labor rate per billable hour | $40.96 / 0.55 | $74.47 |
| Overhead per billable hour | $1,100,000 / 6,864 | $160.26 |
Now the task: replace a run capacitor. Book time is 0.75 hours, covering diagnosis confirmation, the swap, and an amp test. Part cost is $28 from the supply house.
| Line | Math | Result |
|---|---|---|
| Labor cost (in COGS) | 0.75 x $74.47 | $55.85 |
| Part cost (in COGS) | supply house invoice | $28.00 |
| Total COGS | $55.85 + $28.00 | $83.85 |
| Price at the 50% gross profit floor | $83.85 / 0.50 | $167.70 |
| Overhead this task absorbs | 0.75 x $160.26 | $120.20 |
| Net profit at the floor price | $167.70 minus $83.85 minus $120.20 | ($36.35) loss |
| Price at a 15% net target | ($83.85 + $120.20) / 0.85 | $240.06 |
| Book price | rounded | $239.00 |
| Gross profit at book price | ($239.00 minus $83.85) / $239.00 | 64.9% |
| Net profit at book price | $239.00 minus $83.85 minus $120.20 | $34.95 (14.6%) |
Two things stand out. First, 50 percent gross profit with labor in COGS is a floor, and only a floor. On a short task the overhead per billable hour swamps the labor, and a price that clears 50 percent gross still loses $36 on the call. Every book price has to pass two tests: at least 50 percent gross profit with direct labor in COGS, and enough contribution above COGS to cover the overhead the task absorbs plus your net target. On short tasks the second test sets the price. On long tasks with expensive parts (a blower motor, an evaporator coil) the 50 percent floor is usually the one that binds.
Second, $239 for a capacitor is a normal number in most residential markets, and the owner still charging $149 because that was the price in 2021 is losing $55 of net on every one. Multiply by 400 capacitor calls a year and that is a $22,000 hole from a single line in the book.
The same arithmetic tells you how to price HVAC service calls. A diagnostic at 0.5 book hours carries $37.24 of labor and $80.13 of overhead, so the fee that reaches a 15 percent net is $138. Charge $89 and you are betting the repair ticket makes up a $28 loss on every call that does not close. That bet only pays when close rate and average repair ticket are both strong, and most owners have never checked whether theirs are.
Good, better, best on the same task
Options raise average ticket without touching the base price. Build three versions of the capacitor task in the book so the tech presents a choice instead of a single number.
| Option | Scope | Book hours | Parts cost | COGS | Overhead absorbed | Book price | Gross profit |
|---|---|---|---|---|---|---|---|
| Good | Replace run capacitor, test amps | 0.75 | $28 | $83.85 | $120.20 | $239 | 64.9% |
| Better | Capacitor plus contactor, clean and tighten connections | 1.00 | $50 | $124.47 | $160.26 | $335 | 62.8% |
| Best | Capacitor, contactor, and condenser surge protector | 1.25 | $115 | $208.09 | $200.33 | $479 | 56.6% |
In the shops I have worked with, roughly 60 percent of customers pick the middle option when three are shown and 15 to 20 percent pick the top. On this task that moves the blended ticket from $239 into the $330 to $345 range with no change to the base price. Every tier still clears the 50 percent floor. The top tier sits closest to it because the surge protector is a higher-cost part, which is exactly why the markup schedule slides. Many shops add the first year of a maintenance plan to the Best tier, and that add-on should be priced from the plan's own cost, which I cover in the service agreement pricing article.
Three mistakes that make flat rate lose money
Pricing from a competitor's book
The 12-truck company across town has a different overhead per billable hour, a different billable efficiency, and probably a different wage scale. If they run 62 percent efficiency and $130 of overhead per billable hour, their capacitor price can sit at $199 and still net 15 percent. Copy it and Ridgeline nets 4. A competitor's book tells you what the market tolerates. It tells you nothing about what your shop needs to clear.
Leaving labor out of COGS
This is the most common one, and it is the reason so many owners believe they run a 70 percent gross margin while the bank balance says otherwise. Same capacitor task, read two ways:
| Line | Labor in COGS | Labor in overhead |
|---|---|---|
| Book price | $239.00 | $239.00 |
| COGS | $83.85 | $28.00 |
| Gross profit | $155.15 (64.9%) | $211.00 (88.3%) |
| Overhead charged to the task | $120.20 | $176.05 |
| Net profit | $34.95 | $34.95 |
The net is identical because it is the same money in different buckets. The damage comes from what the owner does with an 88 percent number. He approves a $30 discount for a good customer, sure he has plenty of room, and the call goes from $35 net to $5 net. The 50 percent standard only means something with direct labor in COGS. When you review margin in your monthly numbers, technician payroll has to sit above the gross profit line, and the HVAC business KPIs article shows how to lay out that report so the margin you see is the margin you have. If your accountant put technician wages in operating expenses, ask for them moved.
Never updating the book when wages move
A book built on $32 wages drifts under you. Take a blower motor task: 2.0 book hours, $240 part. Priced today it books at $835 and carries 53.4 percent gross profit, just above the floor. Three years on, with wages at $36 and the part at $288, the loaded labor rate is $83.78 per billable hour, task COGS is $455.56, and the same $835 price carries 45.4 percent gross profit. Every long-hour, high-part task in the book slides under the floor at the same time, and those are the tasks that produce most of the service revenue. The capacitor line hides the problem because its margin is fat. The blower motor, the coil, and the compressor show it.
Rolling a price increase out to the techs and the CSRs
The book changes at least once a year, and the rollout matters more than the size of the increase. In the shops I have worked with, a 6 to 10 percent increase presented well moves close rate by a point or two. The same increase dropped on the techs on a Monday morning with no explanation costs 8 to 10 points of close rate for a month, because the techs apologize for the price at the kitchen table.
For the techs: hold a 45-minute meeting one week before the new book goes live. Put the loaded labor rate math on a whiteboard, burden included, so they see that a $32 wage costs the company $74 per billable hour. Show them the overhead per billable hour. Then show each tech his own pay under the new book if he is on a performance plan. Give them the sentence for the customer: "The price for that repair is $239, and that includes the part, the labor, and a one-year warranty on the work." Have them say it out loud in the meeting. No tech should learn the new prices from a tablet.
For the CSRs: update the diagnostic fee script the same day, and give them the three reasons in plain words (technician wages, parts costs, and the warranty the company stands behind). The CSR who says "it went up, sorry" costs you booked calls. The CSR who says "the diagnostic is $138, and the technician will give you a firm price on any repair before he starts" holds booking rate. Record booked-call rate for two weeks before and four weeks after. If booking rate drops more than 3 points, listen to recorded calls before touching the price. The problem is almost always the script.
Do not send customers an email announcing the change. Your maintenance base will see the new numbers on the next visit, and a service agreement member's discount should be recomputed off the new book price, which is one more reason to price the agreement from its own cost instead of as a flat percentage off the book.
A 13-week cadence for reviewing the book
A price book is a living document. Set a 13-week loop, one per quarter, and assign each week to a named person. The whole loop takes about 20 hours of office time per quarter, most of it in weeks 4 through 6.
| Week | Task | Owner |
|---|---|---|
| 1 | Pull actual tech wages, burden, and paid hours from payroll for the prior quarter | Bookkeeper |
| 2 | Pull billable hours from dispatch; compute billable efficiency by tech and for the shop | Service manager |
| 3 | Recompute loaded labor rate and overhead per billable hour; compare to the numbers in the book | Owner |
| 4 | List the top 50 tasks by frequency; pull current supply house cost on every part | Service manager |
| 5 | Reprice the top 50; flag any task under 50% gross profit or under the net target | Owner |
| 6 | Check book hours against actual clock hours on the top 50; adjust any task off by more than 15% | Service manager |
| 7 | Publish the updated book; run the tech meeting and the CSR script update | Owner |
| 8 to 12 | Watch weekly: average ticket, close rate, gross profit by task, callback rate | Service manager |
| 13 | Quarter review: gross profit with labor in COGS, net profit, any task still under the floor. Restart. | Owner |
Wages tend to move once a year, so weeks 1 through 3 change the book in maybe one quarter out of four. Parts cost moves every quarter, and book hours drift as techs learn shortcuts or as equipment gets harder to reach. The quarterly loop catches all three. If you want to see what a 3 percent wage bump or a 5 point drop in billable efficiency does to net profit before you touch the book, the Profit Simulator runs the whole company through those changes in a few minutes.
What to do this week
- Compute your loaded labor rate per billable hour: average tech wage, times one plus burden, divided by billable efficiency. If you do not know your billable efficiency, use 55 percent for now and have dispatch start measuring it.
- Compute overhead per billable hour: the last twelve months of overhead (everything outside direct labor, parts, equipment, and subs) divided by billable hours for the same period.
- Pull your ten most frequent tasks from the service software. Reprice each one with the two tests: 50 percent gross profit with labor in COGS, and COGS plus absorbed overhead divided by one minus your net target.
- Compare the results to the current book. Any task more than 10 percent low goes on the agenda for the next tech meeting.
- Open your P&L. If technician wages sit in operating expenses, move them to cost of goods sold before the next month closes so your gross margin reports mean something.
Frequently asked questions
What is flat rate pricing in HVAC?
Flat rate pricing means each repair task has a fixed price in a price book, quoted to the customer before the work starts, regardless of how long the technician takes. The price is built from the shop's loaded labor rate, book hours for the task, parts cost with markup, and overhead per billable hour, so it carries a known gross profit on every call.
What is a good gross profit margin for HVAC service?
With technician labor included in cost of goods sold, service work should hold a minimum of 50 percent gross profit, and a well-built flat rate book usually runs 55 to 65 percent on common repairs. If your reports show 70 percent or higher, check whether labor has been moved into overhead, which inflates the number without changing net profit.
How do you calculate a loaded labor rate?
Multiply the technician's hourly wage by one plus the burden rate (payroll taxes, workers comp, benefits, paid time off), then divide by billable efficiency. A $32 wage at 28 percent burden and 55 percent billable efficiency gives $74.47 per billable hour. That figure, times book hours, is the labor cost inside every task price.
How much should an HVAC company charge for a service call?
Price the diagnostic like any other task: book hours times loaded labor rate, plus the overhead those hours absorb, divided by one minus your net target. For a six-truck shop with $160 of overhead per billable hour, a half-hour diagnostic comes out near $138. A typical range in residential markets is $89 to $159, and the low end only works with a high close rate.
How often should you update an HVAC price book?
Review it every quarter and reprice whenever wages, burden, parts cost, or billable efficiency move. Wages usually change once a year, parts cost changes every quarter, and book hours drift as techs and equipment change. A 13-week cycle with a named owner for each step keeps the book current without a full rebuild.
A price book built on your own four inputs, checked against both the 50 percent floor and your overhead per billable hour, is the difference between a service department that funds the company and one that only looks busy. If you want a second set of eyes on your book, your loaded labor rate, or where labor sits on your P&L, book a free strategy session and bring last quarter's numbers and your top 20 tasks.
