Are you consistently underpricing your HVAC services? Do you know how accurate your estimates are? HVAC job costing software will help you answer questions like these—and, more importantly—help you start pricing right and boosting your profits!
What is job costing?
Job costing is the process of tracking your expenses and revenue (profits and losses) for every job. Job costing software just makes it easy.
With Housecall Pro’s job costing software, you can track and report on job costs in real-time and stay on top of your profit margins.
Making your HVAC business profitable doesn’t have to be such a mystery. With HVAC job costing software designed to help you automatically track expected margins, you’ll be on your way to minimizing costs and maximizing profits.
Why track the cost of each job?
The simple answer? Profits. Tracking the costs of each job you tackle means you’ll get a clear picture of your profit and loss. You can see if your estimates are correct and adjust any areas that stand out.
Another important reason to regularly review actual job costs is cash flow. This is a big deal! You can quickly run into trouble when you take a hit on a couple of big jobs and don’t have the money in the bank to cover payroll or supply costs.
Have you ever been mid-install only to discover the unit ordered is the wrong size? Maybe your tech team didn’t follow protocols, but you’ve got to cover the cost of getting a new unit to the site immediately. Do your estimates cover your current and potential expenses?
Let’s take a look at how HVAC contractors can more effectively track job costs, how to use HVAC job costing reports to adjust your pricing, and how to assess the performance of your techs.
What’s the actual cost of a job?
To figure out the actual cost of a job, you’ll need to consider these three things:
- Parts and materials
- Labor costs, including any potential commissions
- Any miscellaneous project-related expenses that pop up
Tracking this information will reveal your gross profit per job. To calculate net profit, take the percentage of income left after taxes, interest, and expenses have been subtracted. It’s your total expenses subtracted from your total sales revenue.
When you price a job, you should consider:
- Supply costs of the job
- Your mileage
- Labor costs
- Desired net revenue
- Total gross profit
- Profit margin
- Any discounts you’re offering
HVAC job costing tip: look for hidden expenses
There can be hidden job expenses you forget to factor into your job costs as well. They’re things like:
- Mileage and fuel consumption to and from the service call, including all visits
- The sales tax and any shipping costs you paid for supplies and equipment used on the job
- One-time expenses like permits or equipment rentals
These expenses are easy to miss, and they can add up fast.
What should I track when creating a job costing report?
When creating a job costing report, there are a few things you should keep in mind. Be sure you’re tracking:
- Time spent in transit, plus mileage expenses
- Time spent per tech on the job
- Type of job performed
Tracking this information will help you understand where your time and money go. Does your dispatching team need to tighten your schedule so techs spend less time between jobs? Are you consistently underestimating the time it takes for installs and repairs? Are certain techs slower than others, and are you factoring that into your estimates?
The more data you track, the more info you have to work with.
Two actions to take weekly (or at least monthly) with your job costing information
- Compare your actual job costs with your estimates
Based on our research into over a million jobs, we found that one out of three estimates didn’t match the final invoice. That’s Pros missing the target 33% of the time! And HVAC businesses were the most likely to go well over budget.
If you’re consistently underpricing yourself, you need to know why.
To make sure you’re accurate in your estimates and pricing, take time weekly or monthly to compare your job costing report with your estimates. Look for trends like the types of jobs or equipment where things don’t go as planned.
Maybe your supplier changed their shipping rates, and that ductwork you thought cost $400 is now actually $450. Or the new mini-split system you’ve recommended takes 20 extra minutes to install. These details will add up!
With Housecall Pro’s Job Costing Software, you can report on the actual costs on a job, and compare them to expected costs to drive accurate profitability insights.
Make sure the prices you quote are consistent by using a price book for your services. Housecall Pro’s estimating software lets you populate your estimates with service line items directly from your price book.
Plus! Estimates are customizable, and it’s easy to convert an estimate into an invoice at the office or in the field. With Housecall Pro, you can keep pricing consistent and turn more estimates into booked jobs.
- Compare job costs per employee
Comparing the job costs per HVAC tech can help you:
- Set better commission rates
- Assign techs to jobs based on skill sets and estimated margin
- Set better time-per-job goals
- Better predict monthly revenue
If you offer flat-rate pricing, it’s important to know the different labor costs per tech and job type to price correctly.
[Related from our blog: Should you share your pricing with your employees? Read the opinions from other Pros.]
Things only get more complicated as you grow
Don’t think of it as a “small business” concern. Larger service businesses, especially those in commercial HVAC and general construction industries, may require a more complicated job costing report. Project managers will use a variety of key performance indicators (KPIs) to track the effectiveness of their bids and project management strategies.
8 key HVAC cost categories
If you run an HVAC business, staying profitable is priority #1. The best way to do that is by using easy and effective HVAC job costing techniques for your team. Here are eight cost categories to keep in mind.
- Activity-based job costing
When it comes to activity-based job costing, you need to identify all the activities that take place in a job. It sounds like a lot, but all you have to do is estimate the cost of each activity. Once you have that in place, assign prices to the job based on the amount of activity needed to complete the job. Costs like site inspection, equipment delivery, or system installation can be assigned a cost based on labor hours alone or even equipment usage.
- Direct materials costing
This method involves calculating the actual cost of materials used in a job. It offers a more clear understanding of expenses associated with products and services. Direct materials costing is most useful for HVAC companies since a wide range of materials is used.
This could include supplies like filters, insulators, and copper tubing. The main benefit of direct materials costing is to gain insight into material usage and expenses. Direct materials costing can increase efficiency by helping HVAC companies identify patterns or trends in the materials their techs need on a job-by-job basis.
To use direct materials costing, you’ll need to record all components used, refrigerants, and other supplies in each job. Then, add up their costs altogether.
- Direct labor costing
Direct labor costing is most helpful for accurately tracking the cost of man hours involved to complete a specific job or project. HVAC companies can then set competitive, profitable prices for their services. This helps prevent under or over-pricing.
For this method, you’ll calculate the total labor cost for a job by multiplying the hours worked by the hourly wage rate of your techs. Make sure you include any overtime pay.
- Miscellaneous costs
Not knowing your miscellaneous costs could be draining your profits. Because some costs don’t have a set amount, it’s important to have a system in place for them.
Miscellaneous costs can include the labor on a job or materials used that aren’t directly known at the start of the job. Think of things like the van or truck used to get to the job site, travel time, fuel consumption, parking fees, or permits. Job costing can help make sure those miscellaneous costs don’t slip through the cracks.
- Job complexity factor
Keep job complexity in mind when estimating costs and setting prices. Some jobs are just harder than others. Maybe a job requires unique resources. Or a tech might get wrapped up in a complex installation or repair.
Job complexity helps HVAC companies price according to the actual cost of each job. This could include planning for costs like scheduling the right number of techs for a job, accounting for the correct parts, or scheduling enough time to complete the job.
Maintenance jobs will cost less than a complex installation. That’s why developing a rating system for job complexity can really help.
- Geographical location pricing
It’s common sense, but an install in Brooklyn will cost more than the same install in Des Moines. Geographical location pricing allows HVAC companies to accurately reflect costs associated with working in different locations. Location factors will also include the amount of distance traveled, local permit costs, and regional wage rates.
Jobs located farther away will cost more because of fuel and vehicle maintenance. Consider the time traveled to remote locations or congested traffic, as well as the conditions of each job. Adjusting pricing based on geographical location can allow you to remain competitive and profitable in different markets.
- Equipment usage charges
This can be one of the most challenging aspects of the estimating process for HVAC companies, but it’s super important. Be sure to keep track of your equipment usage for each and every job you take on. Record how long the equipment was in use, maintenance, repairs, and any depreciation you noticed. You’ll need to include the equipment’s average cost over the whole time frame of the project too.
- Competitive pricing analysis
This can help you figure out how to price your services while improving your product offerings and increasing your profits. Take a look at your competitors and do some research on their pricing and the services they offer. What do they charge? How does that compare to your prices? Getting this inside information will help you understand how your competition is pricing jobs and what the market looks like.
Keep better track of your costs with HVAC job costing software
Now that you know how job costing can help your business and price your services, it’s time to take action. With job costing software, you’ll get accurate insights into your projects to help you increase profits and win more jobs.
Our job costing and reporting features help our HVAC Pros track job costs and update price lists directly from an invoice. Ready to try it out? Sign up for a free two-week trial to streamline your residential HVAC business from dispatching to invoicing and beyond.
Still not sure if HVAC job costing software is right for you? No sweat. We have plenty of free templates and guides to help you create a bid with your job costs baked in, submit the proposal to your client, and provide invoices for completed work. Download them now for free: