Flat rate pricing means the customer gets one price for a defined repair before work starts, no matter how long it takes. The price is built from your real cost per billable hour, the standard time for the job, the parts and your target margin. It only works if those inputs are honest, so the math comes before the price book.
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Key Takeaways
- Flat rate sets the price by the task. Time and materials sets it by the clock.
- Start with your cost per billable hour, not a competitor's price list.
- Markup and margin are different numbers, and confusing them underprices work.
- Use flat rate for repeatable repairs and time and materials for open-ended diagnostics.
- A price book needs regular updates as labor and parts costs change.
Flat Rate vs Time and Materials
| Factor | Flat Rate | Time and Materials |
|---|---|---|
| Customer sees | One approved price before work | An estimate, then actual hours and parts |
| Who carries the time risk | The contractor | The customer |
| Rewards | Efficient, repeatable work | Accurate time tracking |
| Best fit | Common, well-defined repairs | Unclear scope, older systems, some commercial work |
Many shops run a hybrid: a flat diagnostic fee, flat prices for known repairs and hourly billing when the scope cannot be defined.
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Step 1: Find Your Cost per Billable Hour
Add up a month of overhead: office wages, rent, insurance, vehicles, software, marketing and non-billable time. Divide it by the billable hours your techs actually produced that month, not the hours they were paid. As an example only, $40,000 of overhead across 800 billable hours is $50 of overhead per billable hour.
Then add loaded technician labor per billable hour: wage, payroll taxes, benefits and paid time off. Billable hours are always fewer than paid hours, so this figure is higher than the wage. Overhead plus loaded labor is what one billable hour costs you before parts and profit.
Step 2: Price the Task
For each repair, set a standard time based on your own job history and include travel and setup if you do not charge for them separately. The basic build looks like this:
- Standard hours multiplied by cost per billable hour
- Plus the cost of parts and materials
- Plus a share for warranty callbacks
- Divided by one minus your target margin
Step 3: Do Not Confuse Markup With Margin
Markup is a percentage of cost, and margin is a percentage of the selling price. A part that costs $100 and sells for $150 has a 50% markup but only a 33% margin. If your target is a 50% margin, the price is $100 divided by 0.50, or $200. Pricing a margin target as a markup is one of the most common ways a shop underprices its work without noticing.
Build a Price Book Technicians Will Use
- Start with the 20 to 30 repairs that make up most of your tickets.
- Write each description in plain language the homeowner can understand.
- Offer options where they are real, such as repair now or replace the component.
- Show the parts your price assumes, including part type and warranty.
- Review it at least twice a year and whenever supplier pricing changes.
Where Flat Rate Goes Wrong
Standard times taken from a generic book may not match your drive times or crews. Prices set once and never reviewed lose margin as costs rise. Techs who do not understand the price cannot defend it at the kitchen table, so train them on why the number is what it is. Keep the approved price on the estimate and carry it through to the invoice so the paperwork matches.
Example: Pricing a Blower Motor Replacement
A blower motor job is a good test of the method because the part cost varies widely by motor type. Separate your price book entries by motor family rather than using a single line. Use your own landed cost: homeowner-facing price guides such as our blower motor replacement cost guide show what customers expect to pay, but your number should come from the build above.
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FAQs
What is flat rate pricing in HVAC?
It is a set price for a defined repair, agreed before work starts, that covers labor, parts, overhead and profit regardless of the time the job takes.
Is flat rate better than time and materials?
Flat rate suits repeatable repairs. Time and materials fits diagnostics and work with an unclear scope. Many shops use both.
How do you calculate an HVAC billable hour?
Divide monthly overhead by billable hours produced, then add loaded technician labor per billable hour.
What is the difference between markup and margin?
Markup is a percentage of cost. Margin is a percentage of the selling price. A 50% markup is only a 33% margin.
