Strategic Parts Multiplier System
The idea behind Strategic Parts Pricing is to assure that our company produces a reasonable gross profit on all parts and materials sold thru its service department. Due to the fact that our overhead is higher (as a percentage of sales price) for low cost parts, we must mark-up these parts higher to produce the same reasonable net profit. The rational for this is simple: Lower priced parts typically do not have a manufacturer’s warranty and if they did, the part is usually not returned for credit upon failure. Low priced items also have a tendency to disappear from inventory and are more likely not to get recorded or charged to customer invoices. This policy is for the service department only.
Please use the following table to find the proper retail sales price of all repair parts and materials. Simply take the wholesale cost of the item and multiply it by the following multiplier. Then round the result to the next highest dollar.
Example: You have a gas valve that cost you $26.00 at the local supplier. To find the proper retail-selling price: Multiply $26.00 by 3.375. The answer is $87.75. Round this number to the next dollar. Your price is $88.00.
|Price Range||Multiplier||Price Range||Multiplier|
Strategic Pricing Exceptions
In order to ease customer concerns with regard to the pricing of common and easily accessible parts, we will use the following reduced multipliers for the parts stated. Generally speaking: The more sophisticated the part, the higher the gross profit margin. The least sophisticated and most commonly available components generally warrant a lower gross profit margin.
|Description of Component||Alternative Retail Price|
|Pilot Safety Switch (old name: Thermocouple)||$ 19.95|
|Hot Surface Igniter||$ 39.95|
|Disposable Air-Filters||x 2.00|
|Electronic (set-back) Thermostats||x 2.00|
|Standard Thermostats||x 2.00|
|Oil nozzles (oil furnaces)||x 2.50|
© 1996-2013 by Mr. HVAC LLC and James R. Leichter
Is this multiplier good for 2012, would it change from year to year?
Yes, this is good for 2012. It will not change from year to year because it is based on the price you pay for the item(s).
What kind of gross profit margin does this average out to be?
That is a good question, and hard to answer, because it depends on the average price you are paying for parts. The short answer is probably about 65%. Commercial contractors would typically have a lower GPM (gross profit margin) than a residential HVAC contractor. That brings me to my recommended GPM on parts. Wouldn’t you know it, that depends on your labor rate. Please allow me to answer it this way. In general, you need a 65% GPM on residential parts and a 50% GPM on commercial parts. Those recommendation assume that your labor rate does not carry the full burden of your overhead (common with flat rate companies). I hope that helps. I’m happy to answer any follow up questions. Thanks – James.
That is a great help. I am getting ready to start my own company soon so i am trying to find tge best pricing practices so i make a good profit. I do residential and commercial hvac as well as commercial refrigeration and commercial kitchen equipment. Also since i do a wide variety of thing is your flat rate pricing software a good fit for what i do?
How can you sell R-22 at $12.00/lb and make any money?
That’s a good question Scott. That is an old post. When it was written that R22 price was valid. I have removed mention of R22 refrigerant and I thank you for pointing that out to us.
So I just paid 290$ for a compressor motor I found I could buy online, multiple places for $70. It seems Wilson Mechanical is Smithville, MO haver head of this chart. They used 4.14 as their multiplier. I feel ripped off.
Please don’t feel ripped off Jonathan. While I don’t know the details of your service call, based on what I am reading, the price of the motor was not out of line. It is incredibly expensive to provide what we call a “hardware store on wheels” driven by one the most difficult employees to find these days – a qualified HVAC service technician. Did you know that the national average net profit before taxes for a HVAC company is just over 2%? That company will be lucky to pocket ten bucks from that service call.I know it seems crazy but I can hope you trust me on this. I teach a class on the subject. -James Leichter
No Way. You’d go broke with these prices. Thats why your only making 2% profit as you claim
This guy would have you out of business in 6 months. Go with the average price for your location,
The best thing to do is to use solid accounting principles to price your parts and labor. This generic rule of thumb pricing system is here to get you started absent of serious break-even analysis. Simply calling around and pricing yourself to match your competitors is foolish. John Doe is uneducated. We can tell this because of his poor writing skills and because he is too cowardly to use his real name.
What type of business will this not work with
It would be easier to mention the types of businesses that this would work for. Basically we designed it for HVAC, plumbing, electrical and certain other related industries that perform every day residential service work.