How to Set Your Labor Rate
This week on ‘Ask the Experts,’ an HVAC Contractor in Iowa asked:
“I want to know how to set your labor rate?”
Contractor University faculty member James Leichter immediately stated that one should not base their labor rate on the lowest price of a competitor in their market.
“I’ve met so many people that do that,” said Leichter. “The best way to do it is to do a thorough analysis of your own company’s financials, and come up with proper pricing.”
Leichter explained this is a process called a ‘breakeven analysis,’ and it involves finding all of the costs of providing service to a homeowner in order to then find what you would need to charge to cover all of those costs plus profit.
Leichter went on to explain that determining your labor rate should be one of your first steps when building a new business, and that one should take care to make sure that the resources they use in this process are up to date on their information.
Before he finished, Leichter offered a word of caution to listeners. “Be sure that you are accommodating any discounts that you might offer,” said Leichter. “You might offer a 15% discount if they own a service agreement. What if you’re a 10% net profit company?”
James Leichter is a seasoned business owner who shares his experience and expertise through speaking engagements, authoring industry articles for magazines, and participate as a legal expert witness. As a successful HVAC business owner in the 1990’s, he quickly realized his passion was helping others succeed. He then founded Aptora to deliver the first enterprise software solution for the contracting industry called Total Office Manager.
Our faculty members have also answered questions on other topics related to system sales, including Service Agreements and New Installs and Benefits of Offering Service Agreements.
Hear more from our “Ask The Experts” faculty members on “Cracking The Code,” our weekly web series.
Contractor University members can click here to log in to their member dashboard and submit a question through the Ask the Expert portal.
