“How did you come up with that price?”
This is a question that I hear on a regular basis, so today we’re going to travel down the road of how a price is built when shopping for a new air conditioning system for your home, or at least how we do it. There are many things that come into play when constructing a price for our customers. As with any company we need to be profitable to remain in business, so let’s have a look at all the components of the bottom line.
As I explain to all my clients, air conditioning systems can range in price from four to twelve thousand dollars depending on the brand, features and benefits. Why is there such a wide swing in the price range you ask? Very simply it comes down to our cost on the equipment from the manufacturer. All the other things about an air conditioner installation remain relatively consistent in terms of basic material, overhead for the company and the labor costs involved. So, step one in building our price is the equipment cost which is typically forty percent of the price.
Step two is our labor costs, or what we pay the people that will install the unit for you. Once again, as with any company, if you want the best people you need to pay the best wages and provide the best benefits. We take great pride in the fact that we have some of the best installers anywhere. With that said, our labor costs amount to about twenty percent. Ok sixty percent down and forty to go.
The next thirty percent of our price is the standing overhead required to keep the company running. Most of you are not aware of it, however, when we walk into your home we have over two million dollars worth of insurance coverage to protect us and you. In the very unlikely event we somehow damage your home, or someone gets injured, the insurance is going to kick in and do its job. Obviously, things like advertising and marketing, customer service representatives answering the phones, maintaining our fleet of vehicles, keeping the lights on, etcetera, all have an expense associated with them.
So that leaves us with a mere ten percent for a profit margin, and that ten percent is only if every job and every project goes perfectly smooth with no overtime, no screw-ups, and no unforeseen circumstances. I can tell you the one constant in air conditioning contracting is that things are going to go sideways on jobs. It happens. We are working in an attic and a foot slips off a truss, now we are repairing your ceiling. An air conditioner has a dent in it because of an errant forklift requiring an extra trip to the supply house.
These types of things are rare, but when you are servicing thousands and thousands of clients every year mistakes are bound to happen and those come with a cost as well. The bottom line is that if you are looking to get rich, owning an air conditioning company might not be the way to go.
Until next week my friends I found it interesting to discover you have a better chance of getting killed by a falling coconut than you are by being bit by a shark.
House Whisperer out!!