HVAC Business Pricing: Start at Market Rate or Stay Broke Forever

Every tech who’s thought about starting their own business has had the same idea: “My company charges $120/hour. I’ll charge $100 and steal all their customers.”

It sounds like a competitive advantage. It’s actually a trap that’s nearly impossible to escape.

Greg Crumpton started in his garage with his wife and one tech. They didn’t undercut the market. They priced like a $20 million company from day one. Here’s why that counterintuitive move was the smartest business decision they ever made.

The Psychology of Underpricing

New owners convince themselves that starting cheap makes sense. “I don’t have the overhead yet.” “I need to build a customer base.” “I can always raise prices later.”

Here’s the flaw in that logic: your hourly rate isn’t just covering today’s costs. It’s funding tomorrow’s growth – trucks, tools, insurance, employees, training, slow-season reserves. Starting cheap means you’re subsidizing customers with your own future.

Greg puts it bluntly:

“A lot of contractors are started by technicians who worked for a contractor and said, ‘My company’s charging this guy $100 an hour. We’re going to charge $80 because we can.’ … The challenge with that is ever getting that $20 an hour back once you have an overhead that needs the $100 an hour to support it.”

Customers acquired on price are the most likely to leave when you raise rates. Research shows that raising prices by just 5% can increase profits by 25–95% due to retention economics, but that only works if you started with value-oriented clients, not price shoppers.³

🎙️ Related Episode: Evolution Of An HVAC Business Ep. 23: Avoiding Mistakes As A Business Owner. Gary recalls a mistake he made that could have cost him in a different situation.

The Math of the $20/Hour Trap

A technician earning $25/hour doesn’t cost you $25/hour. Add FICA, unemployment insurance, workers’ comp, and you’re looking at a 35% labor burden. Factor in that techs are only billable 60–70% of paid hours, and your breakeven billing rate (before a single dollar of profit) is approximately $74.25 per hour.¹

Want a 20% margin? You need to charge $92.81/hour minimum.

So the new owner charging $70/hour to “be competitive” is mathematically guaranteed to lose money on every hour worked. Not eventually. Immediately.

Now consider the compounding problem:

You can maybe raise $5/year without hemorrhaging customers. Market rates rise $5/year too. You never close the gap. Your margins stay permanently squeezed.

What does that $20/hour gap actually cost? Assuming 2,000 billable hours per year, you’re leaving $40,000 on the table annually. Over five years, that’s $200,000 you’ll never recover – enough for a truck, a training budget, and half an employee’s salary.

📺 Watch: When Should A Technician Start Their Own HVAC/R Company. Before you hand in your notice, Gary walks through the real checkpoints that separate techs who thrive as owners from those who struggle.

How to Find Your Real Number

Gary’s method for finding market rates is simple and it works:

“I called residential companies in the area and pretended I was placing a service call. ‘Oh, my furnace is broken. What do you guys charge to come out?’ I got a roundabout number. It was between $100 to $110 an hour.”

That $100–$110 figure from Gary’s market actually aligns with validated industry data. Current research shows residential service rates typically range from $75 to $200 per hour, with successful contractors clustering between $100 and $150.⁴ Flat-rate shops often achieve effective yields exceeding $200/hour due to efficiency gains.

Here’s the insider secret: Very successful, large international mechanical contractors hire people, pay people to do exactly what [Gary] did to ensure that they are priced right in different markets.

Regional variation matters enormously. Bureau of Labor Statistics data shows San Jose technicians earn a mean wage of $43.99 per hour, compared to $28.31 in Savannah – a 57% difference.⁵ A rate that’s profitable in Georgia would be insolvent in California.

National averages are useless; you need local data.

What to ask when you call competitors:

• “What’s your service call or diagnostic fee?”
• “What’s your hourly rate after that?”
• “Are parts marked up or included?”

📸 From Instagram: “You want contactors and capacitors. But the truth is, if you want to be a top technician…” – Your rate reflects your expertise. Invest in becoming worth it.

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The Quality Premium Is Real

Gary discovered something that changed his perspective on pricing:

“I found over the course of time, it didn’t really matter if you were $105 or $115 an hour. What mattered is if the brand, your service, the name on your truck (who you represent) shows up and does a good job. There’s no callbacks.”

Think about it from the customer’s side:

• Option A: $100/hour tech, but they call back twice = $300 total + two days off work + frustration
• Option B: $115/hour tech, fixed right the first time = $172.50 (1.5 hours) + peace of mind

Customers pay for confidence that the problem is actually solved. They’re buying not having to take another day off work. They’re paying to not worry about it breaking again next month.

The industry benchmark for callback rate is under 2% for top performers; the average sits around 5%.⁶ If you’re charging less because you’re “new,” you’re signaling that you’re also less capable. Price confidently and deliver the quality that justifies it.

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Know Your Costs First

Before you set any rate, Greg says you need to list out “every cost that you can think of that you’re going to have and then add some that you didn’t think you were going to have.”

Here’s what new owners routinely forget:

A legitimate startup requires $45,000 to $118,000 in capital.⁸ Successful owners recommend maintaining a rainy-day fund of approximately $58,500 – about nine months of combined personal and business expenses.

And don’t forget parts markup. Greg notes that customers “would be shocked at how affordable that contactor was to you. But by the time they get it, it’s more expensive by maybe two and a half times.”

That 2.5x markup is actually the baseline. Industry-standard matrix pricing calls for 4x–6x on parts under $20 to recover supply chain friction, scaling down to 1.8x–2.2x on parts over $300.⁹ A flat markup across all parts either prices you out of the market on big-ticket items or loses money on small ones.

The Mindset Shift

You’re not “just a tech who started a business.” You’re a business owner who happens to be an excellent technician. Price accordingly.

“We didn’t start in the hole. We started equally of where we would be if we were a $20 million organization.” – Greg Crumpton

📺 Long Game: How to Make Your HVAC Business More Valuable to Sell for Maximum Profit. John Bartlett explains what buyers actually look for. Spoiler: healthy margins matter more than revenue.