Survey Reveals Charge-Out Rates Continue to Rise

January 25, 2001
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The industry took major strides in improving its pricing structure in 2000, according to The News’ 2000 Salary and Service Rates Editorial Study.

When The News surveyed contractors in 1999, 59.5% had service charge-out rates of $50 or more per hour. In 2000, the percentage of contractors charging $50 or more rose to 72%.

This increase, however, was not reflected in an increase of contractors using a flat-rate pricing system. A relatively equal amount of contractors (31%) used flat rate in 2000, compared to 32% in 1999.

“We should all charge a flat rate of at least $100 per hour so we can pay our workers what they are worth,” offered one contractor to The News’ survey, conducted by the Marketing Research Division of Business News Publishing Company.

Contractors are not hesitant to raise their rates when the need arises. Sixty percent said they would raise rates to keep up with the cost of salaries and supplies. Twenty percent said they automatically raise rates once a year.

The survey also revealed that the importance of service contracts relative to a contractor’s profitability changed very little in 2000. Seventy-six percent of contractors said that service contracts were “very important” or “somewhat important.” Thirty-two percent of contractors answered that profits derived from service contracts totaled between 11% and 30% of their profits. Meanwhile, 7% of contractors said that 50% of their profits came from service contracts.



BUYING, COMMUNICATION HABITS

Contractors’ buying habits remained at a relatively stable rate compared to the 1999 survey. However, the presence of the Internet, not surveyed in 1999, did have some effect on buying habits.

Fifty-three percent of contractors purchased 75% of their parts from wholesalers, down from 59% in 1999. Also in 1999, 42% of contractors purchased 10% or less of their products directly from manufacturers. That figure slipped to 33% of all contractors in 2000.

Seven percent of contractors surveyed now purchase over 10% of their parts from manufacturers via the Internet, while 11% of contractors purchase 10% of their parts from wholesalers via the Internet.

The World Wide Web also made a difference, albeit slightly, in sales lead generations. Twenty-four percent of contractors said between 10% and 50% of their service work came from leads generated by their own website. However, 45% reported no service leads from the web, from which one could conclude that many contractors still do not have an Internet presence.

Other new questions in the 2000 survey had to do with how companies assign daily service calls to technicians and how they communicate with the techs. Thirty-eight percent of contractors said their techs still show up every morning to check in. However, 71% of contractors said they contact their techs via cellular phones. (For more information on communication habits, see article on page 70.)



WAGES, BENEFITS

Service techs have seen a slight increase in their annual wages since The News’ survey in 1999. In 2000, 46% of all service techs earned between $35,000 and $50,000 annually, compared to 41% in 1999. Company owners and managers fared better, however.

In 1999, 58% of company presidents earned $50,000 or more annually. In 2000, that figure rose to 69% of all contractors surveyed. Going down the pecking order, 52% of vice presidents and general managers earned $50,000 annually in 1999. That figure rose to 68% in 2000.

Contractors have held steady in labor expenses per technician. Nearly thirty-three percent of respondents said their expenses-per-hour ranged from $19-$24.

Contractors continue to improve benefit packages. Eighty-eight percent of all contractors offer health insurance, while 50% offer life insurance and 46% offer dental insurance. Employees are also given tuition and education reimbursement for training purposes; 62% of contractors put their stamp of approval on payment for education.

When asked if the entry-level salaries are attractive enough to compete with other industries, 68% of all contractors said “yes.” But being competitive may not be enough, according to one respondent.

“This industry needs to spend more money for higher salaries and benefits to attract and train better people, and charge accordingly on the front end to cover these overhead expenses,” said the contractor. “Otherwise, we will not compete very well with other industries in attracting and developing quality personnel.”

Given the need to retain qualified workers, contractors might think twice about replacing the ones they have right now. But the leading reasons for dismissal, according to the 2000 survey, are incompetence (59%), poor attendance (55%), and productivity problems (45%). Contractors responded that they do conduct formal performance appraisals, some more than six times per year. However, the norm is once a year (55%).

Fifty-six percent of contractors said they reward employees for good performance with a salary increase. Meanwhile, 49% said they paid techs more than they believed they were worth to prevent them from joining a competitor.

While 30% of contractors said they gave employees salary increases to retain them, the trend hasn’t prevented the exodus of workers from the hvacr field, according to another respondent.

“We pay about twice what other hvac companies in this area pay, supply medical insurance, pay for schools, and have trucks worth $40,000 each. However, kids just do not want to do this kind of labor anymore.”

For a complete copy of The News’ 2000 Salary and Service Rates Editorial Study, contact Jill DeVries at 248-244-1726; DeVriesJ@bnp.com (e-mail). Cost is $150.

Sidebar: Just the Facts

Here’s how The News’ 2000 Salary and Service Rates Editorial Study breaks down:

  • 50% of contractors reported annual sales figures in the $500,000 to $3 million range.
  • 52% of contractors’ sales volume came from installations and 48% from service.
  • 48% of respondents worked in the residential market, followed by light commercial and commercial (41%).
  • 90% of contractors in the survey were non-union.
  • 57% of contractors have five or fewer service vehicles; 20% report having more than 10 vehicles.
  • 59% keep $5,000 or less in parts and supplies in vehicle inventory.
  • Publication date: 01/29/2001

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