Why Do Prices Go Up and What Can HVAC Contractors Do About It?
Tariffs, health care costs, and trasportation costs are just a few parts of the equation
Price increases happen. It’s the part of business that both commercial and residential contractors face every year.
Or as Steve Moon, owner of Moon Air Inc. in Elkton, Maryland, put it, “Price increases are a fact of life. Be a professional and adjust as swiftly as you can.”
Looking back at 2018, there were several price increases that occurred across the industry, and there have already been quite a few this year as well. As contractors address these increases, questions arise, especially from their customers. Looking for reasons to explain why these increases occur, contractors turn to the manufacturers for answers and to their business teams to mitigate the impact on their bottom lines.
The “why” of price increases is as diverse as the equipment they’re imposed on. In 2018, some increases were at or below 3 percent, while others ranged as high as 12 percent. Carrier Corp., Ingersoll Rand, Lennox Industries Inc., WaterFurnace Intl., Aaon Inc., and Ruskin are just a few of the manufacturers that adjusted prices at least once last year.
One adjustment per year is standard for Ruskin, according to Keith Glasch, president of the company. Due to multiple factors, though, Ruskin raised prices twice last year.
“Material price pressure on steel and aluminum, particularly after tariffs were announced last year, was one factor,” Glasch said. “Health care costs have risen much faster in the last three years than ever before.
“Transportation costs have risen as well,” he added, “especially with the shortage of truck drivers continuing.”
Although future price increases are confidential, Glasch said that transportation and health care costs will continue to influence the possible increases of 2019.
He also explained that higher wages for the company’s hourly workers have the potential to contribute to increases as well.
Plenty of companies — from unitary to components to parts — announce price increases annually, but Aquatherm North America is not planning on any increases for 2019. The company is not affected by the current tariff issues and, according to Barry Campbell, Aquatherm’s vice president of marketing, it has instituted only one moderate price increase over the last decade.
“We constantly work to align our pricing structure to position us favorably in the PHVAC piping markets,” he said. “With the uncertainties surrounding the steel market due to tariffs — or even the threat of them — we are finding that many mechanical contractors are interested in investigating the benefits of polypropylene.”
AN INCREASE IN THE INCREASES?
Even with an understanding that varying economic factors affect equipment pricing, Toby Sweeney, service manager from Pluene Service Co., Grand Rapids, Michigan, observed that the price increases in 2018 seemed to be at a higher percentage and frequency than they have been before.
“In years past, you could usually count on an increase in January from some vendors and June from the others,” Sweeney said. “Those hikes were usually in the 3 to 7 percent range pretty consistently. This past year has been multiple increases, and the range is all over the board, from 3 to 20 percent … and that’s for each increase.”
Martin Hoover, president of Empire Heating and Air Conditioning, Decatur, Georgia, agreed that price increases have been more frequent in the past two years. However, he can recall a more turbulent time in the industry.
“Six or eight years ago, the price of refrigerant might change $100 a drum overnight, then down, then back up,” he said. “It was crazy and completely unnecessary.”
Despite the recent accelerated frequency, Hoover made it clear that price increases are just a cost of doing business.
“We all have to make a living, and labor, along with commodity pricing, isn’t going to back up,” he said. “It’s just part of the business world.”
ADJUSTING FOR SUCCESS
When prices increase, contractors must be quick to adapt, otherwise their businesses may suffer.
Butch Welsch, president of Welsch Heating & Cooling Co. in St. Louis, approaches price increases in a few different ways, depending on the department.
“In the replacement market, we revise our price books to reflect the price increases as soon as we know when they go into effect,” he explained. “We are not a low-price contractor, and if our sales personnel can’t get a few more dollars on the sale, then we would need new sales personnel. So far they have responded well.”
In the service department, the changes are made according to the time of year they come in. The company has a flat-rate pricing book that is changed about two times per year, according to Welsch. Normally, he waits to make the changes all at once during the pricing book update periods. There are times, however, when the increase is too great, or the changes come too frequently to hold off, like with the refrigerant pricing issue that Hoover mentioned.
In the new construction market, Welsch explained two different situations.
“With subdivision homes, we typically have a contract that commits us to our prices for a year, so we just have to eat the increases,” he said. “On custom homes, we will adjust the prices as we receive the increases from our vendors.”
Adjusting for price increases at Standard Air, Plumbing, and Insulation in Birmingham, Alabama, is a little different.
“Price increases have never fazed us very much; when our cost goes up, our pricing goes up,” said Tyler Kime, general manager, Standard Air. “Equipment pricing increases are included right away in our sales software, so we price accordingly. In service, whenever the part is entered, the part price changes, and our inventory manager watches our parts pricing closely.”
There are things that can be done to help contractors adjust to the price increases that will inevitably come down the pipe. For some, it is providing more lead time. For others, it comes down to communication and education.
Paul Sammataro, president of Samm’s Heating and Air Conditioning, Plano, Texas, said that new pricing should be ready when the increase arrives.
“Don’t tell us in a month there will be an increase and then let us know after we try to make a purchase post-increase with no heads up,” he said. “Lead time of a price increase always aids in increased sales — one month is an optimal length of notice.”
David Hutchins would rather have 45 to 60 days of notice despite usually getting only 30. The president and owner of Bay Area Air Conditioning Inc. in Crystal River and New Port Richey, Florida, has faced many price increases as of late and is planning on checking other brands.
“Extra time would help some, but the price increases have been too much, too often,” he said. “We increase our price to the homeowner to cover these increases, but the difference in prices to the consumer, between a medium to large contractor and a Chuck-in-a-truck, are getting larger.”
Hutchins said that this gap is enticing customers to be less selective about who they hire in order to save money.
Publication date: 3/18/2019