It seems like the cost of everything from groceries to used cars continues to climb, and the HVAC industry hasn’t been spared from price increases either. It can be difficult to balance the cost of doing business with the value you provide the community right now. Understanding the source of the increases and how to mitigate rising costs can help your business succeed despite the challenges. So what is causing the price increases in the HVAC industry?
Like many other industries, HVAC manufacturing, installation, and service have seen increased demand across the country. The pandemic has played a significant role in demand and, in turn, pricing. Manufacturing and production came to a halt in 2020, and though production is approaching pre-pandemic levels, it cannot yet keep up with demand.
One reason for the increased demand is that more and more people are working from home. Many have chosen to make their new workspace more comfortable by installing or upgrading their home HVAC systems, while others used stimulus money to invest in home projects. This, combined with the seasonal demand as temperatures rise, has played a part in the increased demand for HVAC parts and service.
Increased Cost of Raw Materials and Fuel
The costs for raw materials used to make essential parts for HVAC systems have increased across the board. The price of steel and copper has gone up substantially over the past year, as well as the price for aluminum and lumber. In addition, the high cost of fuel has impacted overall costs for the HVAC industry, not only increasing the price of distribution and shipping, but also service calls. Some businesses have even reduced their service areas to keep these costs down.
The impact of environmental regulations on HVAC industry pricing is nothing new, but the recent changes ensure that the current cost issues will continue into the future. As refrigerants like R-22 are phased out, demand for new refrigerants will continue to increase. New efficiency standards, which are slated to be enacted in 2023, will also add to higher costs as high-efficiency HVAC units will now be in demand.
These high efficiency HVAC systems pose another cost problem as well. They use semiconductor chips to function and unfortunately, the global semiconductor shortage has caused a reduction in production of HVAC units worldwide. Other materials may not be in short supply, but maritime shipping issues have kept some of items offshore for many months. Though the problem has begun to improve, the lag in production and distribution is still being felt across the industry.
Raw Materials with Price Increases
- Lumber—In the HVAC industry, lumber is primarily used to make pallets for shipping HVAC equipment and support beams for ductwork. Significant price increases occurred from 2020 to 2021, though they are beginning to level out.
- Steel—Most of the HVAC systems, from the unit itself to drain pans and ductwork, are made of steel and sheet metal. Increased costs have significantly impacted the price per HVAC unit over the last year.
- Copper—It’s essential for use in tubing and conductors, but the lack of global investment in copper production has led to a substantial increase in cost over the last year.
- Aluminum—Both evaporator coils and condensers are made from aluminum. Transportation slowdowns, labor shortages, and U.S. tariffs have led to hefty aluminum costs for HVAC manufacturing.
So how do you manage these increasing costs and still make a profit?
Check Your Pricing Strategy
In order to manage increased costs, be sure that you are pricing your products and services accurately. One thing to consider is the level of service your HVAC business provides. While some businesses simply determine the pricing based on what competitors are doing, it may be wise to compare quality instead. If your employees are well-trained, your supplies high-quality, and your customer service top-notch, you may be able to justify higher service costs than the bargain HVAC service businesses in your area.
Materials and services aren’t the only costs for your HVAC business. Marketing, labor, service vehicles, and more all impact your bottom line. Unfortunately, all of these things have also increased in price in recent years. If your business has been using flat rate pricing, it may be time to re-evaluate those rates or consider switching to time and material pricing instead.
Join a Purchaser Program
While several factors determine your overall costs, materials remain a significant chunk, and they tend to have the most fluctuation in price. Purchasing programs help to lessen the cost of your materials, and they can alleviate some stress and manpower in your front office as well. Rather than negotiating pricing with suppliers yourself, you’ll have the buying power of a larger group, often with ties to high-quality nationwide suppliers. You’ll appreciate deep discounts on many of your materials, which may then mitigate some price increases for customers.
No business owner enjoys raising prices, especially for loyal customers in their communities. Unfortunately, these price increases cannot always be avoided, even with the best pricing strategies. Be sure to follow industry standards when passing additional costs to customers, and be transparent with them about the need for the changes.
While you may feel the pinch during your busiest season, it’s best to wait to make pricing changes until the season ends or a few months before it starts again. Doing so will help maintain trust between your HVAC business and the community.
Managing Price Increases in your HVAC Business
As the owner of an HVAC business, you’ve certainly seen your costs skyrocket recently. With increase in demand, higher costs for raw materials, and new regulations, it’s not likely to see these costs go down in the near future. As you consider strategies to mitigate these costs, be sure to evaluate your pricing strategy and be transparent with customers. You may also want to consider joining a purchasing program for discounted rates. While these changes may not bring costs to pre-pandemic levels, they can assist you in managing these price increases in the meantime.