The Differences Between Part Costs and Final Costs

This blog was created to address the occasional service customer who did some online research and did not like our quoted price. This customer wanted to get a parts and labor breakdown, which we stated we would not do (for reasons discussed later).

We will discuss our cost structure for service first, and then address why we did not break down our flat rate price into parts and labor for our customer.

Our Direct Costs:

Direct Parts Costs

The part researched likely was a generic part from a website like Many times, we will choose a better Original Equipment Manufacturer (OEM) part more suitable we buy from Carrier or other local distributors that are not available to the public and are of higher quality & more expensive.  Plus, many times there are other, ancillary components needed to properly install the part.  Finally, when you get the part from Grainger, it is caveat emptor (buyer beware) with no warranty.  If it breaks or you install it improperly, you ‘own’ the result.  And know that we will not install your provided part for you, that is a recipe for disaster and company liability.

Direct Labor Costs

First, our technicians are ‘on the clock’ the moment they leave the shop or previous customer, many customers do not consider this, and as such they are on payroll which we must bill for. Second, our top technicians have wages and benefits that exceed $100/hour.  People do not realize this, but the supply and demand for these highly skilled workers justifies that pay.  Our technicians are licensed and professional journeymen with years of experience and we believe in supporting our technicians with a fair wage for their skill.  We also want to make sure they can support their family at the end of the day.

Our Indirect Costs:

Overall Costs to Run a Contracting Company

Novak Heating & Air has between 10-15 HVAC installers, and technicians at any point in time. The overhead to keep these people working in the field is over $2 million per year, as described below.

Costs to Answer Your Phone Call

Small companies with low rates have low overhead. They also have a hard time responding and rely on voicemail and having customers wait in the cold or heat.  We have dispatchers who answer the phone, administrative people to organize, and other office and field support personnel.  This is needed to make sure you can count on us to install and warranty a new part and get you back up and running when you need us.

Costs to Dispatch the Technician

Our technicians come out to your home in trucks valued at over $50,000 each with another $35,000 in shelving and tooling to meet your needs. We also pay rent to have an office, shop, and yard to help inventory and dispatch our fleet. 


Why We Don’t Breakdown Flat-Rate Costs into Parts & Labor:

The Actual Cost Breakdown is Muddy

When you factor in the above, how do you allocate these overhead costs to parts and labor? These parts do need to be ordered by office personnel, which adds costs.  Labor is obviously the most expensive part of service when everything is factored in.

Giving an Answer Always Leads to More Questions

In the past, we have ‘knuckled under’ and sometimes made the best attempt to split these costs down. Invariably this has led to more questions about how we get to the numbers we quote.  This becomes a challenge to the office.  We keep internal formulas that allow us to recoup our overhead costs and give us a modest 10% net profit; just as many companies do.  Service work is inherently warranty-prone with fixing older equipment, so even hitting our target profit goals is difficult.

We know that there will always be customers who feel they are getting ‘ripped off’ and there is nothing we can do about it.  We attempt to be as transparent as possible while trying to run a business as smoothly as possible, and helping as many customers as we can as quickly as we can.  We love to save the day when your system goes down.

Ultimately when we give you a flat rate for service, we honor it and warrant it.  Essentially what you are doing is paying a bit extra for ‘peace of mind’ and a guaranteed solution to your problem.  Novak Heating & Air will never promise to be the cheapest.  Our honor-bound promise is to do the job right & take care of our customers.