An HVAC estimate is a thorough estimate of the cost of HVAC installation or repair. Accurate estimates for the building industry or commercial HVAC projects are crucial to ensuring that all parties agree on the costs upfront and avoiding unexpected and costly mistakes.

The estimating process consists of numerous processes and moving pieces, including:

  • Thoroughly reviewing the blueprints

  • Calculating material costs and labor costs

  • Performing a quantity takeoff

  • Factoring required profit margins into your pricing

The complex nature of construction estimates can be difficult, especially when you consider all the nuances involved.

  • The variety of equipment used for commercial projects (from refrigeration units to heat pumps)

  • The energy efficiency ratings of each HVAC unit

  • Managing subcontractors (if it’s a sizable HVAC project)

  • The project management itself

We'll go over the eight major steps of the commercial HVAC estimating services. Then, we'll go over how ServiceTitan's HVAC estimating software can help you calculate correct material and equipment prices, job costing, purchase order management, progress invoicing, and more.

How to Conduct Successful HVAC Estimates

Step 1: Review the Bid Request

Commercial HVAC estimation normally begins with analyzing a bid request issued by the general contractor. At a high level, you want to understand:

  • What is the builder or client requiring of you?

  • Are you willing and able to meet all of their parameters?

Key factors to keep in mind include:

Are there any particular project needs that you must consider?

In the construction sector, there are numerous circumstances in which developers or general contractors will request specific criteria from their subcontractors. These things are crucial since they can affect your bottom line. 

Examples include:

  • Liability insurance: Does the builder need you to have special liability insurance? Are you willing to invest in the insurance if you do not already have it? And how does this impact the price of your HVAC bid?
  • What warranty period are they requesting? Understanding this is critical in determining the reserve required to cover the cost.
  • Change orders and adjustments: What are the builder's policies on change orders and adjustments during the course of the project?
  • Manufacturers: What manufacturers has the builder specified? Do you have any existing relationships with them to acquire the best possible pricing.
  • Customizations and Selections: What kind of options does the builder provide? For example, will they define fixture selections or allow homeowners to choose? Can you mark up fixture upgrades?  (← Something we recommend.) Are you including a warranty reserve for HVAC units that are more readily damaged? All of these factors must be considered while determining your bid price.
  • State regulations: Does the state in which you're bidding have any specific criteria for journeymen on the job, or credentials that you or your HVAC contractors must obtain? Can you meet the requirements?
  • Miscellaneous regulations: Are there any additional requirements that may impact your HVAC costs? For example, if you're working on a school project and all of your HVAC contractors must undergo background checks, are you pricing your bid to account for the additional costs? 

If you aren't extremely diligent when studying the bid request parameters, it's simple to become contractually liable for things you weren't prepared to do or didn't factor into your proposal pricing.

Will there be any additional requirements due to the project's location?

It is critical to evaluate where the project is located and the type of ground on which it will be carried out. For example, if you're bidding on an air conditioning installation job in Texas that's built on bedrock, you may need to hire expert contractors to assist you break through the rock. If you did not anticipate and account for this expense in your price, you could face dramatically reduced profit margins.

What are the expectations for project pacing?

Pacing is also an important consideration. What is the builder's expected work pace? How many starts every week, and for how long? Could you keep up with that?

If you start a task with a production builder and they want it done in three days but you can only accomplish it in seven, that's bad news. So, before creating and placing a bid, be sure you can control the job's pace.

What is the project's duration?  Is it possible to revise your bid if expenses vary during the course of a longer-term project?

When bidding on a commercial HVAC job, you should consider how long you expect the job to take. A three-year job requires more caution than a three-month job because there is greater volatility in the labor market, gas prices, material costs, taxes, and so on. 

The timeline is a crucial aspect to understand before preparing your proposal and bidding on the project.

  • If the job takes a longer time, will the builder allow you to amend your pricing as your costs change?
  • How firmly will they hold you to the parameters of your estimate?
  • Can you plan price rises on specific dates?

 This is something you should consider including in your contract.

Who is supplying the materials?

We observe several instances where builders or developers choose to source the materials for their projects. This is frequently presented as a cost-saving measure. However, all they've really done is remove some of your markup options. If you are not careful, this can lead to financial losses.

This is because developers frequently want to purchase the supplies but have them sent to you, leaving HVAC contractors to cover the price of purchasing, warehousing, delivery, and other material-related fees.

So this is another key consideration while considering a proposal. If a developer states they will supply the supplies, you should ask them how that will be handled, who will be liable for which expenditures, and then consider that into your bid pricing.

What payment terms and billing structure do you agree to?

Payout Terms

It is critical to review the payout terms mentioned in the HVAC bid request to ensure that they will give you with enough cash flow to get you through the trim stage of the project. If you believe you will not have enough money to buy all of your fixtures, you should haggle to adjust the terms to meet your demands.

For example, you might seek 40% up front and another 40% during the rough-in step. That way, you can front-load your payments to guarantee that you have enough cash to buy all of your fixtures at the trim stage, and you won't have to rely on a line of credit or go into debt to complete the job.

Billing Structure

Understanding what is expected of you in terms of billing is also vital to consider.  For example, do they expect progress billing or AIA-style billing? Because this will most likely increase your overhead costs. 

Progress billing is more complicated and labor-intensive, necessitating the supervision of a more trained and compensated staff. As a result, you must factor this into your pricing strategy.

Step 2: Review the Drawings and Plans

While an HVAC bid request gives a general specification for the project, you may have several sets of designs and blueprints to analyze. For example, if you're working with a production home builder, they may have 20 models and 20 sets of blueprints that your estimating team must analyze and submit on a single proposal to be considered for the job.

In addition to performing an accurate HVAC takeoff (described below), one important consideration while studying plans is looking for unusual characteristics that may lead the designs to differ from your standard processes. Failure to account for these might lead to problems on the job and lower profit margins.

Step 3: Perform Quantity Takeoff

Along with examining the project designs, execute an accurate takeoff to determine the number of HVAC units, HVAC systems, and other HVAC equipment or materials (such as ducting) required for the job. 

Many contractors manage quantity takeoffs with estimating systems such as Trimble MEP or other HVAC estimating software. Others rely on customized Excel spreadsheets.

Using a takeoff software solution is undoubtedly advantageous. However, regardless of how you perform your takeoff, having a construction estimating system that works for your organization and ensures accurate counts is critical.

Step 4: Estimate Your Material Costs

Once you've determined your material counts during takeoff, tally up the materials and their related expenses to produce a material cost estimate. The most crucial component of effectively calculating this is to ensure that your material costs are current, but many HVAC contracting companies do not have a good strategy in place for this.

 A frequent way is to submit an Excel file with material pricing to their supplier and request that they update it to reflect current pricing. However, because these spreadsheets are not always updated for each HVAC installation, many contractors wind up pricing services based on outdated information.

Ideally, you should update your spreadsheet before calculating your bid on each assignment. This is one area where HVAC contractor software like ServiceTitan may be really useful. 

For example, using ServiceTitan's HVAC pricebook, which interfaces directly with leading industry supplier catalogs for HVAC, plumbing, and electrical, each line item added to an estimate is automatically updated with the supplier's most recent pricing. There is less opportunity for error when estimating material prices and, ultimately, your final bid.

Step 5: Determine Your Labor Costs

Next, determine your labor costs. During this step, there are two important variables to consider:

  • What pricing method do you use?
  • Do you pay your workers or subcontractors?

What pricing system are you using?

The piece-rate approach is a standard way to price labor in HVAC for construction projects.  Instead of paying based on labor hours, which makes cost control difficult, contractors will pay based on HVAC contractors' work output.

In commercial HVAC, a best practice for pricing labor is to compute a billable labor rate for profitability and then apply that to flat-rate pricing.

Are you paying employees or subcontractors?

The second issue to consider when calculating labor costs is whether you're paying your own employees or hiring a subcontractor.

If you pay your own employees, you must provide trucks, petrol, liability insurance, and all of the other instruments they require to complete their work.  Whereas if you use a subcontractor, you must pay them more than you would a direct employee, but you do not have to furnish all of their trucks, equipment, tools, etc.

Regardless of which model you use, these payment amounts must be factored into your labor costs to ensure that your estimate is profitable.

Step 6: Understand your overhead costs and percentage.

It is difficult to stress the importance of understanding your overhead costs, which are the continuing operating expenses of your firm, such as office staff and executive wages, rent, insurance, utilities, software, and so on.  If you don't have an accurate notion of your actual overhead and a process for accounting for it in your bid pricing, you won't make money.

So, it's critical to understand your overhead percentage - the percentage of your annual sales that goes toward paying all of your fixed and variable expenditures, which should be detailed in your profit and loss records — and use it in your bid pricing calculation.

Step 7: Pricing the Estimate for Profitability

Once you've calculated and tallied up the three main components of your project expenditures (labor charges, materials, and overhead), you may compute your overall cost. The multiplier and divisor approaches are the most prevalent ways to accomplish this. 

Using the multiplier method, simply multiply the total expected project cost by the desired net profit margin. So, if your expected project expenditures are $100,000 and you aim to achieve a 20% net profit, the formula would be:

Bid price = Costs x (1 + Profit percentage) = $100,000 x (1 + 0.20) = $120,000

Alternatively, the divisor method involves dividing your entire project expenditures by the inverse of your desired profit margin.  With the identical example, the computation would be:

Bid price = Costs / (1 - Profit percentage) = $100,000 / (1 - 0.20) = $125,000

As you can see, the divisor method is intended to increase your profit margin slightly. It is often the favored strategy since it can help to preserve profitability in situations where unexpected costs arise. 

However, while deciding on a price strategy, it is critical to understand and analyze what your market is willing to pay. For example, if you're bidding on a project in a very competitive location, you may choose to use the multiplier method to stay competitive.

Step 8: Create and Deliver Your Proposal

Creating a proposal is primarily about establishing the scope of work for the HVAC services that you intend to give. To keep your proposal professional, adopt fundamental best practices such as spell check, branding, and attaching all of your materials.

Aside from that, here are a few more points to consider as you work on your proposal.