We'll explain the above diagram in the article below.
This article will explain with line by line detail how much it costs to install a single ductless heat pump in Maine. If you need curious about how the technology works or how much it can save, download our free Cold Climate Heat Pump Buyers Guide or read the following free articles
With this article, you should be able to understand heat pump prices and how why some heat pump jobs are more expensive than the average price of a heat pump. It should also provide a heat pump pricing guide so you can understand proposals that different contractors provide.
We'll focus on the costs for a 15,000 BTU cold climate heat pump for a tier one manufacturer. If you want to buy a heat pump no eBay and put it in, please stop reading ;)
Being a contractor is a tough job, especially an HVAC contractor. Not to be too harsh on you the reader (who is likely a homeowner) but you're really hard to deal with. Most homeowners feel that contractors are either completely incompetent, ripping them off, or making tons of money for not doing a lot of work. Or, in most cases, a combination of both.
Once I had someone ask me, "I can get a heat pump on eBay for $700, why does it cost so much to get it installed by a contractor?" To answer of course, is that this particular homeowners is, shall we say, not educated on high quality work and doesn't understand all of the costs of putting in a heat pump that will work for 15+ years.
But it brings up a valid point. People are willing to pay good money for quality work, if they know what the work is and how much it costs.
My solution for this is very simple, let's just tell people exactly what we're doing and how much it costs.
Our goal is to educate Mainers to provide them the best information so that we can eliminate oil use from the state. It's going to take 10 to 20 years, but we finally have the technology and financing to do it, we just need to start.
One of the articles that makes it really difficult for the contractors to sell is that they're not open and transparent about their costs. This decreases the trust of homeowners. By increasing trust, it becomes less risk for a homeowner to invest in the technology, which means more will invest in the technologies.
Heat Pump Pricing Guide
Here are the variables that go into pricing a job. For this, I'm focusing on 15,000 BTU tier 1 manufacturer units. These are ductless units installed as a supplemental heater.
Those are the variables that go into a project, here are the other business items that the good contractors keep in mind for every job.
While it doesn't seem like a customer should care about the profitability of the company doing the installation work, there a few reasons you should care.
Here are all of the variables explained with ranges for what the price will be for a single job.
What Will Make a Job More Expensive?
$3,200 is the average price, but not all jobs are this low. Here are a few factors that will make your job more expensive.
Now, let's get into the business numbers
Back to our original example, let's get into the business numbers.
This article will explain with line by line detail how much it costs to install a single ductless heat pump in Maine. If you need curious about how the technology works or how much it can save, download our free Cold Climate Heat Pump Buyers Guide or read the following free articles
- Heat pumps in Maine: How Much Do they Save?
- How do Cold Climate Heat Pumps Work?
- Cold Climate Heat Pump Review
With this article, you should be able to understand heat pump prices and how why some heat pump jobs are more expensive than the average price of a heat pump. It should also provide a heat pump pricing guide so you can understand proposals that different contractors provide.
We'll focus on the costs for a 15,000 BTU cold climate heat pump for a tier one manufacturer. If you want to buy a heat pump no eBay and put it in, please stop reading ;)
Being a contractor is a tough job, especially an HVAC contractor. Not to be too harsh on you the reader (who is likely a homeowner) but you're really hard to deal with. Most homeowners feel that contractors are either completely incompetent, ripping them off, or making tons of money for not doing a lot of work. Or, in most cases, a combination of both.
Once I had someone ask me, "I can get a heat pump on eBay for $700, why does it cost so much to get it installed by a contractor?" To answer of course, is that this particular homeowners is, shall we say, not educated on high quality work and doesn't understand all of the costs of putting in a heat pump that will work for 15+ years.
But it brings up a valid point. People are willing to pay good money for quality work, if they know what the work is and how much it costs.
My solution for this is very simple, let's just tell people exactly what we're doing and how much it costs.
Our goal is to educate Mainers to provide them the best information so that we can eliminate oil use from the state. It's going to take 10 to 20 years, but we finally have the technology and financing to do it, we just need to start.
One of the articles that makes it really difficult for the contractors to sell is that they're not open and transparent about their costs. This decreases the trust of homeowners. By increasing trust, it becomes less risk for a homeowner to invest in the technology, which means more will invest in the technologies.
Heat Pump Pricing Guide
Here are the variables that go into pricing a job. For this, I'm focusing on 15,000 BTU tier 1 manufacturer units. These are ductless units installed as a supplemental heater.
- Heat pump
- Heat pump brackets
- Heat pump coil
- Heat pump accessories
- HVAC labor
- Electrical equipment
- Electrical labor
- Total job costs
Those are the variables that go into a project, here are the other business items that the good contractors keep in mind for every job.
- Gross Profit
- Business overheard
- Pre-tax profit
- Tax
- Post-tax profit
While it doesn't seem like a customer should care about the profitability of the company doing the installation work, there a few reasons you should care.
- Maintenance. It's best if you get a system installed from a business that will be around for any maintenance issues that come up.
- Organization is a part of the culture of a business. If organization is present in a aspect of a business, it tends to be present in all aspects. This means that well run and profitable businesses tend to hire the best technicians, have better customer service, respond to the customer faster, etc.
- Spot shady characters. If you find a contractor that is quoting well above or well below the average, be afraid because they are cutting some corners. I've heard in Northern Maine people installing equipment for $2,200 before the rebate. This means they're cutting corners because the equipment itself costs $2,200.
Here are all of the variables explained with ranges for what the price will be for a single job.
- Heat pump. A heat pump from a tier 1 manufactures (Mitsubishi, Fujitsu, Daikin, Sanyo) will cost around $1,500 to $1,700. This is assuming the contractor simply calls the distributor, buys a single unit, and picks it up the morning or day before the job. We'll talk about why this is really inefficient below when we talk about the value of group buying.
- Heat pump brackets - $100 In Maine, a high quality installation will be installed on a bracket on the side of the house. This is for two reasons. First, it guarantees that snow will not build up around the unit and decrease airflow during the winter. Second, during the winter the unit runs in defrost cycle and some of the ice on the coil is turned into water. By elevating the heat pump, the water will run away from the unit. If the water stays around the.
- Heat pump coil - $100. In the bottom pan of the condenser, it makes sense to install an electrical coil. This coil melts any ice that could build up in the condenser. This eliminates the risk of damaging the equipment.
- Heat pump line-set and accessories - $100. To install a heat pump you need to connect the inside and outside unit and this requires a "line-set", plus a line-set cover and a few other odds and ends.
- HVAC labor cost - $160 A well trained individual will be able to install a ductless mini-split in 4 hours. A newer person will work for 8 hours. If we assume the full burdened cost of HVAC labor in Maine is $40 dollars per hour, 4 hours cost $160 dollars.
- Electrical equipment - $150. In order to install a heat pump, an electrician needs a disconnect, 30 to 50 feet of conduit (depending on how far the outside unit is from the electrical service), a breaker and wire. The longer the run, the most expensive, but it averages out to about $150 per job.
- Electrical labor - $160. A good electrician will be able to wire up an heat pump in 4 hours or less. An electrician makes around $40 per hour in Maine.
- Miles to the job - $40. Driving costs money. The IRS costs driving time at around $.50 per mile. This means driving to the job and back costs about $40 on average, 80 miles each way.
- Total direct job costs. $2,300. That's the amount of total direct costs for a single job, on average.
What Will Make a Job More Expensive?
$3,200 is the average price, but not all jobs are this low. Here are a few factors that will make your job more expensive.
- Higher capacity equipment, multi-head equipment or ducted equipment. Heat pumps cost more the larger the units. An 18k or 24k BTU costs more than a 15k unit. The size unit that you need depends on another topic. Also, if you want to get a multi-head unit, one with one outside and many inside units, it will be more expensive. Read the Heat Pump Buyers Guide to learn more about this.
- Longer and/or more difficult runs. This is true for both the connection between the heat pumps and the electrical equipment
- Service upgrade. If you're electrical service is not large enough to handle a heat pump, you'll need a new electrical service. This can cost between $2,000 and $4,000 and might not be worth it, unless you were planning on getting a new service anyway.
- Inexperience crew. If the crew is new, it will take them a longer time to install the equipment. This cost might be passed on to you.
- Long travel times. If your house is far from the crew, it might cost a little more simple due to longer travel times.
Now, let's get into the business numbers
Back to our original example, let's get into the business numbers.
- Gross Profit. Most companies will mark-up their job related costs by 30% to 33%. Let's assume they mark up the job by $1,000. The final price comes to $3,300.
- Business overheard. Overheard typically makes up 10% of one third of a their gross margin. Calculating overhear is an article by itself, but I can sum it up like this. All of the costs of running a business that are not associated with a specific job; insurance, software, computers, legal fees, marketing, etc tend to cost about $333 per job.
- Pre-tax profit. This leads a pre-tax profit of $666 per job.
- Taxes. $133. If we assume our business is an LLC, so the profits of the business flow through to the owners, who pay tax on a personal basis. We can assume the tax rate is 20%. $666 times 20% is $133.
- Post-tax profit. This means that for a single job, the business only mades $553, or 16% of the total job cost.
A few points to add.
Is the gross margin high? No.
Some people will look at the gross margin and say, "wow $1,000 of a $3,200 job is a lot". The answer is because the volume of projects is so low, the gross margins have to be high. This is simply because the volume of projects that any one contractor does is still low.
Most contractors only get jobs when people call them and ask them to bid on projects, they're not actively marketing and selling projects.
While the gross margin looks high, you have to look at the net profit of a single job. A single job only produces around $553 dollars of project, for an extremely efficient crew. Crews that take 6 to 8 hours of time make far less money.
What happens if volume increases? Equipment costs are already as low as possible, only labor and margins can be reduced.
One of the things that's interesting is that the heat pump cost is the single most expensive part of the installation. While you'd think that increasing volume could decrease the equipment cost, it doesn't. The reason is that distributors are selling the equipment in massive volume already (because they're selling the equipment to all of the installers) and they make a very low margin on the product.
What this means is that volume in the number of project sold could decrease labor costs and gross margin but the equipment costs themselves are already the bare minimum.
What is the impact of group buying on price?
Large volume means that we can purchase labor in bulk and get jobs with a slightly lower margin.
A contractor needs to make a 33% margin on a product that takes a single day and is not steady work. They're willing to accept a lower margin for 30 projects, because if two projects can be completed in a single day, then it's 15 days of full works. In Maine, that's a lot of work.
Questions?
The goal of this article was to address the most common pricing and cost questions that I get every day.
Is the gross margin high? No.
Some people will look at the gross margin and say, "wow $1,000 of a $3,200 job is a lot". The answer is because the volume of projects is so low, the gross margins have to be high. This is simply because the volume of projects that any one contractor does is still low.
Most contractors only get jobs when people call them and ask them to bid on projects, they're not actively marketing and selling projects.
While the gross margin looks high, you have to look at the net profit of a single job. A single job only produces around $553 dollars of project, for an extremely efficient crew. Crews that take 6 to 8 hours of time make far less money.
What happens if volume increases? Equipment costs are already as low as possible, only labor and margins can be reduced.
One of the things that's interesting is that the heat pump cost is the single most expensive part of the installation. While you'd think that increasing volume could decrease the equipment cost, it doesn't. The reason is that distributors are selling the equipment in massive volume already (because they're selling the equipment to all of the installers) and they make a very low margin on the product.
What this means is that volume in the number of project sold could decrease labor costs and gross margin but the equipment costs themselves are already the bare minimum.
What is the impact of group buying on price?
Large volume means that we can purchase labor in bulk and get jobs with a slightly lower margin.
A contractor needs to make a 33% margin on a product that takes a single day and is not steady work. They're willing to accept a lower margin for 30 projects, because if two projects can be completed in a single day, then it's 15 days of full works. In Maine, that's a lot of work.
Questions?
The goal of this article was to address the most common pricing and cost questions that I get every day.