Author: Brett Knox
August 7, 2024 - 4 MIN. READ
The HVAC industry has been experiencing strong growth as the demand for energy-efficient solutions continues to increase.
Contractors have access to a wide range of opportunities in the residential and commercial spaces, but high inflation can hinder growth. From your customers’ limited HVAC budgets to increasing operating costs, inflation is one of the industry's top challenges now.
Let’s discuss what inflation means for your profit margin and better understand the pitfalls to avoid.
How Are Inflation Costs Impacting the HVAC Industry?
Inflation is impacting the HVAC industry on multiple levels. Managing higher costs in several areas often leads to reduced bottom lines, limiting opportunities for growth.
Raw Materials and the HVAC Supply Chain
Nine out of ten HVAC manufacturers increased their prices in the first half of 2024. Rising prices for raw materials like steel and copper combined with higher fuel costs are behind this trend. Lead times on some parts can also be longer.
Another key trend is the adoption of stricter regulations regarding HVAC performance. While these new rules result in more energy-efficient systems and lower utility bills for customers, they can lead to higher prices for refrigerants and other components that must meet advanced performance requirements.
Fuel Prices
With fuel prices increasing by 1.8% over the past year, completing your daily service route costs more. For contractors who offer maintenance plans, routine HVAC checkups, and free quotes, visiting a customer presents a higher investment and can create increased pressure to derive more value from these visits.
You’ll also face higher costs if you’re in the market to purchase or lease a newer service vehicle with better fuel efficiency.
Labor Costs
Employees are feeling the effects of inflation and expect higher pay to maintain their standard of living. With a shortage of approximately 110,000 HVAC technicians, offering competitive pay and benefits is more important than ever.
Despite rising inflation costs, contractors should explore apprenticeships and training programs to address this ongoing labor shortage.
Interest Rates
High interest rates are increasing the cost of financing for various projects you might need to invest in to grow your business.
This trend is also affecting customers, who often rely on financing for major HVAC upgrades. As a result, you might see more customers opt for repairs rather than replacing an old HVAC system.
Reduced Profit Margins
HVAC contractors face reduced profit margins as materials, services, and labor costs increase. Passing higher costs down to customers can limit growth opportunities and make your business uncompetitive.
Inflation will continue in the near future, and HVAC contractors need a multifaceted strategy to offset rising costs, navigate a sometimes-unpredictable supply chain, and cope with lower profit margins.
Avoid These Two Inflation-Related Pitfalls
Besides affecting your bottom line, rising inflation costs can potentially affect HVAC efficiency and quality. Here’s why these pitfalls are detrimental to HVAC customers.
HVAC Efficiency
The HVAC industry has undergone some remarkable changes over the past few years, with the rise of new solutions that are more energy-efficient than ever. Examples include electric heat pumps that can reduce the average household’s energy bills by $500 a year or ductless mini-split systems that use 60% less energy than radiators.
These modern solutions come at a cost. To offset the effects of inflation, some HVAC contractors might decide against recommending these better-performing solutions and opt for cheaper alternatives.
Sacrificing HVAC efficiency to reduce costs isn’t a smart strategy. It results in higher energy costs for consumers and can reduce customer satisfaction as more consumers embrace sustainable lifestyles.
HVAC Quality
Adjusting procurement strategies to purchase the most affordable HVAC components and parts, regardless of quality and application, can be tempting.
While this approach can help manage the rising cost of HVAC parts in the short term, it affects quality. Making repairs with budget parts will likely lead to more frequent maintenance and higher costs for customers in the long term, without mentioning potential issues with performance and reputation.
Solutions to Explore
As an HVAC contractor, you must take a strategic approach to managing rising costs.
Start by rethinking your procurement process. Adopting a modern process that uses software and other tech tools can streamline operations and help you identify the best prices.
Joining a purchasing program can be a game-changer. It will give you access to group discounts and other perks, making quality HVAC systems and parts more accessible.
Passing on some of the inflationary price hikes to your customers is inevitable, but you can justify higher costs by focusing on energy-efficient solutions, highlighting energy savings, and creating value through customized solutions.
Extending your range of services to offer maintenance contracts or focusing on larger jobs with a higher ROI can also pay off.
Join a Purchasing Program Like Raiven
HVAC costs keep increasing due to inflation. Instead of settling for inferior solutions or low-quality parts, contractors can manage costs by joining a purchasing program.
Join a premier purchasing program like Raiven to maximize your cost savings and simplify your procurement operations. With Raiven, businesses harness collective buying power to realize deep discounts, advantageous service terms, and priority access to critical supply chains. Eliminate the headache of vendor negotiations and enjoy significant reductions in expenses for EV charging stations, lighting, load shedding, tools, wire, panels, conduit, and more.
Gain access to pre-negotiated discounts of 7%-30% from industry-leading manufacturers and distributors, including Alpscontrols, American Filter, Baker Distributing, Carrier, Ferguson, Grainger, Graybar, Home Depot, Koch Filter, Schneider Electric, Sunbelt Rentals, United Rentals, and more!
Raiven is committed to supporting HVAC contractors by providing unbeatable prices on equipment, parts, and maintenance supplies. Experience the convenience of our streamlined purchasing platform for quick and efficient procurement. Other key benefits:
Learn more about how Raiven can help you navigate an HVAC market affected by rising inflation. Visit Raiven to find out more about the many benefits of our purchasing program.
