The next chapter of pricing in HVAC

There’s been chatter lately about whether dynamic pricing will replace flat rate as the HVAC industry’s go-to pricing model. So, to get some perspective, we asked Vincent Payen, ServiceTitan’s VP of Pro Products, who’s working on the technology, to share his thoughts.

• Catch up: Dynamic pricing is when prices are adjusted in real-time based on demand — daily instead of seasonally, for example. 

Why it matters: The HVAC industry is understaffed — and weather-dependent. 

• “Properly managing daytime vs after-hours pricing, as well as surge pricing driven by seasonal demand or weather, can drive over 10% in additional margin improvements,” Payen told Homepros in an email.

• The 10% figure is based on ServiceTitan’s internal data.

Details: There are two parts of dynamic pricing: Managing real-time material costs, and adjusting prices based on demand. 

• “Many do not update this regularly enough. When contractors use pricebook automation to automatically reflect [the] latest material costs, they ensure they do not have margin erosion,” Payen wrote. 

• On the flip side, a range of factors need to be considered to adjust prices daily, including “service capacity, current and expected future demand, willingness to pay, [and] labor and material costs,” he added.

• “All of this should be optimized in real-time. This is why very few have achieved true dynamic pricing in the trades.”

Our question: Is the technology there yet for this to work? According to Payen, “Absolutely.” 

• “We are leveraging all the data we have from real-time dispatch, capacity, marketing, historical trends, and expected customer demand to build models that will soon be used to automate pricing and capacity management in real-time,” he explained.

• He noted the speed of AI advancements is making this achievable. 

Yes, but: There will be challenges. Customers may resist surge pricing like in other industries, and contractors may fear adoption. 

• “As we develop and roll out more AI-powered systems, contractors will need to trust the technology to do the right thing,” he wrote. 

• “While this is not always easy and can take a leap of faith, the upside to gain will be immense.”

The bottom line: There are some hurdles to overcome before dynamic pricing becomes the industry’s go-to model, but it shows promise — and it’s coming.