Why do Geothermal Systems cost so much?
Last Post 11 Apr 2011 12:03 AM by robinnc. 188 Replies.
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ICFHybridUser is Offline
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09 Jan 2011 06:59 PM
What is that company's price for the whole job? Why not use them for the whole job instead of subbing everything out?
No one asked about the whole job. However, off the cuff I'd say that one reason might be that not everyone does everything well or efficiently.
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10 Jan 2011 07:45 PM
Posted By ICFHybrid on 08 Jan 2011 10:51 AM
Labor Rate: $25.00
vacation, sick leave: $2.00
health insurance: $2.75
Base Rate: $29.75

Employer FICA: $1.84
Employer Medicare: $0.43
FUTA: $0.30
SUTA: $0.60
Comp: $3.00

$35.92/hr

Trucks are usually Overhead, but you can take it out of the $14.00 an hour that is still on the table.

'Course the guys drive to job sites which is not billable time so it seems like payroll, but it might be overhead (i'm not a CPA though a few are trying to educate me here). So the guys, with prep and drive time and supply house visits, might work six billable to 8 paid hours (if I'm lucky). So with your math that is most of $72 more, which adds $12/hour onto my billable time.....or about $50 hour to employ a $25/hour guy. This ignores other "overhead" (or whatever) such as the 3 hours of design and presentation to sell the job in the first place as well as truck, truck insurance, gas.........
Heck Geome alone gets about 30 free man hours- what with 10 estimates for every job.

j
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10 Jan 2011 08:08 PM
LoL.  Only 6 for geothermal!  Siding may be approaching 10.

Great point on the non-billable time.  You need a transporter to save on drive time.  You could depreciate the expense (not investment).  Just don't get a fly in there with the crew.
Homeowner with WF Envision NDV038 (packaged) & NDZ026 (split), one 3000' 4 pipe closed horizontal ground loop, Prestige thermostats, desuperheaters, 85 gal. Marathon.
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10 Jan 2011 08:15 PM
Interestingly enough, at this guy's shop you DO get charged for the drive time. That ought to make you happier. Further to that, he reveals that he will probably put an $18/hr guy on the job with the $25/hr guy, so now you're at least another $350 to the good. I also like to use him because his dispatcher spends a few minutes with you to determine the nature of the issue and I can't remember a time when the truck had to go to "the supply house" for parts. On an new install, I doubt that they will have to, either.

I am going to have to reiterate (again) that I did not lay out a plan for doing business in the HVAC field. If you want to charge an additional $6,000 to make up for the thirty free man hours expended on marketing and unfulfilled bids, that's up to you. Don't get angry if I point out that might contribute to having to do 10 estimates for every job captured, however.

My original post had to do with the misrepresentation by the OP in claiming payroll taxes of 30% and including Sales Tax on the unit as a business expense, among other things, in an apparent effort to pump up the cost, not in how you do business personally.
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10 Jan 2011 08:45 PM
Understand ICF I am not offended, just offering the other side as you are trying to. I don't think you would find my prices have 6 thousand extra dollars in anything.
10 estimates are not what we go through to find a job I was simply joking and GM graciously took the barb with humor.
I'm curious how you think guys get materials for an install without supply house trips (by someone). Did they never arrive with materials on their truck? Did someone else (who must be paid) deliver it?
OP was vague and liberal with some numbers, but when you overly dissect that, it would make sense to discuss what isn't itemized as well; vs consider it a complete list. Perhaps we can see it as a mechanic's attempt to identify costs for the readers here.
I'm sure you are one of the good guys and I have no quarrel with agreeing there are a lot more contributors to cost and overhead, many of which someone can avoid by being the primary contractor or doing the whole thing themselves.
j
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11 Jan 2011 12:22 AM
[quote]I'm curious how you think guys get materials for an install without supply house trips (by someone). Did they never arrive with materials on their truck? Did someone else (who must be paid) deliver it?[/quote]It's a big place.  The trucks get stocked.  The materials for an install collect back at the ranch until it is time to go out to do the install and they arrive with the service guys.  I'm sure that if they need something, they try to get it before the service call so time isn't wasted.  After all, as we can see, time is money.  You say you don't get extra money, but aren't you trying to bump the rate to account for the the 2 hours a day of work that the guys and the truck (aren't?) doing?  In any case, if they are using their time to pickup and deliver parts, presumably there is a markup that will account for that, isn't there?

One strategy in the service business has always been to have a low hourly rate and then take a lot of time to do the work versus someone who operates more efficiently.  In this case, the businessman knows his rate, operates efficiently and knows what he can discount to and still stay in business.

[quote]many of which someone can avoid by being the primary contractor or doing the whole thing themselves[/quote]Well, you have to have some knowledge of what you are doing.  I'm sure the corollary to this is that consumers who don't have a clue about HVAC are the ones who end up paying the most.

You probably already know that in 2008, The Indiana Office of Energy and Defense Development analyzed (for a rebate program) the average, fully installed cost of 5 ton Geothermal systems at $16,865.
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11 Jan 2011 01:30 AM
Gas prices in Indiana are $2.88 gallon while in NY they are $3.50+ Do you know how much it costs to fuel vehicles for a company with 50+ employees?
In order to be efficient, trucks are stocked with parts. There are a lot of expensive parts in service trucks for the convenience of the homeowner. So they don't have to pay the NATE certified service technician to drive for a parts run. We have to outlay that money until the actual part is used and then buy it again to replenish the trucks.
We have to pay for people to answer phones, accounting dept to help pay for our employees.
Lights, office furniture, copy machines, faxes, cars, trucks, insurance, Auto, Health, Liability,.
Computers, generators for jobs with no electric, gas for those generators, toe motors to safely move equipment,
refrigerant recycle charges, if someone makes a mistake and combines refrigerant we are charged extra charge, someone has to pay for those bottles. We have trash charges from junk we bring back from jobs.
There's a power cart to safely move the geothermal units in customers homes so there is no property damage. or employee injuries, All of those mechanical things need maintenance, they don't last forever being used day after day.
Not to mention weekly training where we pay employees to learn installation techniques. Or learn how to install the latest accessories like zoning systems, humidifiers, etc.
We even pay employees to sit bi annually with code inspectors to stay on top of code requirements.
Our warranty calls have the same priority as no heat calls because our customers are extremely important to us. We also need to advertise so those customers know we exist.

I could go on and on. Owner's are not just pocketing the difference in the hourly pay or over charging to rake in the cash. There are a lot of unseen charges.

Good, ethical HVAC companies charge enough to stay in business, to honor warranties, create jobs, create a safe working environment, expand to stay in business for the future and give back to the community.
Profit is not a dirty word.

If you want to buy a 5 ton geoexchange system in Indiana for $16,865 from government pricing, have at it. God knows government bids never have over runs. I'm not sure about any of the other contractors here but both of our geothermal suppliers raised prices in 20111  3 to 5% across the board due to the commodities market. We can't absorb that kind of a price increase and stay in business. Just think about it, most of what we use, steel, copper, metal, plastic, labor & fuel always rise in cost.
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11 Jan 2011 08:58 AM
If you want to buy a 5 ton geoexchange system in Indiana for $16,865 from government pricing, have at it. God knows government bids never have over runs.
The "government" had nothing to do with setting the pricing. All the OEDD did was compile the data on the cost of systems installed by private companies during a rebate program in 2008.
There are a lot of unseen charges.
As a consumer, I'm not sure I need to hear about your expenses and I've already stated a number of times that I don't care how you personally do business. Whether I'm getting an estimate or paying for work done, I expect to see a fair accounting of labor and materials on my work. The rate I obtained for this install has nothing to do with you.

both of our geothermal suppliers raised prices in 20111 3 to 5% across the board due to the commodities market.
Okay, now I am curious about that. 2008 was generally the peak of the "commodities markets". Did you see any corresponding price reductions in the ensuing period?
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11 Jan 2011 10:34 AM
Posted By ICFHybrid on 11 Jan 2011 12:22 AM
It's a big place.  The trucks get stocked.  The materials for an install collect back at the ranch until it is time to go out to do the install and they arrive with the service guys.  I'm sure that if they need something, they try to get it before the service call so time isn't wasted.  After all, as we can see, time is money. 

You say you don't get extra money, but aren't you trying to bump the rate to account for the the 2 hours a day of work that the guys and the truck (aren't?) doing?  In any case, if they are using their time to pickup and deliver parts, presumably there is a markup that will account for that, isn't there?

One strategy in the service business has always been to have a low hourly rate and then take a lot of time to do the work versus someone who operates more efficiently.  In this case, the businessman knows his rate, operates efficiently and knows what he can discount to and still stay in business.

[quote]many of which someone can avoid by being the primary contractor or doing the whole thing themselves[/quote]Well, you have to have some knowledge of what you are doing.  I'm sure the corollary to this is that consumers who don't have a clue about HVAC are the ones who end up paying the most.

You probably already know that in 2008, The Indiana Office of Energy and Defense Development analyzed (for a rebate program) the average, fully installed cost of 5 ton Geothermal systems at $16,865.


Hoped you would take the olive branch and agree to disagree but now you are just being ridiculous. You suggest "it's a big place" so- what- it doesn't cost money to purchase, pick-up or inventory materials? That's silly. You are sure that if they need something they "try to get it before the service call so time isn't wasted". Really? A wage is paid regardless of when my guys pick-up supplies.

My quote was I don't get an extra $6,000 for anything on a geo job. You go on to say presumably there is a mark-up to cover time to pick-up parts......Here is the problem with conversations like this, people like you mention the price of the parts, pull numbers out of a hat for labor and over head and then tell us what we should charge. Then out of the other side of your mouth you say "presumably there is a mark-up........" while trying to portray our costs as minimal. What number have you arbitrally assigned to this mark-up? Is it on all things or just ducts?

Don't know anyone in any business with the strategy of the lowest possible rate for their time. I do know companies with loss leader marketing plan. For instance; a big orange store that offers a low price on a water heater and installation. Installer then comes out and tells you "you need a new vent pipe and shut off valve" (at considerable extra expense) one such unit I inspected was more than $950 all told for a 40 gallon nat gas gravity vent water heater......but their "labor rate was low" at the store.... or the furnace cleaning for $20- but you need this, this and that.......


One must know what they are doing to install geo? Are you sure? Would you say this is a skill that deserves compensation? Afterall someone without these skills "ends up paying the most."

You may have noticed that I already mentioned Geo is cheaper in Indiana. Our new neighbors hail from there and speak often of how much more it costs to live here- gas, insurance, realestate etc. Think that affects cost of doing business? You missed the DOE's estimated $2,500/ton closed loop installed cost. since you believe everything you read on the internet, would you like to point me to an example of a 2 ton closed loop geo system installed turn-key for $5,000?

I thought you were trying to honestly dissect costs. You now seem bent on discrediting the obvious. Curiously your own arguments are coming closer to supporting mine.
i.e. I must cover cost of material pick-up somehow (whether I happen to figure it in my cost/man hour or as overhead; it costs)......Installations are cheap in Indiana (so it's fair to say geography is related to cost).........One must know what they are doing to install geo (so there is a design and skill element to geo that must be compensed).......presumably there is a mark-up (ahhh perhaps this is how geo can cost more than the sum of all parts and labor).......lower labor price = more time to do the job (so folks who charge less for their time cost you as much or more by taking longer)............
 
No one has a gun to their heads to buy geo. If you don't want to pay what the experts in your area get to do it- do it yourself or don't buy. You won't get anywhere arguing with someone on the internet about what you think a fair price is.

Joe
Joe Hardin
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www.doityourselfgeothermal.com
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11 Jan 2011 11:04 AM
Posted By joe.ami on 11 Jan 2011 10:34 AM
You won't get anywhere arguing with someone on the internet about what you think a fair price is.
Joe, he can earn "troll points" that can be used to purchase things like clubs, wart cream, etc., at the local troll-mart.

It's common sense that if the numbers work, do it, if the numbers don't, then don't do it.  Get quotes and make a decision.  What else is relevant.
Homeowner with WF Envision NDV038 (packaged) & NDZ026 (split), one 3000' 4 pipe closed horizontal ground loop, Prestige thermostats, desuperheaters, 85 gal. Marathon.
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11 Jan 2011 11:06 AM
RE commodities question, we did see unprecedented jumps in equipment cost in 2008 due to peak pricing. We did see reductions in things like split system line sets when copper came down, but heat pumps, furnaces etc. go up ~1-5%/yr aside from sales I've never seen one come down.
j
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11 Jan 2011 11:07 AM
This must be at least the fourth time I've had to say that I have no interest in your particular location or your business practices. My original post had to do with some obviously incorrect claims that inflated the cost of installing GT. You would be exceedingly foolish to try and support the notion of "30% payroll taxes" or the installer having sales tax as an expense.

The numbers I presented are completely viable. You might not like them and they might not apply to your business situation, but they will work. One of my alternatives was a $44,000 bid in which the installer claimed his cost on the HP was nearly double what I knew it to be and in which he couldn't justify the labor charges, either.

I am a big proponent of new, more efficient technology. I also realize there are upfront costs for early adopters. At some point, you, as a member of the industry need to realize that competitive bidding is going to be employed to bring the technology into greater usage.
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11 Jan 2011 11:19 AM
You suggest "it's a big place" so- what- it doesn't cost money to purchase, pick-up or inventory materials?
"It's a big place" means that I'd rather do business with a place that can stock their vans allocating 1/3 of an hour of a dedicated person vs two guys spending 2 hours driving over to the supply house to make eyes at the counter clerk.
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11 Jan 2011 11:26 AM
heat pumps, furnaces etc. go up ~1-5%/yr aside from sales I've never seen one come down.
Nothing wrong with sales from the consumer's point of view, but I guess one way to look at that is that I'm sure the technology and efficiency of the units is increasing as well, right?
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11 Jan 2011 11:33 AM
Posted By ICFHybrid on 11 Jan 2011 11:07 AM 
At some point, you, as a member of the industry need to realize that competitive bidding is going to be employed to bring the technology into greater usage.


I know you keep saying its about the OP but you keep saying things like this. When you said "you" in this comment is that about the OP? You tie my hands and require response with your outrageous assumptions. Do you really think the day has not come where I must competitively bid for a job? Do you really think there was ever a day when I didn't?

No I don't pay 30% payroll tax and no that isn't a valid #, but I have demonstrated to you that having an employee costs me far more than the visible billable hours + payroll tax. I'm not trying to support his prices, I already mentioned mine are lower.

Joe Hardin
www.amicontracting.com
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www.doityourselfgeothermal.com
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11 Jan 2011 12:05 PM
I know you keep saying its about the OP but you keep saying things like this. When you said "you" in this comment is that about the OP?
There is obviously some sensitivity on this issue. You are hammering on me for points outside of what I commented on and I've got another one of you calling me a troll in public. My comment was more a reaction to why that was happening; it was a collective "you" so I'm glad to hear you, at least, are accustomed to competitive bidding.

If I had to analyze how this all worked, I would say that one of the reasons someone is able to field a big crew is that they have been somewhat successful in limiting their competition. I don't know how many overpriced ($44,000 in this case) installs a guy has to do to stay in business, but I bet it isn't that many.
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11 Jan 2011 01:06 PM
Posted By ICFHybrid on 11 Jan 2011 12:05 PM
I know you keep saying its about the OP but you keep saying things like this. When you said "you" in this comment is that about the OP?
1) You are hammering on me for points outside of what I commented on.
2) My comment was more a reaction to why that was happening; it was a collective "you" so I'm glad to hear you, at least, are accustomed to competitive bidding.
3) If I had to analyze how this all worked, I would say that one of the reasons someone is able to field a big crew is that they have been somewhat successful in limiting their competition. I don't know how many overpriced ($44,000 in this case) installs a guy has to do to stay in business, but I bet it isn't that many.


1) What have I "hammered" you on that wasn't accompanied by a quote from you?
2) You continue to insult a collective "us" with thinly veiled allegations of wasteful and gouging business tactics. Your urban legend contribution is a perfect example of prejudice and insult that somebody who spends time trying to help geo owners ("us) would be offended by.
3) If I had to analyze how you work I would say one of the ways you like to try to bully a point through is by ignoring all counterpoints to your posistion. Many times I have said costs vary regionally I would not try to defend that price tag on a 4 ton horizontal in my AO.
You throw in the added bonus of arrogantly suggesting everyone else is a lemming and that you alone are able to identify overpriced service. How else could "someone" "limit" their competition and sell only a few systems a year (grossly overpriced) to stay in business.
Is it really a mystery to you that people here are getting cranky with you? The real mystery is that I have not

j
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11 Jan 2011 02:38 PM
It's pretty simple, really. I laid out a three point plan to install a system. Package purchase. Ducting. Install. I haven't deviated much from talking about that. You want to tell us you have to do it for more? - Fine. How many times do I have to say I don't care and I'm not weighing in on your business practices (except when questioned)?

My "urban legend" contribution is taken directly from recent experience. When "you" (as a consumer) get single-number quotes with no breakdown and the first response to your questioning has to do with Tax Credit offset, it doesn't take a genius to figure it out.

Your lemming comment is uncalled for; it is pretty basic to understand that highball pricing tactics must yield dividends at least occasionally, else why would they be employed?

I'm pretty sure you get all of this, so why are you drawing it out even more? If you want to continue with the $14/hr that was left on the table, I'd be happy to do it with you, but it might be better in private.
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11 Jan 2011 05:48 PM
I like your spunk ICFHybrid.   One issue consumers have with geothermal and HVAC in general is that they think it's all the same and therefore should be priced the same. But it isn't the same. That geo system in Indiana might be like the old HydroHeat systems which were and still are a nightmare. Or others that have been field tested and constantly updated like Waterfurnace or Climate Master. They have more technology associated with them although in theory Geothermal systems are simple.
I'm sure Joe and others on this forum have seen jobs that were priced with too low of a margin and when the installer runs into a problem and they've wasted the allotted time to fix that problem then they are forced to "Slam it in" to make it work and if there is a problem they fix it later. We don't do businesses like that. We take care to see that each aspect as a whole is done to our Loop specs, Duct specs and Equipment specs.

I understand your mission to get what you think is a "Fair" accounting of costs. Most consumers are so conditioned to price shopping they think if they have gotten the lowest price, then they've gotten the best deal. With geothermal that is most certainly not the case. With geothermal you get what you pay for. The most important aspect of a geothermal installation is the experience of the installer, period. Not the price, not the brand or anything like that. I didn't go to school to learn how different types of soils and depth of soils react in the ground to design a loop system according to your regional temps in relation to your passive or active solar losses or gains in your home to give it away for cheap.

There are different companies, especially new start ups, that rely on manufactures recommendations on loop sizing and drilling from a one or two day class. All of a sudden they are in the geothermal business.

I once had a hernia operation and asked the doctor for an accounting of why a 30 minute operation costs $5,000 (back in the late 80's). I wanted an accounting of materials used, etc. With the exception of the drugs listed and costs for the facility (which only totaled $800 back then) there was still the matter of the remaining $4,200. The doctor proceeded to write $1 for the needle, 12 cents for the thread and $4,198.88 for knowing how to do it.

That is the crux of your argument. Yes, you have shown that you can get materials cheaper. And we are trying to show you that we are paid in relation to our knowledge and experience. You can choose to purchase it or not. But just because we charge more, you think we are crooks and I in particular resent that. (I know you weren't personally directing it at me) and I don't think you are a lemming. I feel you have a thought of how geothermal should be priced and think it should be black and white. If I may use a simple analogy. Of course I don't know what or how you think, but I feel you are along the lines that pricing should be like this: Cost of materials + Reasonable Labor + a modest profit = ICFHybrids perfect price. And we are trying to explain that there is a HUGE variable with a dangling participle in their added to the equation and that variable is experience. I don't think that any of us have tried to explain the value in experience. We've just bantered back and forth on the cost of materials and doing business. When someone chooses me to install their geothermal system they are benefiting from all the mistakes I made in the past. I'm saving them horror stories we read about here in this forum. How much is that worth to you? Ahh! you see..it's a variable.

I sold geothermal systems before there ever was a tax credit and people gladly paid the price.

If geothermal is the right solution for your home and your finances and you see the benefit of what you consider to be a reasonable payback I hope you choose geothermal and I hope you have a great experience with it for years to come.
John
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11 Jan 2011 05:55 PM
Why John, if you sold systems before the 30% tax credit, what are you doing with your extra 25% mark up these days?
j
Joe Hardin
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