Welcome! Here are the website rules, as well as some tips for using this forum.
Need to contact us? Visit https://heatinghelp.com/contact-us/.
Click here to Find a Contractor in your area.

payback or roi

Options
pipe4zen
pipe4zen Member Posts: 108
New buzz words, payback, roi. 5+years ago, you just replaced a boiler never heard of such a thing.



Does this term have any significance today?

Can you name 10, no 5 things where you the buyer asked what the payback is? ROI, well I'm not your financial advisor, just the heating contractor.



My opinion, and if a client asks, payback has little or no revelance when installing a heating system. Did you ask what the ROI is on your windows, granite counter tops, sound system???



Just ranting.

Comments

  • Robert O'Brien
    Robert O'Brien Member Posts: 3,541
    Options
    If

    it is important to the customer,then my opinion is,I ought to consider it important!  Barring mental cases,I take all concerns seriously.
    To learn more about this professional, click here to visit their ad in Find A Contractor.
  • pipe4zen
    pipe4zen Member Posts: 108
    Options
    ok

    And if you are selling a high efficiency piece of equipment, and the payback is 10,15, 20, 25 years who knows, it's a guessing game anyway, but you know the equipment will have significant monthly savings over the current unit right now!



    What if you are quoting a boiler with radiant floor heat instead of a hot air furnace. How can you the client be possibly asking me about ROI. I'm selling comfort and efficiency. 70 degrees is 70 degrees wether from a floor or from ducts.



    That 25 year "payback" has no value at all. Like the mastercard commercial goes, "priceless".
  • Jean-David Beyer
    Jean-David Beyer Member Posts: 2,666
    Options
    Payback...

    As a customer, I might very much care what the payback is. The extreme case is that the cost of a new boiler would not be recovered during its lifetime in spite of its higher efficiency.



    Imagine I get a mod-con boiler with aluminum heat exchanger that is guaranteed for 15 years, and (making up the numbers here) it costs $1500 more than a regular boiler that is guaranteed for 30 years. That boiler better save me $100/year in fuel cost to pay for the cost of the extra efficiency before it is worn out. And this does not even count the time value of the $1500 extra I paid for it. I would either have to borrow that extra money and pay interest, or take it out of my investments and lose interest or dividends. It costs. I do not know how many home owners think about things like this, but I bet some do. Unless I am an environmental fanatic, I do not care about efficiency per se. I want to know what the total cost of ownership of the thing is; i.e., the cost to buy and install the beast, plus the maintenance and fuel costs throughout its lifetime.
  • hot_rod
    hot_rod Member Posts: 22,258
    Options
    software programs

    can help show the customer ROI numbers. Most all the solar simulation programs have the economic module included.



    RET Screen is a free program out of Canada. It does all sorts of energy modeling and solar design functions.



    With a program you can show them the best option be it a high efficiency boiler, heat pump, geo, solar thermal, solar PV, etc.



    Customers are getting more concerned about energy costs, just as they are MPG on new vehicles.



    hr
    Bob "hot rod" Rohr
    trainer for Caleffi NA
    Living the hydronic dream
  • Larry Weingarten
    Larry Weingarten Member Posts: 3,335
    Options
    metrics

    I must be gaining curmudgeon status because I don't like either payback or ROI. The focus is too narrow.   Consider life cycle cost as a truer measure of knowing where you really sit with any piece of equipment.  Consider all money in, all money out and when.  It's also silly to apply financial metrics to some things.  What's the ROI on that dinner I just bought?  Most people do replace their heater when the old one fails and the payback is nearly instant.... Their family is not freezing.  Gotta ask the right questions.



    Yours, Curlarrymudgeon
  • pipe4zen
    pipe4zen Member Posts: 108
    Options
    all factors

    Good point, most just look at total costs of new system, And,

    You must subtract the cost of the other option, and only figure the difference.

    Then guess what the increase in fuel, electricity, etc is going to be in 10. 15, 20 years ,,,,

    In addition, how do you pro rate a piece of equipment value. after say the warranty for option A or B from manufacturer has dropped.

    This is a silly way to sell a piece of equipment, I won't even attempt any longer to respond to the payback question, other than asking what is the payback on that late model car in the driveway.....

    I'm with you Larry, we're just grumpy old men
  • Jean-David Beyer
    Jean-David Beyer Member Posts: 2,666
    Options
    I am just a grumpy old customer.

    Actually, I am not grumpy at all.



    The manufacturer of my boiler has a calculator on their web site that looks good, but in my opinion, it is not. They make lots of boilers; oil or gas, mostly hot water, but some steam, condensing and not condensing, ... . You can enter things like which boiler (you can enter two boilers) and describe your existing boiler, etc. It makes two assumptions that reduce the value of their calculator. First, if your existing boiler is oil, it assumes the replacement one will be oil too. For me, the first reason I was replacing the boiler was that it was oil, and I did not want to have to deal with leaks from the in-ground oil tank. (Unfortunately, I was too late.) The second, and to me fatal, assumption was that the cost of keeping my old boiler was zero. That is a valid assumption only if the existing boiler had the same life expentency going forward as the new boiler would have. And since the old boiler was about 55 years old, that seemed a stupid assumption. I would also need to know the prices, not only of the boiler, but the rest of the job, and I did not know them. I could find out the cost of the boiler from the Internet, but that would not be fair to the contractor. I do not bring my food to a restaurant and ask them to cook it.



    I would actually like to know the total cost of ownership of a car I might buy, and the cost of ownership of the car I have now. Price of car new and trade-in value. Same with the car I have now. Insurance, gas, oil, tires, maintenance, interest on loan, etc. Because I do not drive much, perhaps I should take taxis and rent a car for longer trips. I figured that out once and it turned out pretty close. But that was a coupla decades ago, and I got the car.



    I did not figure it out for my new mod|con. For one thing, I had little idea how long it would last. I did not know the cost of annual service. I would like to think it will last 30 years, because I am not likely to last longer than that. The old oil unit had to go, before it left me from old age. Because I have serious environmental convections, it had to be a mod|con. And a mod|con would work for me because most of my heat comes from an at-grade slab radiant setup that always would condense. I greatly increased the baseboard length upstairs to permit lower temperature water up there, so it, too, should condense almost all the time. But I do not know if another brand would have a smaller total cost of ownership or not. Consumer Reports does not even rate boilers, and except for cars, does not help in their ratings with things like total lifetime costs of most things.
  • eluv8
    eluv8 Member Posts: 174
    edited August 2010
    Options
    as a profesional, a couple of thoughts

    The homeowners expectation is that we know not only what we are doing but why. We are asked to be more than simply installers anymore, but system designers as well.



    Have you ever gone to another contractors jobsite just to look around or been called to that job that never seems to work right, and left thinking; How did that guy ever get licensed and my favorite how the heck did that job pass an inspection!



    Asking ROI or payback is really another way for the homeowner or end user to not only justify newer technology but separate a contractor who might be blowing smoke to sell the latest and greatest from a contractor who truly knows what he or she is doing and why.



    I am sure the good contractors already are doing simple ROI and Payback calculations perhaps without knowing it. If ROI and Payback were not a concern then why not quote a MOD/CON boiler in every job. After all its the best right.



    The truth is times are changing, the customer is more informed, their is no one product that works for every job. We have low and high temp systems, high and low pressure steam, 1 pipe or 2 pipe, dhw, staple up, thin slab, thick slabs, insulation or no insulation, what type of insulation, thin plates or thick plates, above the joist or below the joist, constant circulation or on off, condensing, near condensing, non-condensing, or steam, hydroheat, baseboard, radiators, cieling heat, wall heat or slab heat, zoning and controls, radiant cooling and I have not even listed a single manufacture yet.



    In many cases a Payback or ROI calculation only needs to be done once or twice in an area. Once you know what your energy costs are its pretty simple to apply the rational to each project. If a customer wants to be specific on his or her own home or building rather than have generalities than include that as part of a design package and charge them for your services. As posted above Retscreen is a good package, you also might look into BLCC5 as well I think it has a lower learning curve. Retscreen is a very powerful tool, but it can be complicated.



    A good contractor will size boilers based on a heat loss, why not chose the equipment based on ROI and Payback calculations as well.



    If we do not provide this information who will?



    In today's market it is time to separate the men from the boys and send these contractors and manufactures who give hydronic heating a bad name packing. In my opinion ROI and Payback is another way of doing that.
  • Mad Dog_2
    Mad Dog_2 Member Posts: 7,109
    Options
    Its a fair question, but i hear ya too

    I give the best and most honest answers I can, but some extreme customers want a chart with figures and guarantees....they are rare, thank the Lord. I have found, through 25 years of doing this, some reading, and manufacturer literature that my guesstimates have generally worked out, especially with the mod cons, i.e., the folks we have followed up with - and ones who kept good records saved about what we said and usually a little more ( I prefer to understate just in case)  Mad Dog
  • CMadatMe
    CMadatMe Member Posts: 3,086
    Options
    Payback

    Come on for real. We all know that 95% of heating systems are oversized. You can start with the heat loss. How many homes have you been in where the loss is only 40-50K at design and there's a 100K boiler bouncing 100k all year long. Could also use the simple, for every 3 degrees I can run a system below 180 I save 1 percent of fuel. I never talk dollars in payback. I talk saving therms or gallons. I give a general savings over the existing system based on my loss and design. You can't tell where fuel prices are going unless your on Wall Street..



    I think a consumer asking is a legitimate question. If you have a heat loss in hand you should as a pro be able to give a reasonable answer based on the loss and maybe more importantly, your design water temps. As Al Davis would say, It's all math baby!

    There was an error rendering this rich post.

  • pipe4zen
    pipe4zen Member Posts: 108
    Options
    how long??

    Should a reasonable payback be. Should the payback be before the equipment warranty runs out. Should it be before the expected time before something is expected to need replacing, should it be before the homeowners decides to move, and if the plan on living in the house for ever, then should it be before the mortgage ends, especially if a new job where mechanical costs are rolled into mortgage.??



    There really is no correct answer to the payback question, as always the real answer is "It Depends"



    If you want the new boiler will have a two year payback, then it will, just put the house on the market, increase house value because of new mechanicals, and you got your payback.



    I will maintain my argument that heating pros should not be calculating payback, with or without the software, leave that for the homeowner or financial advisors, my job is to provide just the facts , mam, just the facts.
  • Bob Bona_4
    Bob Bona_4 Member Posts: 2,083
    Options
    It's

    too much of a moving target for me to spend time on. I put my energies into offering good/better/best, with performance data, and advise the client.

    Additionally I feel that since we are not dealing with a sole commodity-the appliance itself. Purchase price varies with site conditions.  
  • CMadatMe
    CMadatMe Member Posts: 3,086
    Options
    Time

    I don't think there is a definitive answer to that question. If I'm saving whichever amount it is on a yearly bases that's payback. To say you will recoup 100% in x amount of time is a crap shoot.

    There was an error rendering this rich post.

  • Jamie Hall
    Jamie Hall Member Posts: 23,439
    Options
    Sort of general thoughts

    Back in another life, one of the things I had to do from time to time was calculate cost/time and cost/benefit ratios for various (usually large) engineering projects, as part of evaluating the best design path to follow.



    It is not all that difficult to do -- provided one makes some assumptions.  Some of them can be made moderately accurately for some types of projects.  Some of them are pure blue sky.



    Cost of money.  If the project is to be paid for by bonding, and only if, the cost of money can be quantified reasonably accurately.  Otherwise, it's a guessing game for anything farther out than six months.  This only becomes a real problem, though, if there are two (or more) options which differ significantly in capital costs, but also offer significantly different operations or maintenance costs (about which more below).



    Operating cost.  If the operating cost includes fuel (like a boiler...), then again anything much beyond six months gets pretty shaky, unless the project is big enough to have long term fuel contracts or hedges on the futures market.  I dare say there are very few home owners who do that past a year...



    Maintenance costs.  This can be a significant factor, and should be included.  Oddly, given experience with the equipment it is the most susceptible to long range estimating, as inflation rates (which affect it) are significantly less volatile than either operating or money costs.



    Bottom line?  I would not care to put my stamp on a cost/benefit or cost/time analysis for a home heating system...
    Br. Jamie, osb
    Building superintendent/caretaker, 7200 sq. ft. historic house museum with dependencies in New England
  • Mad Dog_2
    Mad Dog_2 Member Posts: 7,109
    Options
    Thats the key right there......charge for it

    You can't spend all that time doing a heat loss and design for a potential customer and not charge for it....its only fair and they should understand, but sometimes don't.  Mad Dog
  • Techman
    Techman Member Posts: 2,144
    Options
    Payback

    I agree w/ most of what most of you said.I think the payback answer is best as compared to ROI. Last week we replaced a Variable Speed Blower motor/controller assembly on a 10 year old Carrier system.The cost was 5-6 times a regular PSC blower motor. I hope the customer save a lot of money on their past ten years of electrical savings.There were tear drop stains on the check! I know it is hard to figure in parts failurers costs and future labor rares ,but it is part of the ROI
  • clammy
    clammy Member Posts: 3,113
    Options
    after yearly maintance and part replaement is ther anyROI?

    Just stirring the pot a bit  Question after saving all that fuel with a mod con does the required maintance costs like year cleaning of the heat exhanger ,checking ph of condensate after the neutralizer and possible cleaning of condensate pump and of course combustion anyzler and the rest of the required maintance  required by the manafactures kinda offset the savings ? i know when i have installed mod cons i always tell them they need yearly maintance(before the install not after the fact)most don't like that fact and rarely return my reminder call,and the one who i had to replace the gas valve blower **** was not to happy just wondering if that is factored into that ROI i do not think so more and more i install a good quality CI boiler with eletronic ing and that's that after a heat lose and all i feel more and more ther's ahigher ROI that way peae and good luck clammy just stirring the pot
    R.A. Calmbacher L.L.C. HVAC
    NJ Master HVAC Lic.
    Mahwah, NJ
    Specializing in steam and hydronic heating
  • CMadatMe
    CMadatMe Member Posts: 3,086
    edited August 2010
    Options
    Service Costs

    Not directed at you Clammy just stirring the pot with a few extra swirls. Why do we feel that we have to tell customers a mod/con requires maintance yearly but a cast iron/atmospheric vented gas boiler does not? Why do we cut ourselfs short and not sell maintenace contracts? Are we not confident in the equipment we install? Are we not confident in the manufacture that makes that piece of equipment to stand by us? If so, why are we selling that particular piece of equipment?



    Has anyone tried adding a 5 yr service contract to your install price and gave the customer the choice before the job whether they want it or not. I can't tell you how many electronic items I have purchased where I go to the checkout counter and the cashier asks me on the spot if I want the extra warranty.



    If Best Buy, Radio Shack and heck Walmart can have a 16 yr old kid at the register asking you at checkout if you want to purchase and extended warranty before you whip out the credit card or hard earned cash why can't you.

    There was an error rendering this rich post.

This discussion has been closed.