One More Time: Five Reasons Why You Must Flat Rate Price

The flat rate versus time & materials pricing debate has long been settled… or has it? Apparently, there are still plumbers who like doing things the hard way and believe there’s nobility in pricing by the hour. Here are five reasons you must flat rate.

1. Flat Rate is Preferred by Consumers 

If this was the only reason to flat rate, it would be enough. Businesses succeed when they do what consumers prefer and consumers prefer flat rate. There are several reasons. First, thanks to advertising campaigns by the US Postal Service, consumers associate flat rate with better pricing.

Second, and maybe more significant, flat rate takes away the surprises for consumers. Dealing with a home service repair generates enough anxiety. Giving a plumber carte blanche to go ahead without an idea how much the final bill will be is over the top stressful and generates some repair turndowns, where the consumer might have given the go-ahead if he had a total.

2. Flat Rate Already Happens with Time & Materials Companies

If you are time & materials, your plumbers probably flat rate a fair amount of the time. Think what happens when the plumber presents the material cost and the hourly rate. The homeowner asks how long it will take, mentally adding up the response charge (i.e., trip charge, truck charge, service charge, or diagnostic charge), materials, and hourly rate times the plumber’s estimated time.

If the repair goes faster than expected, the homeowner is delighted—meaning you leave money on the table compared to flat rate. If it takes longer, the plumber will likely stick to his estimate—meaning you leave money on the table. This is a lose/lose proposition. You might as well flat rate so the overs are balanced by the unders.

3. Flat Rate Makes Pricing Games Unnecessary

Whether you realize it or not, you are playing pricing games with time & materials. You need to lower your hourly rate to something palatable for consumers. Let’s say your stated hourly rate is $125/hour. Of course, you’ve also got a response charge of $89. Because your plumbers are charging by the hour, they hustle through jobs a little faster than they might otherwise.

Let’s say the average repair gets billed at 30 minutes for simplicity. You charge $125/2 or $62.50 for labor, plus your response charge of $89, for a total of $151.50 plus parts (i.e., $62.50 + $89 = $151.50). But that’s just a half hour of billing time. Double it for your effective hourly, which is $303/hour. You think you’re charging $125/hour. In truth, your hourly rate is $303/hour.

4. Flat Rate is Less Prone to Math Errors

If you’re still writing invoices by hand, the more math that’s required, the more opportunities for errors. Granted, tablets and pricing software go a long way to eliminate invoice errors in the field, but the more data fields that have to be input, the more chance for error. If you’re using tables, most pricing software either has flat rate built in or integrates with one of the third-party packages. Why not take advantage of the opportunity and flat rate?

5. Flat Rate with Performance Pay Guarantees Profit

You may not use performance pay today, but you will down the road. It is gradually becoming the standard method of paying field service plumbers. When you use flat rate and performance pay, you are eliminating variables and locking in your targeted gross profit. It’s a beautiful thing.

For help with flat rate of performance pay, turn to the Service Roundtable. For inspiration, combined with solid business concepts, buy Matt Michel’s book, ”Contractor Stories” from Amazon.