There’s always been a debate between time and materials pricing vs flat rate pricing. Time and materials is the old school way of doing things and worked well in the trades for many years. However, times change and processes get better and more efficient.
Simply put, you can make more money with flat rate pricing because many customers prefer an up-front price. Plus, flat it’s easier to calculate for technicians, so it’s a win-win scenario for everyone.
Use this article to:
- Explore the many benefits of this pricing method
- Decide if flat rate pricing is right for your business
- Discover the 5 top signs it’s time to adopt flat rate pricing
Flat Rate Pricing vs Time and Materials Pricing
Before we demonstrate the key signs it’s time to move from time and materials pricing to flat rate pricing, let’s go over the key differences between flat rate pricing and time and materials pricing.
Flat rate pricing is a pricing model where the customer pays a fixed price for a specific job.
This price is agreed upon before the work begins and is typically based on the contractor’s estimate of the time and materials required to complete the job.
Flat rate pricing is a good option for customers who want to know exactly how much they will pay for a project. Also, it can be a good option for contractors who want to avoid surprises with the final cost of a project.
Time and Materials
Time and materials pricing is a pricing model where the customer pays for the actual cost of labor and materials used to complete a project.
This price is typically calculated by multiplying the contractor’s hourly rate by the number of hours worked, and then adding the cost of any materials used.
Time and materials pricing can be a good option for customers who are not sure how much a project will cost. Also, it can be a good option for contractors who want to be paid for the actual time and materials they use to complete a project.
1. Little or No Profit Is Left After Employees Are Paid
Time and materials pricing can lead to little or no profit and can cause cashflow problems.
Since you are in business of providing quality services that turn a healthy profit, flat rate pricing allows you to do both.
In fact, many times it’s just a matter of changing your hourly rates. In addition, there’s usually little or no pushback from customers.
2. Cash Flow Is Always a Struggle
Without proper cash flow, your business struggles. They end up “stealing from Peter to pay Paul” to make up for poor cash flow.
With flat rate, you are charging for your overhead, the time driving and everything that goes into doing a job right.
As a result, your customers are willing to pay more when presented with an upfront price that includes everything. They get no surprises and you get a higher profit in return.
3. Customers Want to Negotiate Pricing
When a customer thinks you are taking too long or didn’t tell them about additional repairs, they demand a discount. This never goes well.
If you give them a discount, the business suffers, and if you don’t give them a discount, they think they are being cheated.
However, this can all be avoided with flat rate pricing because the customer knows the price before the work is even completed.
4. The Internet Makes Everyone an Expert
With time and materials pricing, a customer may go on the internet and look up parts prices.
They will ask you why your “materials” are costing them so much. They don’t account for things like markups, payroll, profits for growth, and the general cost of doing business.
5. Time Is NOT on Your Side
The majority of customers will be very concerned about the “time” in time and materials pricing.
For instance, if they hover around you and watch the clock, the technician feels pressured and the customer often thinks they are not moving quickly enough.
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Use Flat Rate Pricing To Instantly Maximize Profits
Now, you know why many HVAC businesses are making the switch from time and materials pricing to flat rate pricing.
Here are a few key takeaways:
- Its pricing increases cash flow
- Customers prefer an upfront flat rate price with no haggling and no last minute changes
- It’s much easier to sell because the customer can’t pick through and complain about the hourly rate and the materials cost
Cashing in on flat rate pricing can be an instant game-changer for your HVAC business. Customers want it. Your techs prefer it. And, it will make you more money. What’s not to love? Begin implementing it today!