“We just didn’t make any money on service, so we [went to] flat rate and that’s when we started making money.”
– Service Technician, Doug’s Heating and Air Conditioning
There’s always been a debate between time and materials pricing vs. flat rate pricing. Time and materials is the old way of doing things and worked well in the trades for many years. But times change and processes get better and more efficient. Simply put, a service business can make more money with flat rate pricing and the customers will prefer an up front price. The technicians also favor flat rate pricing because they don’t have to worry about haggling over price. Here are five signs that it’s time to move to flat rate pricing.
1. There’s little or no profit left after employees are paid.
You are in business to provide good service and turn a healthy profit. Flat rate pricing allows you to do both. Many times it’s just a matter of changing your hourly rates. Flat rate pricing allows you to include Unapplied Time into your fee. Unapplied Time is the number of hours your field staff is on the clock, but you can’t bill for their time. During an average day, a field tech can bill about 4 hours of an 8 hour day. It includes things such as time spent driving, picking up parts and callbacks. It also includes paid time off. With time and materials pricing, a business typically only bills for the actual time that the job is being completed whereas flat rate pricing takes into account the unapplied time and overhead to roll it all into one flat rate fee.
2. Cash Flow is always a struggle.
You need money to make money as the old saying goes. Without proper cash flow, a 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 – everything that goes into doing a job right. Your customers are willing to pay more when presented with an upfront price that includes everything.
3. Customers want to negotiate price.
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, then the business suffers. If you don’t give them a discount, they think they are being cheated. This can all be avoided with flat rate pricing because the customer knows the price before the work starts.
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. Why are you marking them up? Of course marking up parts is a standard practice and is usually based on a sliding scale. After all, you have to be compensated for the time the parts sit in your truck and the trouble to restock. With flat rate pricing, that information isn’t available to the customer. It’s simple and straightforward—all rolled up in one single line item.
5. Time is NOT on your side
Unlike the Rolling Stones, customers will be very concerned about the “time” in time and materials pricing. If they hover around you and watch the clock, the technician feels pressured and the customer often thinks they are not moving quickly enough.