“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. Some service businesses can make more money with flat rate pricing, and many customers prefer an up front price.
Some technicians also favor flat rate pricing because they don’t have to worry as much about adjusting price due to unforeseen circumstances. In this post, we’ll cover the following four signs that it might be time to consider flat rate pricing:
- Low profits
- Cash flow struggles
- Customers attempting to negotiate price
- Watching the clock
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 adjusting your hourly rates.
Flat rate pricing allows you to easily 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 may bill about 5 hours of an 8 hour day. Unapplied time includes all the items outside of hourly pay and parts such as as time spent driving, picking up parts and callbacks. You also must factor in paid time off.
With time and materials pricing, a business typically bills for the actual time that the job is being completed, plus a trip fee. Flat rate pricing can better allow for adding 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.
With flat rate pricing, make sure you have clearly defined your overhead costs including property rental costs, vehicle payments and insurance, software/IT costs and more.
You will also have to define the profit margin you are seeking.
To fix your pricing here is a great resource for flat rate: Flat-Rate Pricing: Calculation and Pricing Formula
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.
When you find yourself in this position often, flat rate pricing may help appease the customer. With this pricing model, the customer knows the price before the work starts.
It’s important to keep customers happy for a variety of reasons:
- A satisfied customer is likely to return for future business. It can cost five times more to land a new customer versus an existing customer. loyal customers also spend 67% more than new customers.
- Customers are going to tell their friends and family about the job you did whether it’s a positive or negative experience. Word of mouth referrals are critical for HVAC businesses
- A satisfied customer that feels you did an exemplary job may leave you a review online which can help tremendously!
A great way to improve your customer service is investing in HVAC service software to automate and personalize the customer experience!
4. 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.
Flat rate pricing eliminates this hassle from the equation. When customers know the price upfront there’s no need to hover around and question the technician on how much time it is taking to complete the job. And the technician doesn’t feel the need to go faster and risk quality.
BONUS: Make More Money with FieldEdge Flat Rate!
Curious to learn how flat rate pricing and field management software can help your company boost profits?
FieldEdge Flat Rate is the leading zero-cost, flat rate pricing app for contractors in the HVAC and plumbing industries. With FieldEdge Flat Rate, customers are provided with the best-in-class flat rate prices so your business is more profitable, efficient and consistent.
And FieldEdge Flat Rate’s fully managed database includes over 30,000 repairs and is regularly updated to ensure that your customers are being offered the best options.
Want to save money and time? Schedule a personalized FieldEdge flat rate demo today!
All Signs Point to Flat Rate Pricing!
You are now aware of the indicators that may show that it’s time to switch to flat rate pricing.
In this article you learned about the following signs:
- Low profits
- Cash flow struggles
- Customers attempting to negotiate price
- Watching the clock
