The HVAC industry is often divided when it comes to pricing structure.
There’s the popular way to price a job using time (the hours it takes to complete the job) and materials (the parts). With flat rate pricing, the customer is presented one upfront price to complete a service. This can take the guesswork out of the equation.
So what is a flat rate example and why would you use this type of pricing? This pricing model can be more convenient and profitable for your business. It can also improve customer satisfaction! We’ll dive into these benefits and more later in this blog.
In this article, we’ll cover:
- What flat rate pricing is and the challenges it solves
- A flat rate example and pricing formula
- The benefits of flat rate pricing
Flat Rate Pricing
Flat rate pricing is a system that charges customers a set price for a job, regardless of how long it takes to complete the job. This flat, fixed price will cover direct costs and indirect costs.
- Direct Costs: These are the typical time and materials
- Indirect Costs: Overhead costs such as the gas to get to a job, the wear on the truck, uniforms, training, etc.
When the flat rate price for a specific job is properly calculated, it should yield a healthy profit.
The Flat Rate Pricing Formula
When pricing a job, many businesses start with the time and materials repair prices. However, with flat rate pricing, you are provided with an average repair time. As a result, it allows you to provide an upfront “quote” in advance.
Here’s what the standard flat-rate pricing formula for services looks like:
(Your Hourly Rate x Repair Time in Hours) + (Part Cost + (Part Cost x Part Mark-up)) = Repair Price
As you can see, your hourly rate gets plugged in as well as your parts mark-up. Your flat rate software provider will contribute the average repair time and the current parts cost. Showing an overall flat rate repair price helps your customer see the value of the service you’re providing!
Flat Rate Example
Let’s look at a flat rate example with the following numbers:
- Hourly rate: $150
- Repair time: 2 hours
- Part cost: $199
- Part Mark Up: 30%
Now plug in the numbers into the equation.
(150 x 2) + (199 + (199 x .30)) = Repair Price ($558.70)
So, once all the numbers are entered and calculated the flat rate repair totals $558.70.
Why Customers and HVAC Businesses Favor Flat Rate Pricing
You might be wondering: is flat rate pricing best for my HVAC business? Let’s dive into the benefits to the customers and businesses/
- One Price: The job’s price is presented before the job begins. It’s simple and there’s no surprises. There’s no calculating the parts and time needed. There’s no going back afterwards and getting additional charges because the job took longer than expected.
- Convenience: Flat rate pricing makes life easier for the customer. People don’t generally want to bicker over price or get charged more than they were originally quoted! They want an upfront price that they can understand before work is completed.
- Confidence: Techs often prefer presenting an upfront price that’s easy to understand and is similar for each service, every time. There’s no more pressure of job costs fluctuating.
- More profit: With the correct upfront price and parts markup, flat rate pricing will often increase your profit. No discounts are given to the customer, which prevents negative profit jobs.
- Less complaints: Flat rate removes the one sticking point that customers focus on the most with time and materials: the hourly rate. Most consumers are unaware of what it costs to run a company and will compare your hourly rate to how much they earn per hour. To a person that earns $18/hour, a repair charge of $150/hour may seem exorbitant when not taking into account overhead such as rent, trucks, insurance, payroll, inventory, etc.
92% of homeowners prefer flat rate pricing
Why Use FieldEdge Flat Rate Software?
FieldEdge Flat Rate is a managed flat rate pricing structure in one platform. What does this mean? FieldEdge does the work behind the scenes to make sure each job you quote is profitable.
Businesses can run their own flat rate system, but then they need to closely monitor parts cost fluctuations and sometimes guess on the hours it takes to complete a job. This can take hours every week.
FieldEdge Flat Rate employs product experts who monitor parts and prices daily. The repairs database has more than 30,000 parts/repairs.
In today’s volatile market, this daily monitoring of thousands of products within FieldEdge Flat Rate will ensure that your business is using the most accurate pricing available.
With more than 20 years of flat rate experience, our staff also know how long it takes to complete a job, so your time estimates are also as accurate as possible.
Want to see how Field Edge Flat Rate pricing works?
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Flat Rate Pricing for the Win!
You now have a good idea of how flat rate pricing is calculated and the benefits of implementing a flat rate pricing structure. Use what you learned in this post to:
- Understand the pros of implementing flat rate pricing.
- Use the flat rate pricing example and formula as a guide to pricing your jobs
- Check out FieldEdge Flat Rate for for the best flat rate pricing tool on the market