Confessions of a Flat-Rate Pricing Convert

No matter where you land in the debate over flat-rate pricing versus time-and-materials pricing, there’s a lesson to be learned in the author’s story

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One of the biggest decisions for any service plumber these days is flat-rate pricing versus time-and-materials (T&M) pricing. There are strong arguments for both sides, and I am a firm believer that there is no one-size-fits-all approach. The choice is an individual one. I’m not here to convert you. There is a much deeper lesson, if you’ll take the journey with me.

In our company, we fought flat-rate pricing for a very long time. We purposely led with the “mom and pop” foot in our branding and saw T&M pricing as an extension of that.

For many years, it worked well and we grew very fast. Every time we would go to an industry event and hear our peers tout the benefits of flat rate (money, money, MONEY!) we were beyond skeptical. I won’t even get into the vague moral superiority that floated around in my head.

We lumped flat-rate pricing in with needless upselling, sales gimmicks, and profits before people. Our argument was that we wanted to be “fair” to our customers.

I had a lot of assumptions about flat-rate pricing. Then we just kept growing. 

With that growth came more expenses. With a bigger staff came more skill level variation. We started adding more residential work. We moved out of our garage and into an actual office.

Here is what I see as the bottom line to the T&M versus flat rate debate — it doesn’t matter which one you use as long as you can charge the necessary profit margin. Profit is what is left over after you pay your expenses. It is often still spent on the company — buying new machines, adding staff, trying new marketing tactics — but it has to be there to begin with. And if you want to use profit to give yourself a bonus and go on vacation, that’s OK too.

It’s not that you can’t be successful with T&M pricing. But it has become crazy expensive for us to do business and you can’t let your profit margin be the thing that suffers. Even as the price of gas goes up almost daily, customers still have a preconceived notion of what a plumbing job is worth. 

Broken Pride

One day, I simply got fed up with the numbers on my financial reports. I was tired of nagging my plumbers about correct invoicing. I was sick of our low booking rate for residential.

At this point, I was well versed with the cons of T&M pricing — I was living it every day. But if I was being honest, I hadn’t given the pros of flat-rate pricing a fair chance. My mind had been closed off to the very idea of flat rate because of all those assumptions. I decided to swallow my pride and give flat rate an open-minded review.

Maybe I’m the only one who was has had these assumptions, in which case at least skip to the last paragraph for the moral of this story. In case these are helpful, here is what I was personally fighting:

My Assumptions

No. 1: Flat rate = overcharging the customer

We decided to go with a professional flat-rate book. My biggest surprise was that the book was still using our hourly rate. They basically just created a database of job tasks and the time, on average, it took to complete them. After that, it was just doing the math: Hourly Rate x Time for Job = Cost.

I am a control freak, so I went through the book and compared it to our own dispatch calendar. The time for task was spot-on 90 percent of the time.

On top of that, it also included the pricing for necessary materials. Materials charging, markup pricing, and variable tax rates have been a huge barrier for us. I realized that rather than overcharging the customer, we were going to be correctly charging the customer.

No. 2: Flat rate = price stacking

This is how I define price stacking: Your price book says a toilet rebuild is $175. You get to a home that needs three toilets rebuilt, so you calculate the charge as $175 x 3, even though that task is calculated for an hour and it only took you an hour and a half to do all three.

Some would argue this isn’t fair to the customer. We could go down a rabbit hole discussion about how you calculate your hourly rate, but let’s keep it simple. If this is a concern for you, look for a price book that has the ability to do add-on pricing. That is just a discounted price for a secondary task on a job site.

With the toilet rebuild example, what that might look like is the first toilet rebuild at $175, but the second and third discounted to $125. Problem solved.

No. 3: Flat rate is complicated and for “the big guys”

When I actually counted up how much time we were spending every day doing invoicing and calculated out the payroll, I almost cried. I was already frustrated about inaccurate billing. Not a great situation.

Maybe you’ve got some magical solution where every plumber or technician charges each job perfectly, down to the crimp ring. I commend you for your excellent leadership. You should be writing this, not me. 

For us, it was a constant struggle. When it clicked for me that a digital price book was just pre-calculating pricing for us, honestly that was almost enough to make me sign on the dotted line. 

Also, it isn’t as expensive as you think. Shop around. A single truck shop could easily use flat rate with no problem.

No. 4: Flat rate is just a gimmicky sales tool

We have always prided ourselves on allowing our plumbers to be plumbers, not sales people. The idea of upselling unnecessary upgrades is distasteful to us. We were terrified that flat rate would affect that culture.

In hindsight, I don’t understand why I was so worried about this. A price book is actually helping our plumbers focus on their primary job, not distract from it. They don’t have to worry about the “business end” or calculate invoices on their own. That work has been done for them. I had it all backward.

Also, it’s just a tool, like any other in your toolbox. If you don’t want to do the slick three-option good/better/best presentation, you don’t have to. Your company culture is your choice, it won’t be dictated by a software tool.

No. 5: Flat rate lacks transparency

You can buy a flat-rate book that itemizes materials. There are options, depending on the programs you are using, that allow you to create itemized invoices.

You aren’t really hiding anything, you are just doing the calculations upfront so you can give a price to the customer quickly and with confidence.

No. 6: Flat rate will never cover everything, so what’s the point?

This may be true, but you may also be surprised by how comprehensive these books are. If you’ve heard of the 80/20 rule — that 80 percent of the effects come from 20 percent of the causes — I would say the same general principle applies here. The vast majority of your bread-and-butter items will already be covered in the price book.

If not, many of these books are customizable and have a grid matrix that allows you to do “quick and dirty math” on a T&M job. Again, it is really taking the time and human error out of the equation.

No. 7: We need better documentation than just a vague flat rate description

Documentation doesn’t have to be the job of your invoicing. There are many other softwares and options for documenting work and managing customers than your invoicing alone. 

A Final Word

Ultimately, we decided that flat rate was a good move for us. It is part of a bigger shift toward accountability and customer-friendly service that we are undertaking in our organization. Yes, we had to shift our thinking, but the change came easier than we expected.

It’s not easy to admit that you have been pig-headed. I carried these assumptions about flat-rate pricing around for years, not willing to open my ears or mind to the possibilities. I’m not trying to convince anyone. I’m trying to demonstrate an important lesson that isn’t even really about the flat-rate pricing versus T&M debate:

If you are frustrated with an area of your business or your life, revisit the assumptions that are keeping you from making a change. There may be a reason for change.

About the Author

Anja Smith is managing partner for All Clear Plumbing in Greenville, South Carolina. She can be reached at anja@acpupstate.com.



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