Frank Blau
Contributing Writer
Since the idea of the flat rate system came about, hundreds of my colleagues around the country have adopted flat rate pricing mechanisms, many of them inspired to do so after attending my “Business of Contracting” seminars. This is a meaningful step toward professionalism in our industry, but only a small step considering that there are tens of thousands of residential PHC service firms doing business across the land.
The time is right for a thorough review of the subject. This first article will explain why I believe flat rate pricing is the way to go. The second article next issue will report on some personal experiences with flat rates. Part 3, to run in September, will answer some common questions and clear up misconceptions about flat rate pricing.
Comparison Shopping: First, let’s ask ourselves what is so sacred about old-fashioned time & material billing?
Consider that most citizens shop at the local supermarket weekly. As a result of these frequent visits, they become wise and prudent shoppers who are familiar with the market price of a pound of hamburger, a bag of sugar and a loaf of bread.
However, most citizens patronize a PHC contractor less than once a year on average. John Q. Public doesn’t have the slightest idea of the market price for our goods and services.
As a result, a contractor is looking for trouble when he presents a bill that highlights the selling price of labor. People go into shock when they relate our hourly charges to what they earn. Keep in mind that the average working person probably makes less than $20 an hour. If they are comparatively well off, their wage or salary may compute to $35 an hour.
So what happens when this average person sees a plumber spending 15 minutes on a repair and charging $60 for the labor? He/she quickly computes it out of $240 an hour, and all hell breaks loose.
The home owner does not stop to reason that the guy doing the repair is getting paid only a small fraction of the billing amount, that some of it goes for overhead and support personnel, that he may have traveled a half-hour to get to the job, that the vehicle and equipment he uses cost tens of thousands of dollars. All the average home owner thinks is “That damned plumber charged me $60 for a lousy 15 minutes of work!”
Outrageous! Only my son the lawyer is entitled to charge that much!
Meet The Enemy: But don’t blame John Q. Public. Contractors create these kinds of needless problems for themselves by giving customers only a vague idea of what a service might cost. Here’s what happens when you quote T & M:
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First, you do what I just mentioned by instilling in the customer’s mind that plumbers charge outrageous labor rates.
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You also plant seeds of doubt and mistrust by leaving open how much the job will ultimately cost. “It depends” is the answer most of you give when the home owner offers the reasonable request of wanting to know how much a given repair is going to cost. Imagine what that home owner thinks when she sees your mechanic go out to the truck two or three times, or postpone work for a trip to the supple house, or God forbid, actually take a break to ease his cramped muscles! When the job stretches out to a couple of hours or more, everyone thinks you are featherbedding.
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You also give the customer an easy way to price shop around town. He/she then calls several plumbing firms with the simple question, “How much do you charge per hour?”
As the cartoon character in the Pogo comic strip says, “We have met the enemy and he is us!”
Do Unto Others: All of us are consumers. When we purchase materials, labor, office equipment, vehicles, etc., we want to know what the “bottom line” will be before we make a decision to spend out hard-earned dollars.
I’ve purchased millions of dollars of PHC materials during my business career, and have yet to see an invoice presented to me from a wholesaler or vendor showing a breakdown of the labor, material and overhead that went into producing those goods. Nor have I ever demanded one. I don’t care what my suppliers’ costs may be, only what I have to pay.
How many consumers have you ever heard ask for a breakdown of labor and material costs when they buy a TV set, and automobile, stereo equipment or a Big Mac? Consumers just don’t think that way, except when it comes to patronizing PHC contractors who have trained them to ask about labor charges.
The enemy is us. We have to stop shooting ourselves in the foot.
Next time I’ll tell about some of my personal experience and that of other contractors with flat rate pricing.