Flat rate pricing has been the buzz of the trades for a lot of years. Few contractors are without an opinion on it. Camp one says they are on flat rate pricing; they love it and would never consider going back. They have far fewer customer complaints, the techs can bill while on the job (no calculations) and the system lends itself perfectly to selling service agreements because the customer can see, in black and white, the savings for the current repair. Best of all they are able to charge what they have to charge to cover costs while generating a reasonable profit.  
    Camp number two hates flat rate. It is gouging the customer, it’s too complicated, their techs would never go for it and they would lose their entire customer base if they switched. Besides, their community is too small, too large and/or no one else is on the program. It just won’t work!
    Camp number two won’t like this but flat rate pricing is going to become the standard of the industry. And not because it is a great system, although it is. Flat rate pricing is going to become the standard of the industry because the cost of doing business is going up—rapidly.  

Adding it Up
See if you can finish this sentence. “We could do a lot more work if we could just find another qualified ______.”  The blank is "technician." There is a huge shortage of technicians across the country, in every trade. We live in the greatest country on the face of the earth but we are also governed by a basic economic principle of supply and demand. When something is in short supply the cost goes up. Techs are in short supply so the cost has, and is, going up. The hourly rate paid techs today is significantly higher than what we were paying even a few years ago.
    What about benefits? Fifteen years ago it was the rare company that paid even a portion of the technician’s health insurance. Today it’s become commonplace for companies to pay at least a portion, if not all of it. Paying $200 to $500 per month for health insurance, per employee, is a huge increase in the cost of doing business. Many companies are also adding other benefits like 401k plans and/or profit sharing.
    Wages and benefits aren’t the only things that cost more. Have your marketing, workers’ compensation insurance or telephone bills gone up over the last few years? Not to mention gas! I’ll bet the general wages for your office staff have gone up as well. So the total cost of doing business has gone up a lot over the past years and it is not likely to stop any time soon.
    When costs go up, who pays for them? If your customer doesn’t pay them… you do! If you continue to absorb the increasing cost of doing business, it won’t be long before your profits won’t just shrink, they’ll disappear! 
    Now let’s assume you are a well-informed contractor. You know your costs. As expenses have gone up your time and material rates have steadily increased. Now for the problem.   

Sour by the Hour
Let’s assume you need to charge $135 per hour just to cover costs while making a reasonable profit. Your tech arrives at Mrs. Jones’ house and announces that all repairs will be at $135 per hour. Mr. Jones goes ballistic!  “Are you kidding? My husband doesn’t make $135 per hour! As a matter of fact, I don’t think my doctor charges $135 per hour. You must be nuts!” Then Mrs. Jones quickly escorts our friendly technician to the door – without making the repair.
    The problem is simple. The company has run the numbers. They know what they must charge to cover costs and generate a reasonable profit but the customer won’t pay it. What to do? Switch to flat rate pricing. On flat rate, the customer never sees the hourly rate. All the customer sees is the total cost of the repair. Mrs. Jones doesn’t mind being charged $187.50 for the total repair and she has no idea that the internal hourly rate is $135. Best of all, she really doesn’t care what the internal rate is. She is overjoyed to know the firm cost of the repair before the job is done. 
    Flat rate is going to become the industry standard because it is the only system we currently have that allows the company to charge what it really needs to charge without showing the customer the actual hourly rate. Like it or not, flat rate pricing is coming!
    If you a need a little help calculating your hourly rate, Grandy & Associates sells a labor pricing software program. Simply enter your costs of doing business and it will instantly tell you exactly what you to need to charge per hour, by department. Give us a call or check out our Web site at www.GrandyAssociates.com