If you are over fifty years old, think back about 20+ years. Your car needed a tune-up. You called the dealership, set the appointment and took your car in. The only unknown was how much it was going to cost. The hourly rate might have been $40 an hour back then, but the determining factor wasn’t the hourly rate, it was “how long” it took the tech to do the job. If you got an experienced tech he might complete the job in 90 minutes for $60 in labor. However, you might also get the new kid who’ll take three hours to perform the tune-up. In that case the labor cost would have been $120. 
   We all know the costs of doing business have increased over the years, and those costs had to be ground into the hourly rate the customer was being charged. As the rate reached $75 and even $100 an hour, customers began asking the shop things like “How can it possibly cost that much an hour for labor. You can’t be paying the tech more than $20 or $25 per hour.” There was also another thorn in the flesh. The price of a tune-up began to swing wildly, again based on how fast or slow the tech was. 
   The dealership soon found itself in the perfect storm. Costs were going up, profits were falling and customer dissatisfaction was growing because of the wide swings in the cost of a tune-ups and repairs. The solution soon became apparent. The industry switched to flat rate repair pricing. Every customer was charged the same amount for a similar repair and, best of all, the customer never saw the technician’s hourly rate again. An amazing thing then happened. Customer complaints basically disappeared! 
   Well, trades are going though the same transition. Costs are going up, profits are shrinking and customers being charged on a time and material basis are grumbling about the hourly rates they’re being charged. Most trades companies are independently owned and operated, though, and that has slowed the transition a great deal. One contractor charges $50 an hour for service because his shop is small and his overhead is low. Another company may have lots of overhead costs so the rate needs to be in the $85- to $100 range.
   It is often an eye-opener when contractors take a really close look at their real costs of doing business in the service department. When it is all said and done they often find out their hourly rate for service needs to exceed $100 an hour. That may be fine from the contractor’s standpoint, but customers find themselves asking why you’re charging them $148 an hour when they know the tech is normally making less that $20 per hour. Once again, like the auto industry, the solution is flat rate pricing. The customer sees one firm price in black and white and they instantly know two things: First, all customers having the same repair done are paying the same price and, second, they know the total cost of the job before the job is done. Most customers don’t like surprises; they want to know the full cost of the work right up front.
   Without question many contractors are fighting going to flat rate pricing and the reality is that many contractors who are small and work out of their home don’t need to move into flat rate pricing. Yet. 
   But guess what? As the company grows, and costs go up, those costs must be passed onto the customer. Again, when the time and material rate approaches $100 or more per hour it’s a tough sell to the customer. What’s the next step? It’s time to move to flat rate when the customer never sees the hourly rate you are charging.
   You may not like flat rate pricing. Some of you are saying things like; “My town is to small, or two large” or perhaps “My customers will never accept flat rate pricing.” Others simply say they are uncomfortable with flat rate because they feel like they’re gouging the customer. 
   Remember flat rate pricing isn’t designed to gouge the customer; flat rate pricing is designed to allow you to charge what you have to charge to cover costs while generating a reasonable profit.
   Ten or fifteen years from now we will all look back and ask ourselves “What was all the fuss about?” Like most new things there will be leaders and there will be followers. Which one will your company be when it comes to moving forward with flat rate pricing?
   The key to everyone’s profitability is setting proper hourly rates based on your real costs of doing business. Proper pricing in all departments is critical for continued profitability. If you need some help creating budgets and/or setting profitable hourly rates than you might want to consider attending one of our three-day “Basic Business Boot Camps”. You will literally be modeling your company on our software, by department, to find out what you will need to charge. You will also have lots of fun creating “what if” scenarios to see how your proposed changes will affect your hourly rate, cash flow and profitability.