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In a Seattle PI Thursday
November 17, 2005 article, we were ranked as among the very
best plumbing
companies in Seattle
Flat Rate vs. Time & Material Pricing
in The Plumbing Service Trade
by Evan Conklin
Plumbers charge by the hour (time + material) or they charge
by the job (flat-rate). Both types of pricing have been around
from the beginning of time. There is nothing new about either
method. I have done both types of pricing most days for the
thirty years I have been a plumber. All plumbing repairs represent
some level of risk that the job will turn into a larger project
than originally anticipated.
The two pricing methods determine who is taking that risk.
When a plumber is charging by the hour the customer is taking
the risk that the job could take longer or be more costly.
When a “flat-rate” or contract amount has been
agreed to in advance the plumber is taking that risk.
Time & Material PRICING method for charging is typical
& normal. Historically, plumbing repair services are charged
by the hour and new construction work is bid at a contract
dollar amount. If the customer feels more comfortable with
a firm price they will ask for and get a firm price –
once the plumber knows enough detail about the job to intelligently
estimate the costs. The customers seldom know, however, that
in order for the plumber to give a firm quote he must feel
secure that he will not be working for free and he will bid
accordingly in the higher range of anticipated cost. This
is reasonable and prudent in order to avoid any misunderstandings
later. In most cases a skilled plumber working by the hour
can effectively estimate the final cost and can convey that
information to the customer upon request. So it seems that
time & material payment basis can optionally be converted
to a “flat-rate” basis at the customer’s
discretion (before the work begins).
The question then is - what is fair? The fairest it can be
is this – The consumer pays for what he gets and gets
what he pays for, no more – no less. Consequently, the
plumber gets paid for his time and his materials – again
no more and no less. From a fairness point of view this is
as good as it gets. Time & Material is the way to go with
repair work, in my opinion, if you want a fair deal for both
yourself and the plumber.
FLAT RATE PRICING used to be called “contract price”
Somebody needs to take a close look at where this flat-rate
pricing has come from as it relates to small repairs. The
customer didn't dream this one up.
To the best of my knowledge, it originated some time ago,
perhaps 25 years ago with a company called George Brazil in
Southern California. The concept was this: Increase the labor
rate significantly, increase the profit margin on all materials
sold and make a lot more money. The problem with the concept
was that if the customer was aware that the labor rate and
the material cost was significantly higher than normal then
they would not agree to pay for it. The solution was to mask
the higher price of both labor and material until it was too
late to find another option. This was done by simply not having
an hourly rate. With no hourly rate the consumer can not price
shop. Now the cost of the job could not possibly be known
until the plumber had gotten into the house, racked up some
kind of charges such as a “show up fee”, diagnostic
fee” or “travel fee” - typically $100 to
$125. Only then did the customer know the “flat rate”
cost of the job. After the customer takes off work, waits
for the guy to show up, and is already committed to the above
minimum fee, he is hit with the whopper cost. The customer
is now leveraged as he now must either accept the contract
price, pay the $100 -$125 for nothing of real value - or go
back to the phone book and call another unknown plumber. Neither
option is very appealing to the customer in this position
– damned if he do & damned if he don’t.
The bottom line is this: flat rate pricing for residential
service and repair work is intentionally designed to dramatically
increasing both the customers’ cost and the contractors
profit.
Increasing profit is not a new business desire. What is new
is the hiding of the cost from the customer until it is too
late to do anything about it, and the total disregard for
the traditional concept of truthfulness and fairness in customer
relations.
As a business owner,I love the idea of increasing my profits
and having more money to sock away for my retirement. I just
cannot justify the method of getting there. The flat rate
pricing method tends to alienate the customers as they typically
feel that they have been taken advantage of (and they have
in many cases).
As a contractor and a consumer, I see both sides of the fence.
My company charges $96 per hour (in 2006). I am feeling great
pressure to raise the rate as my costs have increased at least
20% since then. I am afraid however to raise my rates as my
customers believe plumber rates are too high already (unreasonably
I think, but I must consider them and how they feel about
it). My customers do not know for example that our liability
insurance has tripled in the last 3 years (with no increased
risks I might add). Gas has gone up at least 65% as well.
So I am vulnerable to the criticism I get from the flat rate
marketers that I should be getting on their wagon as the business
models they present insure my future business health, personal
wealth etc. (and infamy?).
In 1976 we charged $45 an hour for plumbing service with
a 1 hour minimum. In 2005 our base rate per hour was $88.00.
(Since 2004 we charge a variable first 1/4 hr. based upon
distance from the shop, then $24 per quarter hour in 2006.)
The inflation rate since 1976 is 2.55 (http://inflationdata.com/inflation/Articles/CalculateInflation.asp)
Our hourly rate of $88 per hour (2005) has not kept up with
the rate of inflation based upon the consumer price index.
If it had it would be $114.75 per hour. It is actually much
worse because insurance, licenses and real property (rent)
has gone up more than the CPI since 1976 (10x I think!) I
can't say I blame contractors for seeking a way to raise there
profits - I just object to the methods used that the customers
find so offensive.
Flat Rate pricing means commission paid plumbers in most
cases. Most flat-rate service companies pay their mechanics
on a percentage basis (our own survey). Do you really want
a commissioned sales guy diagnosing the nature of the problem
and recommending a remedy? Wouldn't you rather have a mechanic
with no obvious conflict of interest telling you what will
be required to remedy the problem? Who is most likely to oversell
- a mechanic working by the hour or a salesman getting paid
a commission? As a consumer myself, I prefer hourly mechanics
as the only way they can cheat me is by taking a nap when
I’am not looking or outright lying about how long the
job took to complete.
The obvious and not-so-apparent results of
years of flat rate pricing
The general public is paranoid about calling a plumber out
of the phone book. (For good reason).
The average cost of plumbing service to the consumer has
gone up dramatically, way beyond the cost of inflation -
primarily due to the flat-rate. (Those of us on hourly have
seen a dramatic drop in profits - leading to the conclusion
that maybe these flat-rate shops are on to something)
The mechanics are poorly trained, as the bulk of most training
is sales oriented.-
There is little evidence that the plumber’s perspective
is anything other than profit. If they do not up sell, they
will not make what they would make if paid an hourly wage.
The pride of being a professional plumber is very lacking
today. (I interview these guys all the time). Turn over
is high within the flat-rate service shop due to burn-out
from long hours and high stress. One guy I interviewed was
fired from his last job for not making his $1500 a day sales
quota (he claimed) at a flat-rate shop.
Customers rarely call twice making larger ads necessary
in the yellow pages
Full-page ads are common ($15,000 - $25,000 per month!)
in the phone book. If you pay out this much to advertisers,
there isn’t much left for payroll.-
Small local shops are invisible, as they can’t compete
with large advertisers for exposure. Small neighborhood
shops mean lower overhead and best pricing to the consumer.
Liability insurance costs have skyrocketed for all due to
poorly trained incompetent plumbers causing property damages.
Employers certify many plumbers with little regard for proper
training or knowledge of the craft. ( In WA state the employer
certifies that the apprentice was trained. They seem to
be trained primarily to sell, as far as I can tell in job
interviews).
In Conclusion, I would say that the flat-rate plumbing shops
cost the consumer more for most repair jobs than an hourly
plumber. I believe that the hijacking of the service &
repair plumbing trade by the unscrupulous sales & marketing
professionals has had a great negative impact on the quality
of the mechanics and the integrity of the trade as a whole.
Revised August 2006 (Labor rate increased
in May)
Evan Conklin owns Evan Conklin Plumbing
& Heating Inc.; a small shop plumbing contractor that
specializes in repair, remodel and re-piping for residential
clients in Seattle WA.
Copyright 2004 2005 2006 Evan Conklin
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