Flat Rate vs. Time & Material Pricing in The Plumbing Service Trade by Evan Conklin
This article is in response to a story broadcast May 4 2004 Plumber Pricing: Flat rate Doesn’t Always Mean Best rate (no longer available on-line apparently) By Connie Thompson KOMO 4 news Seattle WA
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. 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.) The inflation rate since 1976 is 2.55 () 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.
The consumer shares responsibility for the “fear and loathing” experienced when the search for a plumber becomes a necessity. I think it was P.T. Barnum who said that “You can’t cheat an honest man” (or was it ” A sucker is born every minute”)? If the consumer would simply not have that overwhelming desire to attempt to get somethng for nothing the sleezy plumber would not have such an easy time skinning the victim.
Plumbers are expensive. That is a fact. (But I never met a wealthy plumber- that is a story for another day). Consumers are enticed by ads claiming discounts, no extra charge for nights and weekends etc. It should be noted that no matter how wonderful the advertising the bottom line is the cost which is never advertised. The bigger the ad the louder your alarm bells should be ringing. It is difficult to even get any informaton over the phone when you call regarding HOW labor cost is calculated. If a service company is not willing to tell you that then there is some skullduggery going on. If you don’t ask HOW they base their charges you should not be surprised when the bill is bigger that you thought possible.
Educate yourself, do not expect something for nothing, get references if needed to feel more secure, make sure the “plumber” really is a plumber (ask to see his licence which, by law, he must carry with him in his pocket. In general, use a plumber that is located nearby if possible, as his costs should be less than a shop that travels through 3 counties and has to drive 50 miles to your home.