Flat Rate Pricing


Comparing Flat Rate With Time & Material

Comparing Flat Rate With Time & MaterialAre you still using time and material pricing?  Have you ever thought, really thought about how your pricing looks to your customers?  Chances are, they are a bit terrified.  All they know is there equipment doesn’t work and you are going to be sending out a technician bearing a large bill.  Why not remove that fear right up front?

 

How about your technicians?  Do you think they have ever felt pressure to finish up a job quickly because of that homeowners concern about the cost of the repair?  Do you think that has ever led to mistakes or callbacks?

 

Have you ever wondered about how you can make your company look more professional in the eyes of the consumer?  Consider the following characteristics from the points of view of your customer and your technicians.  Isn’t it time to get serious about flat rate pricing?

 

Basic Characteristics Flat Rate Time & Material
Quote Presented to Customer Fixed Price Open Ended Price
#Prices/Each Repair One Two
How Is Material Treated Bundled W/labor Priced Separately
Labor Standard Natl Standard No Standard
Co. Investment Required Thousands of  $ None
Frequency of Price Changes Every 6 Months At Will

 

Customer Perceptions Flat Rate Time & Material
Homeowners Preferring* 91% 9%
% Used on All Jobs* 44% 56%
Tech Credibility Presenting Price High W/Book Highly Variable
Perception of Risk When Repairs Take Longer Than Expected Company Risk Customer Risk
Homeowner Stress as Repair Time Lengthens None Increases

 

Technician Impact Flat Rate Time & Material
Technicians Emphasis Be Thorough Be Fast
Potential for Callbacks Less More
Complaints re-Time on Job None Moderate or Worse
Need to Justify Rate None High
Potential for Homeowner to Question & Compare Rate None Moderate to High
Potential for Math Errors Less More
Time to Complete Paperwork Less More

 

Fairness Flat Rate Time & Material
Price with Slow Technicians Same Higher
Price with Fast Technicians Same Lower
Profit with Slow Technicians Same Lower
Profit with Fast Technicians Same Higher
Odds that 2 Neighbors will Pay Different Price for Same Repair None Almost Certain

 

Miscellaneous Flat Rate Time & Material
Professionals using this Method Doctors Lawyers

 

 

*  Decision Analyst Research, courtesy of Callahan Roach Products & Publications

© 2006 Service Roundtable


Flat Rate Pricing Is So Easy A Caveman Can Do It (Part II) – by Mike Hajduk

cmeicdiIn last week’s blog we talked about a scenario where a contractor was losing money in their service department, and did not want to raise rates because customers were already complaining.  We ended that blog by saying while it might make sense to shed a department that was losing money, that may not be best for your firm in the long run.

 

The answer is not to shed service, but rather charge enough to make money in service, and the way to do that is by flat rate pricing the service rate.  This way it takes the focus of your company away from the “per minute” rate and puts it on the quality of your company.

 

Contractors have told me their customers want:

 

  • Prompt service
  • Thorough service
  • Things fixed right
  • The fix stays fixed
  • Fair Price

 

You cannot do the first four by undercharging your customer. And just what is deemed to be a fair price to the consumer? When you offer the customer a $65 or $70 per hour rate that is BELOW cost in many situations, they hoot and howl about the rate since THEY DO NOT MAKE THAT AMOUNT OF MONEY IN THEIR JOB!  And if they do, they sure don’t want their pool guy to make that amount!

 

The only way to charge your customer is by quoting them a single amount for the entire job that includes all labor, parts and expenses and do that before the repair is performed. In the construction or remodel part of your business it’s called a quotation. In the service department it’s called Flat Rate Pricing.

 

Flat Rate Pricing is advantageous because the customer doesn’t nit pick your hourly rate, what you’re charging for the part, your tech taking a call on his cell phone or having a smoke. Again, it’s the ability to focus your company on the quality delivered, not on the per hour rate that you are charging.

 

So now you can go up to an hourly rate that is ABOVE your breakeven. You can now make a profit on what you sell. But there are other financial benefits to flat rate pricing.

 

Each flat rate repair has a time allotment that is based upon what a journeyman tech would take to do a repair under normal working conditions, with a little time added for working conditions. If the tech finds 2 or 3 items that need work, there are economies of scale because the tech should be able to do all items in less time.

 

Let’s look at a service scenario. A tech goes to a home in response to a noisy pump.  The tech finds that the bearings on the motor are bad but also finds the burners on the heater need cleaning and the time clock mechanism has rusted to the point of  keeping the pump running continuously.   In a time and material scenario the tech goes to the house, changes the pump and then goes on to the next service call. At $75 per hour the contractor billed out $304 for the motor and $75 labor for an invoice total of $379.

 

In a flat rate scenario, the tech charges the customer a diagnostic fee, takes the time to thoroughly analyze the entire pool and spa system, and then makes recommendations for all repairs. Now the repair is thorough, professional and gives the customer options to buy repairs suggested because of the pool pro’s professional diagnostic. With finding the dirty burners and time clock mechanism, the repair is larger and done along with the original reason why he was there, the motor. Now the call went to $786, taken from the flat rate manual based upon $100 per hour (not a rate shared with the customer) which includes $391 for the motor, $100 for the burner cleaning and $246 for the time clock mechanism, PLUS the $49 for the diagnostic. This repair yields a significantly higher margin. Now the service company makes a profit!

 

Good news, right?  Well the better news is that the customer PREFERS the flat rate scenario because you gave them the option to accept or decline the repairs before the job was started and they fully knew how much the check amount was that they were going to write before they committed. This is far preferable to the open ended way that time and material contractors charge.

 


Flat Rate Pricing Is So Easy A Caveman Can Do It – by Mike Hajduk

Flat Rate Pricing Is So Easy A Caveman Can Do ItGive me 20 minutes and I’ll show you how to raise your margins by 20%.  Ever hear anything like this?  This is a variation on the popular commercials with the caveman who is miffed at the reference that cavemen are Neanderthals.  The insurance provider claims that if you invest 15 minutes, they can save you up to 15% on your auto policy. I’m not as conservative. Take 20 minutes to read on and I will show you how to increase your margins by almost 20%. And without your customers beating you up over your prices.

 

Ok, so you do all the things right. You hired service people with a good aptitude and attitude, gave them some training through your distributor and manufacturers, promoted your company in your community, added some new truck signage and then, alas, you get called by a customer for your services to do a remodel, start weekly maintenance or repair something that has broken.  But when all is said and done and you get your Income Statement, you found that you have lost money in service.  How can that be?

 

This scenario is not unusual, and has even prompted some influential and sizable companies in the pool business to minimize or even close their service departments. Some construction companies have even resorted to having a subcontractor friend who does service to “take over the account” once the pool is out of warranty.

 

What the contractor is really saying is that they do not know how to charge enough to make money in service. Since so many contractors charge LESS than breakeven, it’s no surprise that they want out of service. It’s not unusual for a service company to incur a breakeven per hour cost of $75 – 85 per hour or higher*. Why, oh why, do so many service companies charge less than that for service? Do you?

 

“We can’t charge any more, our customers are already complaining about our rates”.  Have you ever said this?

 

If your customers are complaining about a service rate that is BELOW your breakeven, it does make sense to want to shed that losing department and let someone else worry about the customer. “After all, the customer already gave me $48,000 for a new pool and I don’t need to lose any money on the customer”.  Sound logic. But not the best for your company in the long term.

 

So what is the answer?  Stay tuned for next week’s blog!

*See June, 2016 blog about calculating your breakeven point


Call Smart – Invoice, Payments and Receipts Screen

Sample of invoice generated on a smart phone

Sample of invoice generated on a smart phone

After the customer has authorized the work to proceed with their signature, the system converts the estimate into an invoice. The invoice has been broken apart by system, so it is extremely detailed. We can accept payment by credit cards, cash, check or return to the office so the invoice can be handled another way. If we accept payment on the jobsite, it will be marked paid and the type of payment is recorded. Now we can mark the ticket complete – or incomplete if we have to order parts or need some type of follow-up. The technician can also add notes that can’t be seen by the customer and are only visible by the office. You can print an invoice for the customer at the jobsite if you are so equipped, have an invoice mailed from the office or e-mail the invoice to the customer, generated in a PDF format. Now the service tech can close the service call.

Summarizing Call Smart’s Best Features

  • It is highly customizable
  • It runs on multiple platforms
  • It comes with unlimited free support on Internet and phone as long as you own the product
  • It has extremely high visible impact which encourages interaction with the consumer
  • It tracks recommendations versus accepted repairs, allowing for same story to be told amongst varying service technicians
  • It incorporates an incredible tool called Total Performance Diagnostic, which calculates how the system is functioning without the need for putting gauges on the unit. If the Total Performance Diagnostic tool tells you the system is operating at 90-95%, there’s probably not much you can do to improve it. If in turn this allows you to avoid putting gauges on every unit and only on those which need it, that saves you time and the customer money. In addition, it provides third-party validation about operation of equipment to your customer. They can see both the capacity and efficiency that their unit is operating at, along with suggestions for how the operation of their system may be improved.

 


Call Smart – Estimate And Service Agreement Screen

Call SmartWhen we go to the estimate screen, the system has the ability to look back at previous calls. For example, in this case, the system looks back and sees that a contractor was recommended but declined by the customer on the last service call. The system provides the tech with the opportunity to again make this recommendation to the consumer. Regardless of which technician makes the call, the system allows them to be consistent in their conversation and recommendations to the homeowner, not only for the type of work that needs to be done but for the cost of the repair as well. Once the work is done, the repair is removed from the pending list. The estimate screen provides the customer with everything they need to make a good decision. If a recommendation is declined, it goes to the bottom of the page in a pending status until the next service call. It doesn’t simply languish on the service ticket somewhere sitting in a file cabinet.

Now the service technician is well positioned to present a service agreement. The service agreement screen shows the details of your customized program in a way that allows any technician to present the pertinent features and benefits succinctly, yet completely. It also means that no matter who the technician is on the call, they will present your service agreement program the same way to every customer. The system will automatically track the service agreement regardless of whether it was accepted or declined. If it was accepted and your program allows for a discount on the invoice, the system will automatically compute the correct amount.

At this point the customer has the opportunity to authorize the work by signing the invoice. They first accept the terms and conditions on the screen, then they provide their signature which converts the estimate into an invoice. A review of these two screens yields the following key opportunities for enhanced profit.

  • Previous work needed but declined by the customer is brought to the attention of the technician, regardless of which one is on the call, who can then present this again to the consumer
  • The service agreement screen will prompt every technician to offer your customized agreement in a way that will clearly and concisely allow the consumer to make a decision
  • If the consumer agrees to a service agreement, any potential discounts are automatically computed for the technician
  • Every invoice will have a recorded signature which also shows that the consumer has agreed to your terms and conditions

In the next Call Smart blog, we will discuss the invoice, payment and receipt screen.


Call Smart –Flat Rate Lookup Screen

Call Smart –Flat Rate Lookup ScreenThe first point to make about the flat rate lookup screen is that each component screen has a camera function that allows you to replace the cutaway illustration with a photo of the exact unit. That can help another tech from your company on a future service call to be sure they have identified the proper piece of equipment. On either side of the equipment picture is a list of component categories. (I.e. motor, electrical, valves, refrigerant circuit etc.) Let’s walk through an example for a motor. First we press on the red motor button and we are presented with a question screen. Bypassing the questions for a moment, let’s simply press the replace button and we are presented with a lookup screen which allows us to search for a specific OEM part or a generic part. Let’s say we don’t know the specific part number, so we select a 1075 RPM motor and are presented with a number of choices of different horsepower condenser fan motors that are all 1075 RPM. If we choose a 1/3 hp motor, we are presented with a picture of such a motor along with its associated price. Once we press the select repair button, the information immediately goes to our estimate page.

 

Call Smart serves as a point of sale system by making things easy for the customer to understand in a highly visual way that gets the point across quickly. All of this translates into the customer’s ability to more easily make a decision. Earlier in the service call as we were performing our diagnostic, we made notations about the condition of various components in the unit. Now as we look at the equipment picture with its list of component categories, the components are colored red, yellow or green. Red means dead, green means good and yellow is an area of concern. This is a highly visual and very simple way to translate our diagnostic for the consumer.

 

That’s all there is to it. We knew the condenser fan motor was bad and we knew that it was a 1/3 hp motor. Following the easy steps outlined above we were quickly able to communicate this information along with the price to our customer in a highly visual way. We were also able to communicate areas of concern that can be addressed via a maintenance agreement or during a future service call. In the next Call Smart blog we will discuss the estimate screen.


Don’t Be Your Own Worst Enemy

Why did you go into business for yourself? You did it because you thought you could do a better job than others, you did it for the opportunity to make more money and you did it so you could be the boss. After all, no one else can match the passion, dedication and hard work that you bring to your business. There’s one thing you might not have thought of however, and that is that like all of us, you are not equally talented at all things. And now that you are a business owner – you have to do all things! You have to run the load calculations, you have to make the sales, you have to run the service calls, you have to do the books and you have to collect the bills. Some days, perhaps many days, there just isn’t enough time to do everything, so those last two things get set aside for “later”. Those last two things being the books and collecting the bills. The second of those two – collecting bills – is a lot more important to your business than you might think. Consider the chart from last week’s blog, shown below.

The Irresistible Lure of the Large Customer

Chart courtesy of the Commercial Collection Agency Association

What is that really telling you? For one, it shows you that the job of collecting the bills cannot be sloughed off until “later”. According to the Commercial Collection Agency Association who developed this chart, you have less than a 90% chance of collecting a bill that is only 30 days old. By 90 days, your odds are less than 70%. Now, let’s turn that into dollars. What is the value of a 90 day old receivable that you originally billed out at $3000? According to this chart, it’s only worth about $2100 because by all odds you’re only going to collect about 70% of your 90 day old bills. Even worse, what happens if you have to write off that $3000 sale. Consider the following chart which defines the amount of sales you need to recover a bad debt write-off of $3000, given your company’s net operating profit.

 

$600,000 $300,000 $150,000 $100,000 $75,000 $60,000 Sales
0.5% 1% 2% 3% 4% 5% Net profit

 

Don't Be Your Own Worst Enemy

Picture courtesy of ACHR news

Therefore, if your net profit percentage is 2% you need $150,000 in additional sales to recover the $3000 you wrote off. Keep in mind on that $3000 sale that you just wrote off, you have already paid your suppliers for the materials, you have paid for the labor that created the sale and you have paid for the overhead that supported that sale. The only thing you haven’t done was to collect the debt which paid for those expenses – plus of course the profit which that sale was supposed to generate. If the two charts shown above don’t shock you into paying attention to your sales terms and accounts receivable, then it’s probably because you already know this and have good processes in place.

Of course, collecting when the job is complete – and letting the homeowner know of this requirement up front – is a great first step in reducing receivables to begin with. This policy coupled with having an array of consumer financing tools available can go a long way to avoiding some of the nasty numbers shown in these two charts.


Call Smart – Your Smart Service Call

In the last blog, we talked about what Call Smart is and how easy it is to customize.  In this blog, we will walk through the preauthorization and marketing portion of a typical service call using Call Smart.

Call Smart - Your Smart Service CallThe first screen the service technician will utilize is a preauthorization screen.  Using this screen, the service tech will ask for the customer’s permission to conduct a diagnostic check on the equipment, while letting them know they will be charged a diagnostic fee for this service.  Both the verbiage and the screen are customizable, and can be turned off if so desired.  Following the preauthorization comes a marketing questions screen.  Companies often ask their technicians to gather this information, but the information garnered is typically nonexistent or insufficient.  The reason companies want this information is so that they can better target solutions for their customers.  These questions can be customized and this screen encourages your technician to gather the information that you want.  For example, you can ask questions about areas that are too hot or cold, whether the customer feels their energy bills are too high etc.  This information allows for subsequent messages which are highly targeted to your consumers.  If a home has multiple or unique components, the next screen allows you to set up a service history by each system or component.  Once the tech clicks on the icon for the type of unit, (furnace, condensing unit etc.) a screen comes up that allows them to input specific information pertinent to that unit.  For example, they can input information such as unit location, make, model/serial number, capacity, age, physical condition, type of refrigerant used and so on.  If that information already exists, the tech can simply bypass that screen.

What comes next is the fastest and easiest flat rate lookup in the industry!  In the next blog, we will talk specifically about the flat rate lookup screen and show you exactly why we say this.  In the meantime, look through your service tickets over the past six months and see how many of them reveal marketing information that allow you to target specific products and services to individual customers.  I’ll bet you will find you are missing opportunities to more precisely assist your customers, thereby helping to distance yourself from those companies who market themselves strictly on price.

Get more info on Call Smart


Call Smart Flexibility– Your Smart Service Solution

Call Smart Flexibility– Your Smart Service Solution

Image courtesy of talentintelligence.com

In the last blog, we discussed the problem with service tickets.  All too often they can be sloppy, and the information they convey is often insufficient both for office and customer use.  Worst of all, they can potentially be booby-traps which cause your customer to become very upset.  We finished that blog with a discussion about a solution called Call Smart, a revolutionary point of sale, mobile system from Callahan Roach Business Solutions.  We also finished that blog by asking you to look through your service tickets.  Did you identify any of the problems that we talked about?  I’ll bet a number of you did, so let’s begin to look at the flexibility of the Call Smart program.
Call Smart is an electronic program that runs on both Droid and iPad.  It features a unique and secure logon for each tech, and can be customized with your graphics and information.  Once a tech logs on to the system, they are positioned to capture the customer’s complete information – and it only has to be entered once.  In the event you have integrated with a service dispatch software or QuickBooks, you can look up the customers information from there.  Once this information is in front of the technician, they select the correct call type, the diagnostic fee and any discounts or taxes which may apply.  From there they press the start call button.
It is important to note that Call Smart is extremely customizable.  From any web portal you can change parameters ranging from call types to diagnostic fees and discounts.  You can also input your own customized service agreement program, as well as marketing brochures and videos.

Get more info on Call Smart

In the next blog we will walk through a typical service call using Call Smart.  Following this blog, you will likely begin to wonder how you ever made it using paper forms!


The Problem with Service Departments

Does your service department suffer from the following symptoms:

  • Incomplete or sloppy service tickets
  • Low service ticket revenue
  • Customers who feel the need to shop the Internet after the diagnostic



Yes, but what do you do about it?
Call SmartYou train your technicians but you are still not achieving uniform results.  You talk with other owners and they have the same issues, so you resign yourself to live with it.  After all, you don’t receive that many customer complaints about it.  Not so fast.  Let’s examine this issue in a little more detail.

Let’s take the example of a service tech who went out on a no cooling call and found a bad capacitor.  After replacing it, he wrote the words “25 MFD Cap Bad” in the area of the ticket detailing the work performed.  Then he showed the price of the capacitor at $118 and labor at $69 for a total ticket invoice $187.  What might your customer do?  They might just get on the Internet and surf for 25 MFD Cap and correctly determine that a capacitor was replaced – only to discover that a 25 MFD capacitor can be purchased online for about five dollars.  Now they’re hot!  Obviously, they don’t understand your cost of doing business so what do they do?  Call you and complain?  Probably not.  In all likelihood, they simply stop using your services and tell everyone they know that your company is a ripoff.  Studies show that a satisfied customer will tell 2-3 people about their experience with your company, but a dissatisfied customer will tell 8-10 people about their experience.  The odds are not in your favor.  And the worst part about it?  You have no idea it’s going on!

So what is the solution?  Consider Call Smart

What is that, you ask?  Call Smart is a revolutionary point of sale, mobile system from Callahan Roach Business Solutions that runs on both Droid and iPad.  It features a unique and secure logon for each tech, and is customizable, utilizing your graphics and information.
Stay tuned for more blog posts on this subject.  In the meantime, take some time to go through recent invoices generated by your service technicians to see if you are fully satisfied – or if you think there is a better way to go.