The 5 Ways to Lose Money with Flat Rate Pricing

and how to avoid these money drainers

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Flat rate pricing has been around in one form or another for more than 30 years. I remember using flat rate in 1985 as a helper. Every company I was with as a tech used flat rate of some type. From the classic task list to the simplified level pricing to tiered package pricing, flat rate is the go to pricing for the service trades.

Flat rate is a part of a very powerful business strategy, but can be the proverbial two-edged sword. Some have tried flat rate only to see lower ticket averages, higher frequency of “diagnostic only”, and upset customers. Those that experience these issues usually blame the pricing and revert to the old time and material method of pricing. RELATED: HOW TO PRESENT FLAT RATE

In an effort to save you the headaches experienced by others, here’s a list of 5 things they did to lose money using flat rate pricing. Use these to avoid the same mistakes.

#1 -Blindly use whatever someone else is using.

This happens in many areas of a business, not just with pricing. You see a new shiny thing or process and decide “if its working for them it will work for me”. Flat Rate pricing has to be customized to your business and market. Don’t just use the same hourly rates as the guy down the street. Let him worry about his true break even and you worry about yours.

#2 – Not understanding how the pricing is calculated.

Just like blindly using something that someone else is using can hurt you, so can using something “off the shelf” without understanding it.

Using a flat rate book designed and built for a company in Los Angeles would be terrible for a company in Brownwood, Texas.

You must know how the price is calculated and what goes into the calculation. The labor time, the material cost and any miscellaneous costs should be included. You should also be conscious of “blind” and “visible” items.

A visible item is something the customer has probably encountered before, such as a flush valve or capacitor replacement. These are things that have a high price sensitivity.

A blind item is something that a customer has never encountered before, such as a suction accumulator or an intersystem bonding terminal block. Visible items should be scrutinized to see if the market will bear the calculated price. We’ve all had the “I can buy that online for $10” calls. A little more attention to details here will help that.

#3 – Not raising prices over time.

If you haven’t updated your pricing in the last six months, your price has eroded through inflation. You are charging less for your valuable services today than you were six months ago. I have found that most companies raise prices every three years or so. If you haven’t raised prices, you are leaving money on the table that is rightfully and ethically yours. You should check prices before every season and raise a minimum of once a year by at least 5% depending on market.

#4 – Refusing to train your techs.

If you never teach your techs the proper way to use the pricing, you will leave money on the table and have upset customers. Some flat rate pricing is just a listing of tasks and prices. Others may use a primary and additional task approach.

Some systems have a member discount or even require the diagnostic fee to be waived. Whatever method you use, make sure the techs are well versed in putting together pricing and options for the clients. If you don’t train them, their lack of understanding will show and look like a sales gimmick or even incompetence. This is where the money is made or lost with flat rate pricing.

 

#5 – Too many items in the flat rate book.

It’s good to have multiple options for the tasks your technicians perform, but too many can create confusion. If you analyze the flat rate tasks your company has used for the last heating or cooling season you’ll probably find that 80% of the work was from 20-25 tasks. So why have 250? Do the analysis. See which tasks you use the most and put those in the book. You should try to have enough to cover 80% of the issues your techs encounter. Get their input on what should be included and you’ll also get more buy in.

Flat rate pricing is a great tool that has been around for a long time. It’s not going away even if we always try to improve the format or the presentation. Make sure you avoid these problems so you can truly make the money you, your team, and your company deserve for your hard work, knowledge and experience.

Chris Elmore has been in the service trades since he was young. He was an HVAC service tech, installer, service manager, franchise consultant, and franchise executive of a large HVAC franchisor in a company of trades franchises. He can be reached at [email protected]

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