Time and Material versus Flat Rate. Billable Hours. Residential Service.

Rich Ortega wrote me on facebook.  In his message, he asked “Is it unethical to vary your billable hour by client?”  I’m paraphrasing his question, but you can see his full comment below.

That’s a question that deserves an answer.  Before I dive into the answer, read Rich’s post:

I’m curious about your thoughts on something. It’s something I don’t agree with, but I’ve heard other companies talk about doing this. They base the rates on the area the calls come from. Not just travel but labor rates as well. So if it comes from a lower area it’s $55/hr, if they are going to a middle class area it’s $70/hr, and if it’s upper class it’s $90/hr. I can understand the logic of wanting to be affordable for different markets, but in my opinion it’s unethical. If you’re worth $60 here you’re worth $60 there. If you’re worth $90 here you’re worth $90 there. I am also a big believer in going after the clients that will pay what you’re worth. If your worth $90, go after the $90 clientele because you’re devaluing your time by going after the $60 clients.” – Rich Ortega

Well, first of all Rich, let me say that I mostly agree with you.

You made two major points that stand out to me:

#1 – You devalue your service by charging less.

#2 – Charging a client more (or less) because they can afford more (or less) is unethical.  

Bravo sir!  I believe you summed up the major problems with adjusting charge based on client income.

Now, allow me to point out what I believe the major problem actually is in your question:  **Time and Material Rates.**

It is my opinion that Time and Material lends itself to this type of system.  When prices are not documented, and printed in advance, then it creates opportunities for unethical behavior. 

It is one of the major reasons I so strongly support Flat Rate Pricing Systems over Time and Material pricing.

In addition, Time and Material rewards companies for having slower techs.  The less skilled a tech is, the more money a company can make. READ MORE:  How to Maintain the Ethics of Commission Pay Systems

So, a Time and Material Company doesn’t have to charge more per hour to make more money. A Time and Material company can make more per hour with inexperienced techs. The tech will make less per hour in personal income, and charge the client more hours for his inexperience.

To me, this is why Time and Material is not the best choice for residential service companies.  It has built-in flaws that promote uneven client charges and employee pay.

My advice?

Move to a Flat Rate System that techs and clients love.

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