Beware of Flat Rate Pricing!

Flat rate versus Hourly

Plumbers charge by the hour (time + material) or they charge by the job (flat-rate).

The question  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 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.

Flat Rate Pricing - masked high prices until it's too late and you're already on the hook for a $100-$125 "show up fee"

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.

Flat Rate plumbers are paid commission - your best interest in mind?

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 Bottom Line

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).

Look at the Facts!

• The higher prices are masked until it is too late - you've already paid your $100-$125 "show up fee" in order to find out the real price!
  
  
• You then can either lose your $125 and call another plumber, or pay the increased rate.
  
  
• Flat-rate pricing also means commission is paid to plumbers. Do you really want a commissioned sales guy diagnosing the nature of the problem, knowing he is getting a cut?
  
  
• The average service repair call takes under 2 hours - flat rate pricing costs you much more!