JohnConnolly said:
I won't lose interest. I find the subject fascinating.
The flat rate is not an issue with me. I just have a problem with those who abuse it.
Example:
Some of the service companies here will quote an inflated rate then offer a senior discount, a AAA discount or some other marketing BS to make it seem like you are getting a deal. People do it every day and that's fine....for them.
Some of the service companies around here encourage their employees to sell product that is not necessary. (Reset the GFCI for $35 or replace it for $289..or $150?) WWYD? I would assume that 90% of these guys would replace it.
Flat rate has it's place. I just don't have the balls to charge that kind of money for simple things. Am I an idiot? Probably. That's why I am not in charge of estimating.
John,
it doesn't make you an idiot....but there are a few things worth mentioning...
1) i fully agree with you about abusing the system...but I am also against the T&M guys who abuse the system. It's something that contractors have to be mindful of every day.
2) flat rate does not necessarily equate to "obscene or outrageous" pricing. Flat rate is pricing based on
your actual costs. It simply gives the customer more knowledge and the ability to make better decisions. How many times, after completing a T&M job and giving the customer the bill, have you heard "If I knew it would be that much, I wouldn't have had you do it"
3) if you are already giving guesstimates or NTE's with T&M billing you are 1/2 way there. T&M billing with a NTE is great for the customer. Not for the contractor though. What that type of billing does is shift
all of the risk to the contractor and give
all of the rewards to the customer. They have a guaranteed maximum price, but if you get done quicker, they get a discount. If it takes you a little longer, you eat the loss.
4) if you have never done a break even calculation, you may be surprised to find out that the "inflated" rates are actually correctly calculated. I don't know how long you have been in this industry, my guess is for quite some time. Most guys I know who have been doing this for years have failed to keep up with the times. I'm not saying that is the case, but look at your city. 5-6 yrs ago you could buy a nice house in the Pheonix area for $130,000. That same house is now $230,000. Think about the added expense for any new guy you hire. 6 yrs ago a $40,000/yr salary would let him buy that house. Today, not so much.
5) as for the GFCI, we would never just reset it for $35. For one, it costs us more than $35 (or $55, or $65) just to go to the house. 2nd, what caused it to trip. We would spend time to attempt to determine the cause. Bad toaster? Our base service call is $149. We would probably replace the GFCI once we determined the cause of the trip. We would spend about 1/2 an hour in the house. another 1/2 hour in travel time. The customer would have their problem looked at, preventitive measures taken to lessen the likelihood of it happening again, and actually get something for their money.
BTW - before we even went out to the house, we would attempt to advise them over the phone - for free- to reset the GFCI.
It's all about how you personally perceive things. My feelings are this, if I bring my car to the mechanic to have the oil changed, while it's up on the lift, I want him to look at everything. If he notices my breakline is cracked, but not necessarily leaking yet, I want him to tell me about it. What is the cost to replace it right now? Next week? Let me make the decision based on all the information. Same thing our customers feel. How much is it to fix that problem? "well ma'am, it's $55/hr and it might take 1 hr or it might take 10. I really don't know" vs. "well ma'am, it will be $275 to fix that problem" Now, the homeowner is armed with the information that they need to make an informed decision.
Satcom brought up a great point about money bleeding from one division to the other. I challenge any company that does resi and lt commercial service work T&M to break out their costs. You won't win or lose anything...just get an understanding of the actual costs of running a resi service company.
John, in your city there are several larger service companies running flat rate. I know 1 guy quite well, and truth is, he doesn't charge enough. He knows his costs, and covers them. But he makes very little profit currently. His goal is marketshare. But, I believe he is upwards of 20 trucks just doing residential electrical service. I don't know the size of your company. But I know that there are very few, if any, companies doing resi service T&M, that have 20 trucks.
flat rate is not one specific way. Other than the basics (determine your true costs, set your pricing to cover your true costs, give the customer the information to determine what is best for them) there are a bunch of ways to run it. The grandfather of modern day flat rate, Frank Blau, was and still is a union plumbing shop. Paid his guys hourly rate, usually above union scale.
How many T&M guys will guarantee their employees a paycheck for 40 hrs, even when times are slow?
I think there is a misconception that becoming a flat rate contractor ceases your ability to operate under your own conditions. There is no mythical "book", it's a price guide that you create specifically for your company. If you crunch your numbers and determine that you can profitably change out 1 GFCI at someone's house for $80, then that will be you price. My arguement is that when you crunch your numbers, you find that number to be closer to $200 to make a trip to replace 1 GFCI. Hence the reason that flat rate guys appear more expensive.
Good luck and I would love to here your feedback.
(edited for spelling and grammer only)
