Flat Rate Contracting

[emahler]

It doesn't seem all that vague and mysterious to me.

this says otherwise....

Flat rating appears to be a cookie cutter aproach. The price is fixed at a minimum before you arrive to look at the job. Instead of a minimum price set on a specific case by case method the minimum is set more general basis and can be applied across a broader spectrum of jobs

 

[ike5547]

this says otherwise....

Rather than getting trapped in endless polemics and circular logic I'll just have to resign myself to a misapprehension of the esoteric mysteries of the flat rate system.

 

[emahler]

Personally I have always been apposed to utterly facesious rambling of the more extreme of the antidisestablishmentarians and proponents of the neo-socialist regime.

 

[ike5547]

Personally I have always been apposed to utterly facesious rambling of the more extreme of the antidisestablishmentarians and proponents of the neo-socialist regime.

That seems as reasonable as anything else you've said to me so far.

 

[bradleyelectric]

The key is to find customer's who's market will bear the kind of prices in the links below.

http://www.higherfi.com/spkrlist/speakerlist.htm

http://www.partsexpress.com/pe/showdetl.cfm?Partnumber=110-439

Look, everyone knows noone will actually buy speakers like those when you can just go to Best Buy and get a decent sounding pair of speakers for about $100/ each. People will only pay so much for a speaker. It does not matter how much it costs to make, ship, display, or advertise for your speaker. All people think the same. You will never find customers that would be willing to pay more for your speakers just because they like your speaker and you ask a certain price for them. The other guy only charges enough to drive an old truck, will never be able to buy anything but another old truck, his wife is a teacher and actually makes the mortgage payment and provides the benefit package, and he charges $100 for his speakers. Noone wants your over priced speakers because they cost more than his. Don't you dare ask enough for your speakers to considered a professional. Your a fool in a truck and that is all you will ever be, so act like it.

Actually what they have done has figured out what the market will bear and charged accordingly. Customers by and large do not care what your costs are. They care what you want to charge them. It is a serious mistake to believe you can set your prices based on some model of what your costs are. It just does not work that way in the more or less free market we live in. It is a good way to determine if it is practical for you to go into business, but not a good way to determine your rates once you are in business.

It is a good exercise in any case. And you may be surprised at how much elasticity there is in what you can charge (I got that word from my brother Dr. Carl the economist).

It is also a serious mistake to believe that because you have high overhead costs that other similar businesses also have those costs. Some business people are just far more efficient at what they do than others are. It is entirely possible that one guy can make money charging $50 for a product or service and another guy lose money charging $100 for the same product, in fact, such a situation is actually pretty common.

See, this guy has it all figured out. Listen to him. Then again, he's not an electrical contractor. He's just a guy telling you what he thinks ought to work. Would be nice it the market was full of people that could afford new trucks, not guys that are out of business within the first 5 years.

 

[jrannis]

Went to a customer house last night because they wanted me to do some work that was suggested fron a "free electrical inspection". Seems they had a problem with their air conditioning system, so they called a "flat rate" contractor. They sent out an A/C technician to look at and quote the repairs. They also sent some sort of electrician to give them a free quote on their electrical system.

Here are their results:
1. Found corrosion on neutral wire at neutral bar.
2. Found 3 outdated circuit breakers.
3. Found Non GFCI receptacle serving kitchen counter.
4. Found Non GFCI receptacle/switch combo in 1/2 Bathroom.

Suggested repairs to the above problems.
1. Clean corrosion from neutral wire $120.00
2. Replace outdated circuit breakers with new breakers. $245.40
3. Install GFCI receptacle. $152.25
4. Install GFCI receptacle/switch combo. $152.25

WOW. $669.90 plus sales tax!!!!

They walked right by the main bathroom that had a receptacle as part of a light fixture. I guess they didn't know what to do with this as they didn't mention it. I was not aware that circuit breakers could be "outdated".

They will not be doing the work, needless to say. The whole job should be less than $300.00 including GFCI protecting the other bathroom and I still will make money. I couldn't charge $700.00 and still be able to sleep at night.

Has anyone else dealt wth these "flat rate" companies?

I think you blew it. You should have noticed that the neutral conductor didnt really look that bad to you and cleaned it for half the price, turned off the power, tightned up all of the screws in the panel vaccummed out the panel, wiped it all down, changed the GFIs and other work and charged $609.90.
Then take Friday off!!

 

[Tiger Electrical]

To the OP who seems to be hanging back for the occasional pot stir...residential electrical service contracting is a tough business to be in. Anyone who watches TV thinks they can become a part-time electrician because it's so easy. The drop in new construction has put many ECs out of business and has a lot of hungry electricians looking for work. The rise in metal and fuel costs is driving more ECs under, who typically earn less than 10% annual profits.

As stated by others, at least two things are working against you. You're clueless as to your true operating costs and are likely without benefits, or getting them from your day job. The other is that T&M punishes experience and the use of professional time-saving tools and testing equipment. I can troubleshoot in 1/4 of the time it took me 20 years ago and I can produce twice what I did 20 years ago. I dropped T&M six years ago (like a bad habit) and will never go back.

Dave

 

[roger3829]

I'm always willing to provide the customer with a cap to the price based on a worst case scenario. My estimates are alway based on worst case scenarios. If the customer is unwilling to accept it I take a walk.

Flat rating appears to be a cookie cutter aproach. The price is fixed at a minimum before you arrive to look at the job. Instead of a minimum price set on a specific case by case method the minimum is set more general basis and can be applied across a broader spectrum of jobs. If that works for you that's great and I'm not faulting you for it. Who doesn't want to make more money?

Since I really only get online during the day this post really took off in several directions.

I always try to give my customers the best job for the price so long as I can make money on it. If a customer wants a price for residential work I try to give them a ballpark price with a cap based on worst case. Even at worst case I still have extra time/money built in. I have lost jobs because my price was too high, and also have got jobs that were priced higher based upon my reputation. I always chagre time from leaving the shop until I return. That could also mean picking up materials, getting gas on the way, stopping to get a rat burger to eat enroute.

I understand flat rating has it's ups and downs. I'm not saying that I don't want to make money. What I am saying about flat rating is even if the $152.00 that they charged to change 1 GFCI was an acceptable price, charging the same amount to change a 2nd GFCI while at the job seems to be a little high to me. That's like saying you would pay your flat rate mechanic $152.00 to open the hood on your car and change 1 spark plug. Then while the hood was open changing every additional spark plug is $152.00. So what are some of you saying? Charge the customer 6 hours for a job that could be done in 2 hours without rushing?

I really don't care what the going rate is for my area necessarily. I'm not worried that the guy down the street is charging less. I put a price on a job that I can make money on and a price that is fair to the customer. For any service work I do it's a minimum charge of 1 - 1/2 hours.

The other part of the problem with this flat rate company was the fact the they ignored one bathroom. Why? It wasn't listed in their "book"?? That isn't good customer service. 95% of all my work comes from customer referals so why wouldn't I want to give my customer good service?

Residential electrical work is tough as Tigerelectric pointed out. I have been doing it for many, many years. I was just wondering how you do troubleshooting without it being T&M? Just tell the customer that you are going to charge them for 8 hours and hopefully be able to fix anything in 2 hours?

 

[bikeindy]

Every contractor who wants a cheap price from me asks, "Can you do that time and material?" If I were to say yes their next statement would be, "Great I can get all the materials" I don't think so. Do they want to provide the tools too?

 

[Tiger Electrical]

T&M can be a safe system (for the EC) for the unknown of how long a troubleshoot and repair will take. Troubleshoot charges are one of the challenges for a flat rate EC. IMO troubleshoot shows more than anything the down-side of T&M for the EC.

From a purely mathematical point-of-view look at the troubleshoot charge as a fixed item rather than a variable item. If you have an identical electrical problem and take out all the variables of overhead and inflation, say this is a $200 troubleshoot item at flat rate. In your first year of business it takes 10 hours to find the problem ($20/hr). In your fifth year in business it takes 4 hours to find the problem ($50/hour). In your 20th year in business it takes 2 hours to find the problem ($100/hour). That is if you charge $200 for it at flat rate.

If it's T&M at $75/hr you make $750 your first year, $300 your fifth year, and $150 your 20th year. Does this seem as backwards to you as it does to me...that you'd be paid less for all those years of experience?

Dave

 

[roger3829]

T&M can be a safe system (for the EC) for the unknown of how long a troubleshoot and repair will take. Troubleshoot charges are one of the challenges for a flat rate EC. IMO troubleshoot shows more than anything the down-side of T&M for the EC.

From a purely mathematical point-of-view look at the troubleshoot charge as a fixed item rather than a variable item. If you have an identical electrical problem and take out all the variables of overhead and inflation, say this is a $200 troubleshoot item at flat rate. In your first year of business it takes 10 hours to find the problem ($20/hr). In your fifth year in business it takes 4 hours to find the problem ($50/hour). In your 20th year in business it takes 2 hours to find the problem ($100/hour). That is if you charge $200 for it at flat rate.

If it's T&M at $75/hr you make $750 your first year, $300 your fifth year, and $150 your 20th year. Does this seem as backwards to you as it does to me...that you'd be paid less for all those years of experience?

Dave

That's fine if all the troubleshooting problems are identical. Then your math may seem to work. But getting the job done sooner allows for more jobs.

 

[satcom]

Everyone is confused on how flat rate works, it is not one set price for any task, to use flat rate you need to learn the system, for example a troubleshoot call may have a base price for different trouble shooting tasks, then after the electrician gets to certin level he has the customer sign the approval to proceed, with either more shooting, or the cost of the actual repair, there is more to it then just pulling a number out of a book, anyone that thinks the flat rate is just open a book, and charge is lost in flat rate land, some flat rate jobs may require an on site estimate, no cookie cutter systems, and don't expect anyone that has real any real experience with a system to give up the methods, and expensive data, on any open site or blog, there are many good companies out there that offer these services, and have programs that offer trainning.

 

[petersonra]

We have been doing it for the last 25 plus years, along with many other contractors, can you explain why many of the contractors that don't base their pricing on overhead cost and operating expenses, have short business lives. It is not aNexstar or ESI, concept, it is a basic business practice.

No, it is a basic misunderstanding. What they are doing is figuring out what their break even point is and setting their rates above that.

What they should be doing is figuring out what the market will bear and charge that. It is often a much higher number.

 

[aline]

Roger3829,

I just have a few questions.

Is contracting the only job you have or do you have a second job that provides you with paid vacation, paid sickleave, retirement plan, 401k, health insurance, dental insurance, etc.?

Are you married and if so does your wife have a job that provides all these benefits?

Do you have employees and if so do you provide them with all these benefits?

Do you have nice service trucks fully stocked with materials so you can complete most repairs and jobs on the spot?

Are you saying the job should have only cost that much base on your situation or are you taking into consideration the situation may be different for other contractors?

The reason I ask is because it makes a big difference as to what needs to be charged to make a profit according to someone's situation. Just because one person can make a profit in his situation doesn't mean that's what the job should cost. I believe a lot of contractors that say these companies are over charging either don't do service and repair work as their main line of work or they have a second job.

Some contractor's don't have a second job or a wife that works. They have 5 kids and are the sole provider for their family. Their contracting business has to cover all the expenses, provide a retirement plan, paid vacation, paid sick leave, health insurance, dental insurance, etc.

If they have employees they have to provide this for them as well. (Well maybe some don't provide any benefits.)

There are also slow times as well. What happens when you send an electrician out and he completes the job an hour earlier than expected and the homeowners aren't home yet for the next appointment so he has to kill an hour before he can go the next appointment? This unbillable time has to be made up somehow.

 

[petersonra]

The other is that T&M punishes experience and the use of professional time-saving tools and testing equipment. I can troubleshoot in 1/4 of the time it took me 20 years ago and I can produce twice what I did 20 years ago. I dropped T&M six years ago (like a bad habit) and will never go back.

Dave

Good for you. One of the issues that I have noticed in the EC business is a focus on hours as opposed to useful work. I think it comes from the mentality of the organization we cannot speak of where all workers are considered to be essentially equivalent.

People are all different, and have different abilities and skills. Pretending that every person with a journeyman card has essentially the same level of skill and ability is just plain dumb. Worse yet are those that rely on that situation being true, and then wonder what went wrong.

 

[emahler]

But getting the job done sooner allows for more jobs.

so? if you are billing honestley, you will make $600 for labor, no matter what..($75 x 8 hrs)...the more jobs you do, the more your costs....the less profit you make....

 

[KnobnTube]

Be realistic please, my goodness

Be realistic please, my goodness

Then you have never been to a new car dealer to have work done, how do you figure that any automoutive tech makes thay kind of money, you have no idea of the cost for operating a service station operation, these guys have a large investment in prime location properties, again another guy thinking all the money comming in is profit, with no idea of costs of doing business.

Originally Posted by satcom

We just got the car back from the garage, they worked on it for 45 minutes, and put in about $39 in parts, the bill was $527 and I am sure he will spleep well at night, knowing his family will be provided for, and his bills paid, your lucky to get an appointment to have work done there, we do have another garage just up the street that charges, less then half the price, only problem is you never know how long your car will be tied up and you may have to bring it back 2 or 3 times to get it right, he has no waiting lines at his place, and at times no business either..

Apparently there is a short memory here. You stated the cost was $527 for 45 min work. Do the math.
I never said the tech got the money, the charge for the tech was over $500 hr. and there is NO dealership charging that for a tech. The dealers work out of a cost book which states the time it will take for a particular job and the cost. They use cost books because most items are a known as to time and material on replacements. Diagnostics are by the hour with estimates and can change but the hourly is known and not in the $500 range. Thats about 4 times the going rate at any dealer. Really, dont exaggerate.
I only use the dealer where my vehicles are purchased. General Motors to be precise and get a lot more work for $500 than you get.

:smile:

 

[aline]

What I am saying about flat rating is even if the $152.00 that they charged to change 1 GFCI was an acceptable price, charging the same amount to change a 2nd GFCI while at the job seems to be a little high to me. That's like saying you would pay your flat rate mechanic $152.00 to open the hood on your car and change 1 spark plug. Then while the hood was open changing every additional spark plug is $152.00.

I can't speak for anyone else but I do reduce the price for addtional tasks while there. I charge a higher price for the first one and a reduced price for each additional one.

Maybe the $152.00 for the GFCI receptacles was the reduced price. Maybe the expense to come out was included in another task. Maybe it would have been $304.00 to come out and just replace one GFCI receptacle without any additional work.

I do know I haven't been able to get $152.00 each for replacing receptacles with GFCI receptacles. I wish I could. I'm not that good of a salesman.

It's even tougher when the guy at Home Depot told them it would take 10 minutes for the electrician to install the GFCI receptacle they just sold the customer.

I get these kind of calls where the customer says they just bought a GFCI receptacle and the guy at Home Depot said it's a 10 minute job to have it installed how much will it be to have you come out and install it?

They expect you to do it for less than $50.

 

[roger3829]

Roger3829,

I just have a few questions.

Is contracting the only job you have or do you have a second job that provides you with paid vacation, paid sickleave, retirement plan, 401k, health insurance, dental insurance, etc.?

Are you married and if so does your wife have a job that provides all these benefits?

Do you have employees and if so do you provide them with all these benefits?

Do you have nice service trucks fully stocked with materials so you can complete most repairs and jobs on the spot?

Are you saying the job should have only cost that much base on your situation or are you taking into consideration the situation may be different for other contractors?

The reason I ask is because it makes a big difference as to what needs to be charged to make a profit according to someone's situation. Just because one person can make a profit in his situation doesn't mean that's what the job should cost. I believe a lot of contractors that say these companies are over charging either don't do service and repair work as their main line of work or they have a second job.

Some contractor's don't have a second job or a wife that works. They have 5 kids and are the sole provider for their family. Their contracting business has to cover all the expenses, provide a retirement plan, paid vacation, paid sick leave, health insurance, dental insurance, etc.

If they have employees they have to provide this for them as well. (Well maybe some don't provide any benefits.)

There are also slow times as well. What happens when you send an electrician out and he completes the job an hour earlier than expected and the homeowners aren't home yet for the next appointment so he has to kill an hour before he can go the next appointment? This unbillable time has to be made up somehow.

Yes. I do have a 2nd job that provides benefits, etc.

Yes, married, no benefits:grin:

No employees at this time. Had them in the past. They didn't need benefits fortunately.

Yes. I do have a nice truck that is fully stocked for most jobs.

I do a fair share of service and repair work. There are slow days as well as busy days. There have been days when changing outside flood light bulbs for a couple of customers for an hour resulted in 3 hrs of billable time.

I understand that everyone has different overhead costs. I understand that there would be a difference in the cost of a job from one contractor to another. As my son is getting ready to join me in the trade, my overhead will probably change and my productivity will go down.

 

[bradleyelectric]

there are many good companies out there that offer these services, and have programs that offer trainning.

Do you use a flat rate system? Do you think there are better places to obtain this information than others? Who do you prefer and why? Why do you think noone that has any real experience with a system will give up the methods, and expensive data, on any open site or blog? Isn't the idea to raise the stanards that we are thought of to a level of other professionals? Wouldn't openly sharing this information do that? Do not misunderstand these questions as an attack, I am honestly looking for answers to help my business.