Flat Rate Pricing verses Time and Material Pricing
There remains a controversy on the best format for pricing service and light installation projects. You notice that I said "light installation" projects. I would classify a "light installation" project as a repair project that would take more time and materials than a single replacement of a part. It may contain several parts and more time to repair, but less time and materials than a major project. Major projects require an estimate of labor, materials, overhead and profit. This would include a contract detailing the project, warranties, disclosures and payment schedules (see HVAC Estimating). Most pricing structures for service and light installation projects are through a flat-rate or a time and material (T&M) pricing framework. With flat rate pricing, the customer agrees (or disagrees) with the set amount and accepts (or denies) to continue with the repair after a diagnosis of the problem. With T&M pricing, the customer is given an estimated price of the repair and accepts that the price will be in that cost range upon completion. Let's break the two pricing programs down. Flat rate pricing is a fixed price that includes the labor, material costs, overhead (including taxes) and profit to perform a repair. To do the same repair using T&M pricing, time is charged at the company's labor rate and its price (and mark-up) for the materials used. These expenses are calculated and any taxes added for a total. I have found that T&M pricing can be fine for small companies. A competitive labor rate and a mark-up on materials can compensate for overhead and profit. What if you have three or more employees doing repairs? Is each employee responsible for how long they would complete the repair, plus the time calling the office or looking through a book to find the price for each item they used? What about the time it takes to write all this information on an invoice and to calculate the total? If you already calculated a price guide for your materials, you may not realize it, but you are halfway through developing a flat-rate price program. Flat rate pricing programs have developed with the times. With more and more people buying online and the availability to check (and compare) prices, flat rate pricing is the best option to eliminate any customer dissatisfaction with the price. This alone could cost you a customer. With flat rate pricing, the customer knows up front what they are getting and what you are charging them for the repair. Flat rate pricing software can calculate and update material costs and overhead expenses. A computerized program can produce reports and databases for other departments like inventory, accounting and management. Flat rate pricing is for any industry that provides a repair service; be it computers, plumbing, appliances or even pest control. In my industry (HVAC/R), I have seen these programs used to control future costs and increase profits. If you charge a labor rate and costs for materials used on a project, you could benefit using a flat rate pricing program.