Does the tried-and-true flat-rate pricing model used by most pumpers ensure a fair profit job after job?
Do you get stung by the septic service industry’s standard practice of offering flat-rate pricing for the work you perform? You quote the price to pump a 1,000-gallon tank, and find any number of complications keep you at the work site longer than expected. For example:
- Your fee is $50 to dig up two tank openings, but the tank turns out to be deeper than you expected and the soil is nearly as hard as the concrete tank you’re trying to reach. It takes you far longer than anticipated to gain access and pump.
- A tank is so packed with years of sludge that you spend way too much time chiseling through the hard scum layer and trying to loosen the contents to get the slurry on the truck. The nightmare job set your day back and forced you to cancel a service call later in the afternoon.
After jobs like these, have you been tempted to switch to the hourly pricing business model used by many plumbers and other service contractors?
MAKING GOOD POINTS
Contractors with experience employing flat-rate and hourly pricing say there are benefits to both approaches.
Flat-rate pricing is predictable. It lets you tell the customer up front what the job will cost, and it gives your crews an incentive to work efficiently. Billing by the hour, on the other hand, fairly recoups your real costs and ensures consistent profits (assuming a rationally structured rate, of course).
“Flat-rate pricing is better for the company and for the customer,” Brandon Simpson, owner of Simpson Plumbing in Tracy, California, says.
Jeff Paquet, owner/operator of Gas Man, an HVAC contractor in Ottawa, Ontario, Canada, disagrees: “While flat-fee pricing seems ideal on the surface, it can actually lead to sloppy work from the contractor to get the job done as quickly as possible,” he says.
To sort through these viewpoints, we reached out to a variety of wastewater-related contractors. After all we heard, we come firmly down on the side of “it depends.” Cop-out? Nope — the best decision hangs on your mix of customers, specialties, and other variables specific to your business.
“In the service business, pricing comes from years of experience and hard lessons learned,” says Mark Vice, co-owner of Fayette Drain and Sewer in Fayette, Alabama. “From my experience, 80 to 90 percent of people want to know, ‘What is this going to cost me when you are finished?’”
That doesn’t automatically dictate flat-rate pricing, though. “I like to quote jobs by the day or half a day, and if equipment is needed or not,” Vice says — in short, an hourly system, although in four- or eight-hour increments.
That’s the best way to capture fixed costs, he contends — especially for labor: “Because, at the end of the day, my employees need eight hours, and I have to pay them.”
Adds Gas Man’s Paquet: “As long as you have confidence in the ethics of the contractor, the hourly rate is generally the best option to ensure the work is done properly with attention to detail.”
Jason Roberts represents My Handyman Services, a broker for home improvement trades, including plumbing, in London, England. The company bills all its work by the half-hour — a one-hour minimum and then half-hour increments after that, and posts its rates on its website.
“The issue with charging per job is that sometimes even if the job is complicated, the handyman may complete the task, let’s say, in one hour,” says Roberts. “Some clients might say, ‘He charged me so much and he was here only one hour!’”
Customers billed by the job “believe that they have done you a favor by giving you some work,” he finds — so they’ll push for return favors in the form of free add-ons: “While you are here could please fix this pipe as well?”
DRAG YOUR FEET?
Bill Sanders has some pretty strong words on the other side of the debate.
“Hourly billing is fundamentally unethical,” argues Sanders, a San Francisco business consultant whose clients include plumbing contractors. “It puts the customer and the contractor at odds before the job even starts,” he charges, because an hourly paid contractor “is incentivized to stay longer.” Flat rates allow customers to decide on their investment up front and “realigns the interest of both parties.”
One Sanders client, a plumber, scored higher profitability and market penetration after implementing flat-rate pricing (before Sanders began working with the firm).
Flat-rate billers contend customers like it. “It helps them control their costs,” says Simpson. Prices can’t balloon, “especially if you’ve got an experienced plumber who can spot the potential stumbling blocks before the job starts.” If the job runs longer than expected, “customers won’t be watching the clock because they know their own costs won’t rise” — boosting their satisfaction.
Strategically deploying your personnel can boost profits. “If the book gives a plumber four hours to complete a job, but a more experienced plumber can get it done in half the time, it essentially packages a higher hourly rate into the flat price,” Simpson continues. Of course, he points out, you want to be sure your employees are well trained.
While Vice of Fayette Drain and Sewer leans toward time-based pricing, his service crews are different. The company maintains flat-rate pricing for some jobs, including drain clogs, residential water leaks and septic pumping.
Simpson acknowledges that a flat-rate job finished quickly can translate into a steep hourly rate and trigger customer complaints. But he contends that’s rare. “On the other hand, if you bill by the hour and the job takes longer than expected, your chances of receiving complaints increase quickly.”
Sanders points out that contractors like plumbers, drain cleaners, HVAC repair services and others are there to fix a problem — bringing to the job “a ‘head,’ not simply a set of ‘hands,’” Sanders reasons. Besides the simple labor and parts put into the job, the flat-rate bill should appropriately reflect the expertise and the investment in continued training.
For Vice, the question of flat vs. hourly really leads to deeper considerations.
“I spend a lot of time doing quotes and looking at jobs,” he says. “I have learned that you don’t get every job you quote, so you don’t need to cut yourself short just to be cheapest.” He also wants to avoid race-to-the-bottom competitive bidding.
“As a service company, I do not like to bid jobs, because if you are just looking for the cheapest price, that is not going to be me,” he says. He prefers to sell reliability and local presence. “I look at potential problems in the future, because I will be the one who services it years to come.”
BEST OF BOTH WORLDS
Vice has clearly poured time and energy into figuring out what system works best — which is why he’s opted for a hybrid. “I wish I had a flat-rate system that worked for all situations,” he admits. “It would make my life easier, but figuring that system out and implementing it I think would be a miracle within itself.”
Perhaps you’ve used the flat-rate pricing model for years or generations and it’s working out fine. But it doesn’t hurt to consider practices used by related contracting businesses in your area and make adjustments when it seems practical or if it will improve your profitability.