Should Your Contracting Business Offer Flat Fees? 

Pricing contracting services can be tricky. For starters, the pricing strategy should guarantee profitability and keep customers happy at the same time. You also want it to be convenient, accurate, and easy to bill. 

Many contractors simplify billing by charging a flat fee for their services. Flat fee pricing could work for your contracting business, too. 

But don’t change your pricing model just yet. First, let’s explore flat fee pricing to see if it fits your enterprise. This article answers the following questions: 

• What is flat fee pricing for contractors? 
• Is flat fee pricing better than time-and-material pricing? 
• What are the benefits and drawbacks of charging flat fees? 
• How do contractors calculate flat fees? 
• How do you get customers on board with flat fee pricing? 

Read on to understand flat fee pricing for contracting services. You can then decide whether it’s the best pricing model for your business. 
 

What Are Flat Fees in Contracting? 

Flat fee, fixed fee, or flat rate pricing is a pretty straightforward billing approach. You simply charge a fixed price for a job upfront and get paid that amount once the job is done. 

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Here’s an example of what flat fee pricing looks like in the contracting business: 

Let’s say you’re laying floor tiles in a residential home. The floor covers 2,000 square feet. Given the job’s complexity, you decide to charge $30 per square foot. So, flooring the entire house comes to $60,000. 

You simply present the $60,000 quote, the customer signs off on it, and that’s it. 

The thing about flat fee pricing is that the quote is final. Once you’ve agreed on a price, you can’t change it during or after the job. That means you can’t ask for more money if the contract exceeds the planned budget or timeframe. 

So, you have to be really careful when calculating a fixed price. 

With flat fee pricing, you must have a good idea of each project’s budget. The final figure should cover any expected costs. It should also account for the job’s complexity, the value of your services, and earnings. 

Flat Fees vs. Time-and-Materials Pricing 

Contractors generally bill services using one of two pricing models: flat fee and time-and-material pricing. 

How are these two different? And is one better than the other? 

As the name suggests, time-and-material contracts are based on the supplies and work hours that go into a particular project. You start by estimating a project’s material and labor costs. Along with the hourly rate, you may include a predetermined profit markup. 

Working with time-and-material pricing is a lot more sophisticated than charging flat fees. You have to track and record supplies and working hours throughout the project. Only after summing up the costs can you present the client with the final quote. 

Note that the final quote may not necessarily match the initial estimates. But that’s okay. This pricing model is flexible enough to accommodate unexpected costs. 

Unlike flat rate pricing, time-and-material pricing safeguards your profits against cost overruns. You’ll still make your money regardless of any unplanned material or work requirements that arise during the course of the project. 

However, this flexibility introduces some risks. Most notably, it’s easy for a project to creep out of scope. Since the customer knows they’re only paying for time and materials, nothing can stop them from piling on more work. A two-week tiling job can quickly turn into a month-long floor overhaul. 

Another problem with time-and-material pricing is that it doesn’t reward performance. And neither does it recognize the value of your work. You won’t get paid more for completing a project quickly. If anything, you might earn less. On the contrary, working faster earns you more with flat fee pricing. 

Clearly, either pricing strategy has its strengths and weaknesses. Flat fee pricing promises higher potential earnings and billing simplicity but at greater risk. On the other hand, time-and-material pricing is a safer bet, though it might limit your earnings. 

Below is a table summarizing the key differences between fixed fee and time-and-material pricing: 

Flat Fee Pricing	Time-and-Material Pricing
Involves a single fixed upfront quote typically paid after completing the job	Involves an initial quote and a final quote incorporating material costs, labor charges, and profit margin
The contractor absorbs any budget or time overruns	The client absorbs any budget or time overruns
Fixed contract focused on results and customer expectations	Flexible contract often with dynamic goals and logistics
Simple billing process	Rather complicated billing procedures
Works best for straightforward contracting services with well-defined scopes, requirements, and outcomes	Works with any type of contract, including those with unclear, multi-faceted, or evolving goals

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The Benefits of Offering Flat Fees 

More and more contractors are switching to a fixed pricing model. For example, up to 80% of construction contracts have a fixed price. That’s because this method of billing presents several advantages to contractors. 

Here are four reasons why you might want to consider charging a flat fee for your contracting services: 

Simplify Your Billing Processes 

We’ve already mentioned that flat rate pricing simplifies billing. But how does it do that, and how easy can flat rate billing really get? 

Well, it’s easy because you don’t need to justify the quote to the client. That means you don’t have to meticulously track expenses, log work hours, or prepare countless receipts and invoices. You, of course, have to calculate a project’s costs, but all that is done internally. 

There are fewer administrative procedures when it comes to billing flat rate contracts. All you may have to do is serve the client with a brief initial quote and a very short invoice after the work is done. 

The Customer Only Cares About the Results 

Flat rate pricing considers only the end results. The customer pays you for completing the job—it’s as simple as that. That is, as long as you’ve met the customer’s expectations, such as deadlines and quality standards. 

This pricing type abstracts the project’s logistics from the deliverables. The client doesn’t need to know how many hours or tons of materials went into completing a job. That simplifies the client-contractor relationship since you’re only focused on the results. 

You Stand to Earn More 

After agreeing on a flat fee, you can actually cut costs and earn more by delivering quality results faster. But don’t get it wrong; saving costs and working faster does not mean doing substandard work. It’s greedy contractors who feel incentivized for sub-quality performance that give fixed rate pricing a bad name. 
 

If you’re exceptionally good at project planning and predicting costs, you can easily earn more by selling fixed-fee contracts. 

Put the Client at Ease 

Customers love flat rate pricing, too. Over 92% of homeowners prefer flat rate pricing to hourly rates. So, what’s in it for them? 

The answer is simple: peace of mind. 

From the customer’s perspective, a flat fee is predictable and reassuring. If a job’s quote is $10,000, the customer knows they’ll not pay a penny over the $10,000, even if the project faces delays and cost overruns. So, the project becomes much easier to budget for and fund. 

Offering flat rate pricing attracts customers looking for this peace of mind. It also helps establish your brand as a trustworthy and capable contractor. 

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The Drawbacks of Flat Fee Pricing 

While flat fee pricing is a great billing model favored by contractors and customers alike, it does have some serious limitations. 

You Risk Incurring Losses 

Profiting from flat fee contracts hinges on your ability to predict a project’s costs accurately. Remember, you can’t ask for more money once you start working. So, any extra expenses you incur will eat away at your profits. 

Sometimes, unexpected circumstances outside your control can drive up costs. For instance, random material cost hikes, labor scarcity, and new regulations can take money out of your pocket. 

Flat Fee Contracts Are Open to Negotiations 

Since you’re not obligated to justify your pricing, many customers see that as an opportunity to haggle. Negotiations are actually pretty common in fixed-rate contracts. And it sometimes takes a lot of negotiating to convince a client that the ask is fair. 

Fixed Contracts Can Raise Disputes 

A fixed fee contract should clearly state the project’s scope and the customer’s expectations. Any ambiguity in the agreement can raise disputes between the contractor and the customer. But even with a discrete contract, the client might still press for more work beyond the agreed-upon scope. 

Disputes over the contract’s particulars usually lead to costly delays and a bad brand image. Obviously, you don’t want that. 

Inflexibility Can Become a Problem 

Fixed-fee contracts are, in essence, “fixed.” Once the project starts, neither party can change the terms of the contract. 

However, circumstances might force you to rethink the original contract. 

Let’s go back to our tile-laying example. You’ve charged $60,000 to lay the tiles, only to discover that the subflooring needs a complete overhaul. By your estimates, that will cost another $60,000. What do you do then? 

You can only do one thing—ditch the original contract and draft a new one. However, restructuring fixed contracts is often easier said than done. And assuming you had already lined up a crew, materials, and equipment for the original job, you’ll have very little leverage at the negotiation table. You’ll essentially be at the client’s mercy. 

That’s why it’s so important to do a thorough site review before taking on a fixed-fee project. 

How to Calculate Flat Fees for Contracting Work 

Getting the figures wrong is the worst thing you can do when selling flat-fee contracts. Quoting a low figure could shrink your profit margins or, worse, lead to financial losses. And quoting too high a figure won’t sit well with the client. 

Despite the high stakes, calculating flat fees is pretty straightforward. You simply add up the various costs of rendering the service plus a decent markup. 

Your contracting costs may include: 

• Material costs 
• Labor costs 
• Transportation costs 
• Permits, licenses, and insurance fees 
• Crew upkeep costs 
• Fuel costs 
• Machinery, tools, and equipment costs 
• Overhead costs (rent, utilities, and marketing expenses) 

The markup is basically a percentage of profit based on the job’s complexity, the value of your services, and market pricing. A good profit margin should hover around 20% of the final quote. 

The only difficult part of calculating flat fees is generating accurate cost figures. You must be careful not to underestimate or omit costs. 

This is where your contracting experience comes in handy. Drawing from past projects, you can more accurately predict how much a new contract will cost. 

Field service management software such as Service Fusion can simplify your flat fee calculations. Service Fusion has powerful project management, cost estimation, and billing features. Going digital is a great way to maintain pricing accuracy and cost efficiency. 

Communicating Flat Fees to Your Clients 

Flat fee pricing makes contracting easier for the customer. There’s only one price to pay—no surprise invoices at the end of the project. The final quote is presented well in advance, too. That way, the customer knows exactly how much they’ll pay before the project starts. 

However, not everyone is sold on the idea of paying flat fees. Some customers simply don’t trust or understand flat fee contracts.  

Here’s what you can do to turn such customers around: 

• Educate your customers on the advantages of flat fee pricing. Explain how flat fee contracts eliminate financial risks from their end. 
• Quote reasonable figures that you can easily justify with other pricing models. 
• Let the customer choose the billing structure they’re most comfortable with. Offer both flat fee and time-and-material pricing options. 
• Prepare detailed fixed fee quotes showing a rough budget structure. This will make the customer feel that you’re actually putting their money to work and not just into your pocket. 
• Showcase a portfolio of past projects, proving to new clients that you mean business. 

Next Steps: Are Flat Fees Right for You? 

• Flat fee pricing means charging a fixed upfront fee for a contracting job. It’s the ideal pricing model for contractors offering straightforward services such as flooring, roofing, appliance repair, etc. 
• This type of pricing maximizes your profits and drastically simplifies billing. 
• The main downside of fixed pricing is the risk of incurring losses if the project exceeds the planned budget. 
• Flat fee pricing is great for customers, too. However, it might take some effort to convince all customers to pay fixed fees. 
• Effective flat fee pricing relies on your diligence, transparency, and honesty. 
• If you’ve been in the contracting business for a while and understand the market and the scope of projects, flat fees might be the correct pricing structure for you. 
• Digital solutions can help you streamline cost estimation, pricing, or project management. That should improve the effectiveness of flat rate pricing. 

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