Flat Rate or Time & Materials – Which Pricing Should You Use?

Selecting the right pricing model for your home services business is a whole lot easier when you understand the advantages and disadvantages to each.

If you’re a service contractor in the HVAC, plumbing, or electrical industries, you’re probably not new to the concepts of flat rate pricing and time and materials (T&M) pricing. But do you know which pricing model is best for your business?

If the answer is no – don’t worry – let’s dive into the key difference between the two and explore the main advantages and disadvantages of each.

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Time and Materials Pricing vs. Flat Rate Pricing

On one hand, you have T&M pricing, where the homeowner is billed for time and any related costs associated with the job as they occur.

On the other hand, you have flat rate pricing, where the cost of the tech’s hourly rate and the cost of any parts is all rolled up into one up-front price that’s presented to the homeowner before the job begins.

When deciding which model is best for your business, consider the following:

Flat Rate Pricing

As with any pricing structure, flat rate pricing has its pros and cons.

Pros:

• No Surprises – When a homeowner is presented with a price upfront, they don’t have to worry about hidden costs being added to their bill and won’t be surprised with a higher invoice at the end of a job.

• Puts the Homeowner at Ease – With time and materials pricing, the longer a job takes, the more money it will cost the homeowner. By providing them with a fixed price before the work starts, your homeowner won’t feel inclined to watch the clock or pressure a tech to finish the job faster. And without a homeowner hovering over their shoulder, the tech can keep their focus on performing quality repairs.
• Increases Control of Margins – With flat rate, you can set your rates based on how much profit you want to generate a day to cover operating expenses, allowing you to better predict and control your margins.
• Improves Efficiency – When using T&M pricing, you may have to call the supply house or office for parts pricing when on the job. With flat rate, you can instead leverage a pricing database to find pricing information. For example, Profit Rhino’s flat rate database covers 95% of most common repairs. With a database with accurate pricing at their fingertips, a tech can move forward with doing the job instead of waiting on the phone for pricing.

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Cons:

• It’s Not Perfect – No flat rate system is 100% perfect – but they can get pretty dang close. Think about it: if a flat rate book housed every single task you could possibly encounter in the field, it would be impossible to hoist it! But as we said earlier, a flat rate book like Profit Rhino’s can give you access to 95% of the most common repairs. Plus, Profit Rhino’s price books come with quarterly updates, so you can feel confident you always have the most current information available.

Time and Materials:

Understanding the pros and cons of both pricing options is critical to choosing wisely. Now, let’s look at both sides of T&M pricing.

Pros: 

• It’s Flexible – The main benefit of using T&M pricing is the flexibility it offers. If different parts are required or more time is needed to make a repair, you can easily modify the scope of work when you use T&M pricing. Unfortunately, changing the work volume may mean a steeper bill for your customer, which could result in pricing disputes and increase homeowner-tech conflict. That brings us to our next point…

Cons:

• Increases Homeowner-Tech Conflict – What happens when a 2-hour repair becomes a 4-hour repair? The homeowner ends up paying much more than they initially thought. The same thing goes for when a slow-moving, less experienced technician is on the job; the homeowner has to cough up more money for the tech’s lack of efficiency. When this happens, the homeowner is more likely to dispute the price and you risk negatively affecting customer satisfaction.
• Increases Pressure on Tech – The tech may feel pressured to avoid homeowner conflict by moving through the job quicker. This creates room for error and can ultimately impact the quality of the work delivered.

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After reading through the above information, you may have picked up on the fact that we favor flat rate pricing. But we’re not the only ones.

In fact, a whopping 92% of homeowners actually prefer flat rate over T&M pricing. That being said, switching to a flat rate model can help your home services business attract more customers, and as a result, increase your profits over time.

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