ECN Forum Forums General Topics of the Trade Business Related Discussion Flat Rate Pricing vs. T&M

At a party last Sat. a friend told me he had the local large mechanical outfit install a toilet for him. The toilet was $300 and the installation was $300. He said it took an hour. The toilet probably cost them $125. I REALLY have to give some serious thought to a flat rate system.

Have any of you done it on your own without a book? The book seems a good crutch to justify the prices to your customer.

Dave

Hello everyone.

Just my thought here. I only do T&M work, no bid jobs at all. I do not have to buy software to do estimating, no worries of loosing money on jobs because of unforseen events, and mostly, no estimating times that may or may not get the job. I try to do an honest job for an honest price. That is my niche. Some other folks make a living by job pricing, but I have found the repeat business is lost when the customer feels gouged in any way. I built my busines on repeat business. It works for me, may not work for someone else.

Just my thought on this..

so since you don't give estimates do u ever have potential customers look else where?

I use flat rate but didn't have to buy some fancy and pricey software. I fill that flat rate is the best of both worlds. I have a gooday instead of only getting lets say 15.00 for a switch I get over 50.00. I have a bad day I don't have to charge 200.00+ to chnage a recpt

If I call the contractors advertising in the phone book in my area and ask what their hourly rate is I get anywhere from $40 to $60 Per hour. When I was doing T&M I was having a hard time getting my customers to accept a rate of even $40 and hour. At $40 an hour I am losing money. When I went to flat rate my hourly rate went to $80 per hour and now I am at $100 per hour. I want to get it up to at least $130 per hour. I don't think I could ever do this charging T&M. I could see the look on my customers faces when I tell them that will be $130 per hour plus markup on materials. I'm not sure how long it will take. Right now I need to charge $65 per hour just to break even with no profit. This is based on paying me a salary of about $60,000 per year. I want to do more advertising and grow my business and have a personal income of at least $100,000. To do this I will need to bill out at $130 per hour or more. I don't see how I could do this with T&M.

[This message has been edited by A-Line (edited 12-13-2004).]

[This message has been edited by A-Line (edited 12-13-2004).]

Slumlordworker,

No, I have my own niche thing going on. I don't do too much advertising either. I have about 2 dozen customers that are repeat customers over and over again. Any new work I take on is strictly reference only. If someone I do work for refers me, generally it is someone who doesn't want to spend the time talking to 3 or 4 people, and wondering who is BSing them. They just want it done.

Like I said, I found a little niche of people and that's all I want.I know it sounds crazy, but I work off a H/E ratio, not a P/E ratio.

Mine is headaches to earnings ratio, where most business's are going for a profit to earnings ratio.

A-Line,
You have a good point, working for time and material, will never grow a business after all the expenses are paid, and that includes your salary, with contract pricing, we have the profit built in, running a business on T&M is working for hourly pay, and just making the overhead payments, I would think you could make more, working for someone on the clock, and have a lot less headaches, this is no way to build a business, that can reward you, or your employees.

One of my customers during my 1st month in business:

Customer: I would like to replace this old panel and add some more outlets in these rooms. I also have a few oulets that don't work and need to have them fixed. How much will this cost.

My Reply: $40 per hour and 20% markup on materials.

Customer: Are you kidding me. My usual electricain that I use only charges $20 per hour. $40 per hour is his emergency rate.

My Reply: Why are you not using your usual electrician.

Customer: He said he lives too far away.

My Reply: I could be living in the basement and it would be too far away for $20 per hour.

Customer: I only make $15 per hour I cannot afford to pay you $40 per hour. Just give me a total price for all the work so I will know wether or not I can afford to have it done.

This is only one of many such responses I got from customers when giving them an hourly rate.
I still get complaints about the price even with flat rate but I get them less often and at least they don't compare the price to their hourly wage.
I think you will always get complaints about your prices. It's normal for people to complain about the costs of things. I do it everytime I fill my truck with gas, buy groceries, pay my insurance premiums etc. but I still pay. I just accept things are expensive and if I want or need it thats what I need to pay to get it even if I don't like how much it costs. I still prefer to know the total price before I purchase things though.

[This message has been edited by A-Line (edited 12-13-2004).]

[This message has been edited by A-Line (edited 12-13-2004).]

charging 20.00 an hour he had to be an uninsured hack

I'm thinking I should make my own flate rate book and never again give an hourly charge. I'm ready for this is my price take it or leave it.

Customers allways want to break down your prices. How much to do this? How long will it take? How much ar just the materials? How much do you charge per hour? The other day I saw 2 guys at a store saying "The electrician charged me $12 for a GFI, I think he ripped me off and I'm going to tell him to take it back. Oh I guess they do cost about that".

Or my foverate "I thought it was $60 an hour for both electricians". Like I would come to their 1,000,000+ home and charge less then JW wage and still run a company.

Tom

Tom,

Your right, you could tell the customer $16 an hour, and they would think it is too much if they are making $15 an hour, T&M may work for some commercial, or industrial accounts, but on residential, they compare everything to their hourly income, what they need to hear, is the total cost, so they can see if it works for their budget.