"So let's agree on this. T&M run wrong can lead to loses. Contract pricing run wrong can lead to loses.
Both run right, can be prosperous...."
Dnk, i actually agree with you on most of this. The big caveat comes in when you have employees. Different employees = different speeds = different prices to the same customer for the same work.
As a one man shop, it's much easier to justify your time charges and build customer confidence.
Start adding employees to the mix and T&M can erode customer confidence. We've learned this from personal experience over the years.
And yes, employees can lose you money on contract work. However, here is the difference- I can monitor employees on contract work and either correct any problems or fire an employees that habitually misses the mark. But in the process, I can still keep the customer happy and not put my companies incompetence on their shoulders (slow work = higher T&M)
T&M with multiple employees can work when your customer has multiple facilities run by different managers who have no stake in what's paid for maintenance. And the bills are paid by a single person who never goes onsite.
It also makes a big difference whether it's commercial or residential.
Commercial customers expect some level of T&M (what's your hourly rate?)They are typically more willing and amenible to paying travel time or portal-to-portal.
Residential customers do not understand the cost of doing business. They don't care about the cost of doing business. In addition, every dime paid (typically) is their money. They care about their money. Try billing Mrs. Homeowner for portal-to-portal and see how well that flies. "I know we were only here for 30 mins Mrs. Jones, but we had 45 mins travel each way, sot that is why your bill is for 3 hrs" Think that would get you repeat work or referrals?
As for raising you hourly to compensate- I think it's already been determined that if you are doing primarily resi/lt comm service work, you are only productive around 50% of the day. So if you determine your hourly rate at $70/hr for an 8 hr day, you now need to charge $140/hr for the 4 productive hours (actual hours on site that the customer will actually pay for)
If you can get Mrs. Homeowner, who typically won't pay travel, to agree to $140/hr with no predetermined end, than you deserve credit.
Another big difference is in getting paid. For a residential customer, "Mrs. Jones, the total cost will be $450. Mr. Electrician, that is fine. Please proceed"
Now, Mrs. Jones knows what the job will cost and is expected to pay me when I am done. vs.
"Mrs. Jones, we are all done. It took a little longer that we had hoped, but here is the bill - 3 hrs labor x $70, etc, etc."
Mrs. Jones response "it shouldn't have take 3 hrs to change that ceiling fan. It should only have take 1.5 hrs. That bill is too high, i'm not paying for 3 hrs. I'll pay you for 1.5 hrs, etc)
What do you do? You weren't there, your employee was. Did he move really slow? Did he have problem? Now you have do an effective case of selling your problems to a customer to get them to pay you for work that was already done. So you spend another 30-60 mins explaining to Mrs. Jones why it took you 3 hrs instead of 1.5. She tells you about the 4 cigarette breaks the installer took, etc.
So you have already installed the light. Already put in your time and provided whatever material. You still have to pay your employee for all of the time it took (that's the labor laws in most areas) and now you are haggling with Mrs. Jones about paying you your full rate. Now imagine also trying to add on an extra hour for travel time?
Now, this information comes from my experiences in my area (NJ) I've discovered that there may be areas in the country where a residential customer would rather pay a T&M rate and get billed 3 hrs for a 0.5 hr call (instead of just knowing up front that the job will cost $400)
