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| Subject - Ethics of pricing | |
| wilkie |
It has become clearer that the debate between flat rate pricing versus T&M is quite volatile. I have gotten the impresion that some people believe flat rate pricing to be unethical and/or crooked in some way. We use flat rate pricing along with offering service agreements. I am deeply committed to what and how we operate because I truly believe that we are serving the community, and that we are delivering a premium service with an emphasis on value. That being said, I have made many mistakes in my life and am not arrogant enough to believe their aren't many more coming. My question is this.... Am I wrong on this issue? Is there any reason why the way we price and deliver our services is unethical? Please feel free to chime in. You won't hurt my feelings. |
| John A. Peters | Nope. No problem! But we have jealousy and fear of the unknown. In my case I have used FR (flat rate) pricing and T&M (time and materials) together AT THE SAME TIME for years. I price my projects by the outlet, or modular assembly, while tracking the job costing in the background via T&M calculations. I tell the client "If the T&M is more than 10% over or under the flat rate items estimate then I will audit it and find out why." I assure them that the result will be fair to both of us. Sometimes the men do more work than I know about (or harder) and conversely some times a part of the job gets canceled by the owner or turns out to be much easier than estimated. I adjust my flat rates in the Contract Generator (tm) to match reality and adjust the final bill, and every one is happy. Flat rate gets a little bit of a bad rap when people state that they hide (or don't wan't to reveal) the hourly rate it is based on. All estimating programs and all flat rates are based on an hourly rate. It may be $20 or $200 per hour, but it is there. Commercial FR programs require you to use break-even program to calculate the proper hourly rate to set the program to before you print your books. I use the dual mode as a selling tool. "You will not pay for anything you do not get, but conversely noting is free" I think this is better than "horse trading". e.g. "Since you don't want the disposal, I will give you a trash compactor plug. You just ripped of the customer. Yes? |
| MONOLITH | I do not think it's anywhere near unethical to use Flat Rate pricing. I will honestly say that I do believe it was put into use to benefit the contractor, not the homeowner, but that doesn't make it unethical. If a client doesn't like the price you offer, they're certainly free to seek someone else. With straight T&M, you have to verbalize an hourly rate that doesn't put the client into shock. Then they watch the clock, and you, as you work. "You took too long", "I'm not paying you while you eat lunch, am I?" Flat Rate pricing avoids all of this, and allows you to charge a higher rate without shocking anyone, and in a sense, yes, concealing that rate. Example, I go to install a ceiling fan, including the rough in and switch, etc. Maybe in my area, the highest hourly rate I could ask and still get the work is $65/HR. It cost me $25 in material, and two hours time. The final price is $155.00. With Flat Rate, I do not have to say an hourly rate. I tell the same client the fan install is $265.00. I still get the work, because there is something about the hourly rate that effects people, and I didn't mention one. Now I made $240, instead of $130, on the same job. Was that a plan devised to benefit me, and not the homeowner? Of course it is, in my opinion. But it's not unethical, because if they thought $265 was too much, they can certainly get another estimate. John is developed to the point where he still reveals his hourly rate, even though he is giving a flat rate price. He seems to have a very good handle on it and a solid system. I'm just not to that point yet, where I feel comfortable discussing an hourly rate without fear of losing the sale. |
| SR Scott | We're in the process of converting some of our work to flat rate, the merits are obvious. As an electrician, sometimes a guilt will come over me telling a cliente what our hourly rate is. I think that they're comparing them to their hourly rate of pay, which they sometimes do. But this is a very unfair analogy. Consider a car. They're priced by the sticker. Does the dealer break out the cost from Detroit, commission for the salesman, the rent or mortgage, the staff, the weekly meetings, the advertising costs to get you there, the utilities, the maintenance, the training, the rugs, the posters, etc.,etc., etc. ? I've never seen that broken out. But, a pricetag is there on the window, you can buy it or not. I dont know what our costs are, that's the truth (isn't it ironic that at the top of this forum it says no do it your selfer questions?). I have ordered software to help me figure out our costs and what it would take to truly put out a superb product on a consistent basis. Ethically however, if our costs and necessary profit margins and such are unknown, how could I do flat rate? The car dealers costs of doing business I mentioned above are also costs that our company needs to cover to continue to not only survive, but thrive. We've just basically survived to this point, we need to improve. We're well trained and such, but customers aren't necessarily wowed when we leave. I want them to be wowed. I want to be a company that has provided them with a product so superior to anything they can remember that they cant help but tell others. That's a fun thought. Treat 'em so nice they're giggly and sh*t. |
| MONOLITH | quote: Heh heh. Put that in your ads... "We'll leave you all giggly and sh*t" lol. Your analogy is good. And you're right about the hourly rate is the sum of operating costs, not just what little bobby is getting paid. Alot of homeowners do not understand that, when told the hourly rate. It's important to specifically point that out, if necessary in negotiations. When people ask you what you charge an hour, they automatically think that's what you're putting in your pocket. |
| John A. Peters | quote: Actually I do not feel comfortable discussing an hourly rate either, but I do not mind revealing it. If a client asks me about our hourly rates, I would take it as a sign then they could not afford us. If they notice it, but do not comment on it, then I feel they value our work. Our hourly rate is printed, not spoken. For example the inspection fee looks like this. City Permit_&_Inspection Residential_Small_1_Permit_20_Outlets_1.................120.83 Meet_Inspector____1_Appointment_Inspector......1.00.....106.00 They know that the next to last column is the time and, (I show them what the columns are at the original estimate time), so one can infer the hourly rate. It is just one small part of a whole bid, but it is there if they want to look for it. We try to charge about 80% of what a auto dealer charges for their mechanics. You can often see auto mechanics rates posted on the wall, as it may be a law or some thing here. I am not to the point that I can brag about our hourly rate like a lawyer can. The higher the rate the smarter and more valuable the lawyers advice is right?  I look at it as being similar to the open book management that I enjoyed reading about here. The company encouraged the employees to request any accounting report that might be useful to them. The company wants the men to understand how the company works and where the money comes from and where it goes to. I think this is admirable, and good business. Notice that they do not post accounting reports, they provide them but only when they will be useful. Since the client can see the rate if they want to, then it helps me win jobs since "We do not win our jobs based on price, but rater a bunch of other good things." One good thing is business operational transparency. |
| MONOLITH | I see from several of John's posts, that he provides a very detailed breakdown of costs to the client. Seems have all the nuts and bolts listed in detail, individually priced. (Correct me if I'm wrong John). I, on the other hand, have been just handing a proposal with one flat price, without any detail breakdown. There's not even a indication of how much is labor vs material. It's just a simple "This is what it will cost to have this done" type of thing. I was doing that out of the fear of revealing labor/hr rates, etc. I'm just wondering what everyone else is doing. How many of you are doing it John's way, and how many not. And with John's way, have you had a higher number of proposal rejections, because of hourly rate or such? Thanks. |
| RSB | I look at jobs,put a price together and send a est/. It say I will do this, that and etc. for $______. This includes mat., labor, tax , mark up and etc. However, on a T+M job, I show all material, add Tax were it applies and X hours of Labor @ our rate. There are people who charge more and a lot that charge less. But my rate is what I charge. If custermers feel I charge too much, then they can get someone else, and more then likely will not pay them... |
| John A. Peters | I like some level of detail. When I get my VW tune-up I like to see the list of parts, so I know what was done for the total price. I look to see if new spark plugs and points are on the parts list. There are two reasons that I use that level of detail. 1) My estimating program works that way. 2) The customer can see a bunch of smaller price increments. 3) The customer can manage a budget, since each item has a price. Originally I would type in a list of parts and the computer extends the prices. This is how many estimating programs work. Too many details! You can not show it to the customer. The client does not want to see every coupling and wirenut. So I made up some assembles. PL for a common plug outlet, 200A riser, 100A ground-system and so on. Now I type in the names of tasks or what is needed and the computer prices it up. The big thing is that it comes out in a form that is suitable to show the customer. I used to translate it in to a descriptive letter but changes and especially deletions were a killer. Delete an item from the estimating program and leave it in the letter as an oversight and guess what, you may have to provide it for free. |