Finding the many benefits of flat rate pricing.

"Frank Blau is crazy. If I ever tried to charge those prices I'd be out of business in a month. My customers would never stand for it."

"Blau and his 'flat rate cult' are all a bunch of greedy ripoffs. I believe in charging a fair price for my service."

"I know a contractor who followed Blau's advice and was out of business within a couple of months. I'm telling you, people just won't stand for it."

The quotations above are my attempts to paraphrase the remarks that have been made countless times by fellow contractors who see things in a different light than I do. I believe my stack of thank-you letters answers them better than anything I can say:

"It's been a little more than a year since my wife and I attended our first "Business of Contracting" seminar É We set our sights on a COMPLETE change over from T & M to flat rate on Aug. 1, 1992. We held our first of many shop meetings. I sprang for pizza. We distributed the materials, along with the most powerful tool in the industry - a calculator. The men shook their heads. They told me it would never work É

"Our program has been a complete success. Our profit margins have almost tripled. Our average charge per service call is up 70 percent. The customers know all their costs in advance and are delighted. We now accept credit cards, and have done $120,000 in credit card sales in less than one year. Customer complaints about pricing have decreased by 99 percent É Our cash flow is great. We discount all our supply house invoices."

"My wife and I were living from paycheck to paycheck, saving very little money. My business was also struggling, as we had to lend the business money to have Christmas bonuses in 1991! É

"That very next Monday (the seminar was on a Thursday), we started charging the correct selling price for our valuable services.

Were we scared? HELL YES! But you must realize that I figured that I was not going any place anyhow, and that the worst thing that could happen is it would fail and I might be able to get a job washing Frank's trucks in Milwaukee.

"Guess what? It worked on the very first job, a toilet replacement that I will remember for the rest of my life. I was actually waiting for this person to call back and demand her money back. She did call back - FOR MORE WORK!"

"Please (tell your students) do not walk away from this seminar with false illusions of becoming wealthy overnight. As with anything else that is worthwhile in life, becoming a successful business person takes hours of hard work. Make a new business plan, make a change for yourself, your employees and your families."

Back To Basics

This second set of passages is comprised of quotes from actual letters I've received over the years from skeptical contractors who overcame the feelings described in the initial quotations cited above. I have hundreds of these letters that I've saved from dear friends and professional colleagues throughout the country. They now fill two three-inch ring binders. I am not kidding!

And that is the point.

You see, I'm well aware of the potshots people take at me throughout the industry. It's a waste of breath to try to answer most of my critics. Some people will never come around. They have been operating backward for so long, it would be too psychologically painful to admit they might be wrong. But on the chance there might be a few among them who simply misunderstand where I'm coming from, I would like to take this opportunity to clear up a few areas of misunderstanding by responding to the most frequently voiced criticisms.

  • Flat rate pricing rips off people. This charge reflects our industry's collective lack of self-esteem. Most contractors simply don't understand what their services are worth based on their business cost structure and the value they provide. Let's take as an example a common plumbing job such as a water heater installation.

In most markets in this country people can get a 30- or 40-gallon water heater installed for as little as $300-400, including the product and labor. Licensed plumbing contractors might charge $100 or $200 more than that, but most of them recoil in disgust when they see flat rate competitors charging upwards of $1,000 for a water heater installation.

But what's so outrageous about a water heater installation costing more than $1,000? Our industry lacks a proper frame of reference. Look around the average customer's home. You'll see living room furniture costing upwards of $1,000, thick carpeting costing $2,000 and more, dining room sets costing several thousand dollars, draperies - even dishes - that cost more than an installed water heater. Do those items last longer than a water heater? Do they provide more intrinsic value to a home? Do they require trained, knowledgeable people to install them in a way that they don't blow up the house or asphyxiate the residents?

Nope. Nobody gets upset at the furniture dealer when a homeowner decides to spend thousands of dollars on some nice furnishings. But somehow it's wrong for a licensed contractor to charge the price he needs to cover his costs and make a decent profit for the safe, professional, warranted installation of a crucial household appliance that will likely deliver at least 10 and probably 15-20 years of almost trouble-free service.

The real ripoffs are the plumbing contractors of this country who fail to provide a decent standard of living, with health care and retirement benefits, for themselves and their employees.

  • It wouldn't work in my area. My stack of letters comes from people in virtually every state of the union - rural areas and urban metropolises. The American consumer isn't that much different wherever you go. Read those thank-you letters again.

  • Customer complaints about pricing have decreased by 99 percent É . I was actually waiting for this person to call back and demand her money back. She did call back - FOR MORE WORK!

      People like knowing the cost of a job beforehand, even if it's more than they expected to pay. At least there are no surprises, no accusations of "running up the meter." Flat rate success stories are all over the place.

      • Some contractors have gone out of business after turning to flat rate. I won't deny this. Flat rating isn't a cure-all for bad business practices. Some service contractors think all they need to do is raise their prices and it will cover up all their other sins. Not so. These people overlook the second part of my message.

        To justify higher prices, you need to operate in a professional manner that conveys perceived value to the customer. When someone asks you why you charge $1,000 plus for a water heater installation when Bubba Slug will do it for $300, you'd better be able to explain all the extra value entailed in your product and services.

        Besides, let's do a comparison to see how many flat rate firms fail vs. the old-fashioned time and material shops. I don't think it would be much of a comparison.

        Of course, no matter what I say, the arguments will rage on. Most plumbing firms will continue to operate in accordance with the "going rate" in their markets, and miss out on all the joy and success that life has brought to hundreds of their colleagues who have taken the time to thank me for showing them a different way of life. I treasure those letters. I pity my critics, and even more the poor, hardworking tradesmen who work for them.