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Flat-Rate Debate Continues

Julius Ballanco's column hit home with this flat-rate contractor because I have been in these situations before and have learned that educating the ignorant is part of my burden ("Two Areas Flat Rate Doesn't Work," March 2002). We were pioneers in flat-rate pricing in this region and, as such, we have the arrows to prove that the transition did not come without sacrifice; however, I have learned that anything worthwhile will incur some sacrifice.

Our convictions have paved the way for many others in this region, including some of the best archers of those early days. Today we have a large representation of flat raters and the competition continues to grow each year as the laws of economics take over. Our business continues to grow and our founders enjoy a retirement they only dreamed of before switching to flat rate in 1991.

Mr. Ballanco states that "...flat-rate pricing doesn't work when it comes to justifying the cost." Nothing could be further from the truth. When you know your cost of doing business and can identify a breakeven price, providing breakdown detail is a simple exercise. How many time and material outfits can tell you how much of their rate is dedicated to office salaries?

He goes on to state, "If you don't believe me, just check what every organization has published regarding estimating and pricing." His conclusion that all organizations teach T&M is false. I know for a fact that C-2000, PSI, Air Time and several others advocate other methods of pricing and have several resources that support this endeavor. These organizations attempt to educate rather than advocate. They promote knowledge rather than ignorance. They too are the results of the laws of economics.

State tax is another area where Mr. Ballanco is misleading. Our state does not tax services (yet), including material. Don't think we get a free ride; we have to pay taxes on the materials we purchase and we certainly pay our share of other taxes. We aren't the 4th highest taxed state for nothing! Taxes are a necessary evil in the society of the free. If it comes to being taxed on the whole ticket, I argue you will be money ahead in the long run. If you stay T&M, you won't ever have to worry about the extra money because you may never get it.

Both of these examples are minor bumps in the road, hardly worth bringing up. I am glad to see that flat rate has elevated its status and validity to a point where we are discussing petty problems that every creative plumber will be able to figure out. The fact is: Flat raters will continue to parallel those who choose T&M.

The best part of living in the land of the free is the ability to choose; don't let anyone take that right from you.

Tim McGuire
McGuire & Sons Plumbing & Heating Inc.
Hopkins, Minn.

I applaud Julius Ballanco's article, which raises still another reason why flat-rate pricing methods are not in anyone's best interest.

His observation, "The majority of lawsuits involving plumbing contractors revolve around the cost of the installation," is -- and has always been -- my position regarding the unethical nature of "hiding" one's labor rates. Simply because the vast majority of flat-rate work does not see the light of courtroom litigation hardly makes it legal.

Flat-rate pricing methods and consumer protection laws are at odds with each other and rightfully so. If we wish to charge $200/hour, that is perfectly fine. Deceiving our customers, which is the very foundation of why flat rate was invented, is inherently illegal in most states and unethical in all.

The sales tax issues Mr. Ballanco brings to light is just one more reason ethical contractors should avoid the flat rate. But then, I've already said all that once or twice before, haven't I?

Ken Secor
Palmer Heating, LLC
Rahway, N.J.

Have you ever noticed in all the articles concerning which pricing system to use, all of the contributors to your magazine never seem to find any middle ground?

Everyone agrees that as a business professional you first have to understand the cost of operating a service truck. This includes all the little things such as payroll, materials, insurance, equipment repairs, advertising, any benefits package, the government's piece of the pie, and the rest of a company's expenses.

I do understand that both T&M and flat rate (we prefer the term, "upfront pricing") have their use. As with accounting there are two major systems, the accrual and cash methods. There is also a third method of accounting, known as a hybrid. This incorporates some from each of the other two types. I believe most contractors use this hybrid system.

We began our business charging T&M. We based our pricing on what the other guy was charging. Our secretary would call every shop in town to complain that her sewer was stopped up and ask for a price. We used the average.

After reading many articles concerning flat-rate pricing, it sounded good so we began to phase in this method of pricing. It did not take long to find that many customers enjoyed knowing the price upfront, and, at the same time, other customers felt T&M was the way to go.

Mr. Ballanco says you have to justify your pricing. I agree. Shouldn't every business whether charging T&M or flat rate be able to justify their rates? Shouldn't your labor rate in T&M and flat rate be based on the same number? If a technician earns $20 per hour, does this change because we stopped T&M and changed to flat rate? I don't think so.

No matter what you charge (and how you charge it), it seems to me that maintaining a high level of customer service and quality workmanship combined with consistency in both products and pricing is more important.

Franklin R. Cornell Jr.
Cornell Plumbing Super Rooter Inc.
St. Bossier City, La.

The March issue of PM was one of the most enjoyable to date. I hope Frank Blau was reading the columns by Dan Holohan and Julius Ballanco. The message is clear, flat-rate pricing is not the cure all for all that ails our industry. In fact Dan's article points out exactly why the industry is losing to the box stores. Consumer sticker shock from firms with excess overhead hidden in the often suggested flat-rate system get burned by paying $850-$1,100 for a simple residential water heater installation. Meanwhile, a visit to the local Home Depot finds that the exact same heater costs about $155 retail. The customer today is better informed than ever and quickly realizes that the labor and overhead can't be that much, so they look for alternatives (and trust me they are out there).

As far as challenges go why not set up a debate and put this issue to bed. I would love to sit down with the flat-rate proponents and quiz them about the many holes in their system. As far as knowing the cost of doing business, yes, that is a very important part of succeeding. However, controlling costs is the part that Frank misses. He and others feel they can market excessive overhead by burying it in flat-rate pricing. I feel that unless you also control your costs and accept the fact that the box stores are here to stay, you underestimate the savvy of today's consumer and will eventually fail.

How about setting up a forum at the upcoming ISH convention in Toronto this fall? Would there be any flat raters up to this challenge?

Rich Kontny
Plumbing Components & Consulting
Neosho, Wis.

It's too bad we offer a needed service, the installation and repair of plumbing and heating equipment, rather than luxury items. The same deli owner who charges me $8 for two pieces of bread with some meat and cheese between them, which I pay without comment, squawks when I hand him a bill for the installation of a sump pump that will keep him from having thousands of dollars worth of damage. The same people who gladly spend thousands on home entertainment systems, question my charge for repairing their boiler on a cold winter night. Maybe they could have turned to a channel with a fire on it to keep warm.

I think my next doctor's visit is going to be along these lines. How much is your charge for the operation? $15,000?! Can't you do better than that? How about if I buy my own bandages and oxygen?

Ryan Volker
On Time Plumbing & Heating

Thanks For The Help

I just came across an article, "Radiant Expansionism" by John Siegenthaler P.E., in the August 2001 issue of PM. I had struggled with the same question, "Are we over-sizing expansion tanks in our radiant heating systems?" I posed that same question to various people within the industry and the answer was always the same -- use the "classic" sizing procedure after estimating volume, fluid temperatures, system pressures, etc. In larger commercial projects, I always felt we could size smaller expansion tanks based on the lower average temperatures expected, but didn't have the resources or information to confidently do so. I do now, and also agree with John in assessing alternatives and using them when appropriate.

I "stumbled" on the article because I was not personally receiving PM. (I have since subscribed for my own copy.). I have known John for many years and have had the opportunity to visit with him by phone, e-mail, and in person at an RPA Conference. I regularly refer to his Modern Hydronic Heating (with Hydronic Design Toolkit), Advanced Controls for radiant panel, PM's Hydronics Toolbox, and various clippings I have saved. Information that I have gleaned from John's books and articles have not only helped me to design systems and apply controls, but also to resolve problems and issues in hydronic systems that I had not been involved with. I am now scouring the PM and PM Engineer web sites for past articles in the editorial archives that I may have missed!

You would think that by having a personal collection of John's books and articles I would be hard pressed to find something I haven't seen or read from him. Quite the contrary, I seem to learn something new every time I read one of his columns. Thanks to PM and John Siegenthaler for all the information you share with us in the heating industry.

Ken Wickre
Goodin Co.
Rochester, Minn.

I Gotta Go To The 'Jim'?

I just read Jim Olsztynski's article from last June, "Flush Knollenberg." As a frustrated and disgusted consumer plagued yet again by not one, but two, very clogged 1.6-gallon appliances fraudulently misrepresented as "toilets," I am outraged at your smug, bureaucrat-appeasing, regulation-loving attitude oppressing my choice as a consumer.

It's too bad these pathetic excuses for potties don't take offense at the acts we commit upon them. But at least I will start taking symbolic satisfaction in calling them "Jim's" rather than the other male moniker commonly applied.

Don't go making excuses to the tune of how they must surely be unfortunate early examples of post-EPACT poor design, either. These came with our 1998-built house. Even when they don't clog, they require multiple flushes. Some water savings.

If I lived near the border, I would already be back with some real Canadian toilets. As it is, I shall have to weigh other options. But these worse-than-useless atrocities are going to go, and it's too bad you don't live near me, as I'll have to forgo the opportunity to dump them in your front yard.

I hope Mr. Knollenberg introduces his bill again this year, and this time the absurd opposition from the likes of you will be overcome.

Robert Brooks
Clogged in Colorado