Why Does Our Industry Resist Flat Rate Pricing?
Twelve years ago, I ran a column in this space titled, "The Case for Flat Rate Pricing." I thought it was as timely today as it was back in 1989.
When I first wrote it, only a handful of PHC contractors throughout the country had a flat rate system in place. Hundreds more have come on board since then and I'll take my fair share of credit for helping many of them see the light.
But it also frustrates me that the vast majority of PHC contractors in the country have not yet opened their eyes. Fewer than 10 percent of the contractors charge a flat rate. What is there not to like about flat rate pricing? Why does our industry continue to resist it?
Is it that plumbers are too lazy to make the change? Is converting to a flat rate pricing system such an arduous task?
Well, it's not something that can be done overnight, I'll grant that. But this argument doesn't hold up. Plumbers are the least lazy people on the face of the earth. What other occupation can hold a candle to the long hours and hard work plumbers deliver routinely? Nope. Resistance to flat rate has nothing to do with laziness.
Is it because they are stupid? I don't think so. I've met some very brilliant ones as I have traveled from one end of the country to the other. Do they lack common sense? To some extent, perhaps, but not all.
Creatures Of HabitIs it because they are creatures of habit? Yes. That's it!
Our industry is filled with hidebound traditions, the legacy left by our predecessors. One of those bad habits left behind is the tendency to look at plumbing strictly as a trade rather than a business. We describe ourselves as plumbers rather than plumbing contractors. (I do it myself from time to time -- force of habit.) The average plumbing contractor gauges his self-worth in terms of his technical abilities rather than his business skills. The average contractor feels much more at home with a codebook than a business operations manual.
They take pride in working hard and putting in long hours. Nothing wrong with this, except when one evaluates how that time gets spent. Contractors work 60 hours a week and more chasing their tails and putting out fires caused by poor business planning and systems. They work in the business rather than on the business. They're afraid to take a day off -- or heaven forbid -- a week off for vacation because the business can't run without them.
A smart businessman tries to work smarter rather than harder. He delegates authority to trusted associates and puts a system in place that will run without his constant attention. If he gets sick or wants to take a few weeks off for a well-deserved vacation, he can do so without worrying that the business might fall apart.
Working smarter means spending time reading things besides a codebook. It means reserving time to read trade magazine articles on business management and marketing and attending educational seminars. In particular, it means coming to grips with the all-important number crunching aspects of running a business -- knowing what it costs to operate, and how to calculate profitable selling prices.
The LegacyThe creatures of habit learned from fathers, grandpas, uncles and so on that money isn't the most important thing in life. From this fundamental truth evolved the message that money isn't important at all. The creatures of habit learned to take a perverse pride in being poor, or at least in undervaluing themselves.
Being "just" a plumber means you have no right to earn as much money as the rich people who hire you to dispose of their waste. It's OK for them to fill their huge garage with $50,000 cars, but that doesn't give you any right to charge them more than $50 an hour for your services. That would make you a rip-off. This is the attitude passed down by Grandpa and Daddy and Uncle Bubba to all the creatures of habit.
Like them, you don't need monthly profit and loss statements. All you need to know about the state of your finances is if there's a balance in the checkbook. Life is so much simpler that way.
Who cares about the needs, wants and desires of the hired help? Nobody ever gave you a break, so why should you treat them better than Grandpa and Daddy and Uncle Bubba treated you? The laws of self-preservation extend to your customers and vendors. Customers can be such pains in the neck. If only they'd let you turn your wrenches in peace and quiet. This business would be so easy if it weren't for those aggravating customers with their unreasonable demands. They expect so much from you for $50 an hour. But, as Grandpa and Daddy and Uncle Bubba taught you, you dare not ask for more, because you'd soon be out of business.
Same with suppliers and vendors. Who needs them? All they're after is your hard-earned money. They can wait for their money, and when times get tough you can stiff them altogether. The nice thing about not having much is that you have nothing worthwhile for them to go after. This, too, is something the creatures of habit learned from Grandpa and Daddy and Uncle Bubba.
Our HeritagePlease do not interpret what I am saying as a total rap against our forefathers. They deserve credit for creating a strong, respected industry in the United States. Fifty years ago it was an honor to be a practitioner of plumbing. They taught us important mechanical skills. Most plumbers are incredibly talented at fixing things, making things work, delivering safe water, waste elimination and heating comfort. We inherited a legacy of technical mastery, but unfortunately, business skills were left out.
Sadly, disdain for business has replaced enthusiasm for making a decent living. What kind of legacy are we leaving?
Most plumbing businesses are barely making ends meet. Right now, a career as a contractor or a journeyman is a sentence to low pay, long hours, minimal benefits and a broken body. No wonder we have so much trouble attracting talented young people to the trade.
Flat rate pricing is not a cure-all for this condition. People misunderstand flat rate pricing. They think it's only a matter of jacking up their rates. Companies that do that without changing any other aspect of their businesses typically fall flat on their faces.
Flat rate pricing is a mindset more than anything else is. It is a change in the way you think about your business. As I teach it, flat rate pricing forces you to understand the economic structure of your business so that you know exactly how much it costs you to operate every hour of the day, and how much you need to charge to cover those costs and earn a decent profit.
Instead of looking at yourself as "just a plumber" like anyone else, and therefore restricted by tradition to charging the "going rate," flat rate pricing enables you to position yourself as a company that sells value and customer service rather than just a "competitive" price.
Flat Rate pricing can create the money needed to fuel technical training, health insurance, retirement programs and the kind of income levels the hard-working and talented people in this industry deserve. Is that being greedy? Other industries take such things for granted.
A tradition of low self-esteem has haunted this industry for ages. It's time for us to reject that tradition and start a new one.