One of the benefits of continually working with people in the service and repair business is that you learn what works. I think you'll agree with me that many business owners are showing definite signs of progress by adopting the latest and most effective business techniques and maximizing their profits. I would like to share my observation of this trend with you.
You might expect that I would place flat rate pricing high on my list of effective practices. Using flat rate pricing makes a lot of sense, even with a minimal amount of exposure to it. Margins are better and customers are happier. You can't ask for much more than that when you are looking at ways to improve your business.
Looking at the group of business owners I have worked with, I noticed that finally, more than half is using flat rate. That number was encouraging, since switching to flat rate is probably one of the single most important improvements a service and repair business owner can make to his business. To see those who have adopted flat rate pricing now representing the majority of businesses was gratifying. It shows people can change and adopt new techniques - and use them effectively to build their business.
The numbers also tell another story: A significant number of business owners believe implementing flat rate pricing will either disrupt their business or fail to improve its value. "How do I train the technicians?" they might ask. Or, "What do I tell the customers?" It's this hurdle of uncertainty that keeps owners from switching to a simple system that will generate greater revenues for their business and allow technicians to close a higher percentage of jobs they diagnose.
Happy Flat Rate CampersBy holding back from using modern techniques, business owners are making their technicians' jobs more difficult, forcing them to sell jobs to consumers with prices generated from an hourly rate and materials quote that invites the customer to question it. Customers rarely understand that the hourly rate quoted is not what the business or technician gets to keep, but rather it must cover all the fixed overhead expenses of running a business, like paying personnel and maintaining vehicles and facilities.
Materials prices invite a more dramatic comparison. It's so easy for a consumer to wander through a home warehouse, gazing at the prices of fixtures, disposers and water heaters, without regard to the quality level of the product or its specifications. A water heater is a water heater, right? Not true, but try to convince the customer of the differences in guarantee, quality, size or other specs and you have an uphill battle. Service and repair businesses are asking for customer resistance when they insist on sticking with T&M pricing.
Most customers want the problem in their home fixed, knowledge that the work will be professionally done and all at a price they agree on. All of the other information, such as margin or cost of doing business, is unnecessary to most people. I have been telling owners for years that you sell service - labor, materials and professionalism. The more you deviate from that approach, the more objections from customers you'll receive. Flat rate is the ideal method to focus on service and skip all the other invitations for customer objections.
Anything you can do to attract and keep good technicians also is going to pay off for your business. Flat rate pricing, since it is so easy to use, makes the technician's job easier. Why would they want to work for a company that makes their job more difficult and is unwilling to adopt more effective methods? Switching to flat rate will help solve the problem of retaining good people.
An Easy SwitchTo ease the transition from T&M to flat rate, I would advise service and repair business owners to avoid approaching the transition alone. Get some help setting up the system, producing effective flat rate manuals and training the technicians. Today, several training programs are available, and companies can purchase a flat rate manual. Doing the training yourself and producing the manuals in-house can be frustrating and end up being more expensive in the long run.
Another way to reduce any "bumps" in the transition process is to select a flat rate manual that makes it easy for technicians to price jobs. We encourage technicians to show customers the book and review pricing with them. That technique eliminates surprises and gives the customer confidence that the price really is the right one
The only way to provide an easy pricing method for technicians and customers is to have an attractive, easy-to-read and understand pricing manual readily available. Manuals are more appealing than a book with small print and numerous columns and numbers. Customers are comfortable sharing the pricing task with the technician.
One tip: Even though technicians know most of the job prices, do not have them quote from memory; look it up in the book. They might think they will appear clever or knowledgeable to the customers, but the whole point of having a book is to go through the process with them and "discover" the price together.
Know Your CostsI have observed much progress in owners understanding their costs of doing business. It's tough to make a profit if you don't have a thorough understanding of what it costs to send a technician and a truck out to a customer's home. Work with accountants to determine what your costs are. This step is important and certainly should be completed before switching to flat rate.
All your costs must be included in the flat rate pricing you offer, including your desired rate of profit margin. Using inexpensive software, you can compute pricing alternatives quickly and easily. It's nice to do some of these "what if" pricing computations before finally setting prices and making them a permanent part of your pricing manual.
Knowing your costs and applying them in an attractive flat rate manual offers real advantages to a service and repair business. First, you'll know that the charges for the jobs will produce a profit, and you'll know how much profit. The flat rate structure also will increase the percentage of jobs your technicians sell and complete. These benefits make it difficult to question the advantages of flat rate and known costs.
Next month I will share other signs of progress I have seen, such as using telephone scripts and customer service practices.