PM Letters To The Editor - November 2001
We have received many follow-up letters commenting on September's "Point-Counterpoint" exchange. Some of them were quite lengthy (and frequently repetitive). In the interest of airing as many points of view as possible, we have edited all responses, using our editorial judgment to spotlight the key points raised by each writer.
For Flat RateFlat rate is nothing more than enhanced T&M. Enhanced because the overhead is broken down from percents into decimals of an hour and applied to each and every minute of labor and each item of material sold.
Once you start to look at sales and the overhead of those sales, you can figure out how much it costs you to unlock your shop or turn the key on in your truck, based on a daily or hourly average.
Once you start to track your billable hours, you can charge for and then divide those chargeable hours into your overhead expenses. The dollar per hour of overhead you need dictates that your charges might be two or three times what you are now charging.
Flat rate is nothing more than the avenue to charge the price you need and not constantly explain how you arrived at your totals.
Parr's Plumbing & Heating
Jim Olsztynski's response to Ken Secor is very well put. We are not "flat rapists" with shady tactics. We charge a fair price for good work. In fact, I agree that in a lot of cases we are probably charging a customer less. If an inexperienced T&M technician did the same job as a seasoned T&M veteran, the customer will get charged a lot more!
This is how my husband finally figured out that flat rate was the only way to go. He can fix anything in half the time as anyone else. Consequently, using T&M he got paid less than an inexperienced T&M contractor. How is that fair?
In response to the comment about flat rating being unlawful. What a joke! Overpricing is unlawful, not flat rating. How many places do you go that don't flat rate? How about a haircut? How about every restaurant you eat in? How about an oil change? If they aren't unlawful, how are we?
Ken Secor made a reference to "the Tom Warner legal debacle."
For correct information, I hope Ken will read www.usetomwarner.com.
Earlier in my career, I looked around and tried to figure out the best way to run our family's business. There seemed to be an enormous market of consumers who knew what they wanted in the way of service and quality of service. The price needed to provide that level and quality of service was higher than low-cost competitors.
However, a large number of people when given the choice, chose Warner because our trucks were clean, our employees were clean, in uniform and (best of all) decent, quality folks.
Warner experimented with flat rate pricing in 1991. Some customers loved it. Knowing the price before a job was started proved helpful to their decision-making. Some of our best plumbers also liked it because being paid by the job, which they could do faster than a less skilled plumber, allowed the better plumbers to make more money.
I had teams of hostile attorneys examine Warner pricing per job. They incorrectly assumed Warner sales increases were due to what Ken Secor describes as "flat rape."
Fiscal year 04/30/92 was the end of T&M pricing for residential work at Warner. After 04/30/92, Warner grew more than 20 percent each year with minimum complaints. The sales price per job only increased 12 percent during the transition to flat rate.
One good thing about all of the Channel 9 hype about Warner's high pricing, many customers continued to call for service because the lower priced competitors could not provide service and quality that these buyers wanted.
Utility Service Express
I am a fourth-generation plumber/ HVAC man so my family has paid its dues. My great-grandfather started our company in the early 1940s and we have always been T&M and had nothing to show for it but a good reputation and poor income. The last six months have been very precarious because we have been tiring something new.
It's called, professionalism, quality and self-respect. I am now a proud flat rate contractor. Are we not all professionals?
Who says that accountants, lawyers, dentists and doctors can only charge $100 to $400 dollars per hour? Isn't your overhead larger than the professional you count on? Why then is he charging you that much per hour? Is it unethical? You can get another professional to serve you, if you want. So why do you stay with the doctor or attorney you have? I know why. He's good, that's why!
We deserve it! Our employees deserve it! Our grandchildren deserve it! Our customers want it!
So to all of us, it's time to be professional, look professional and act professional.
The only really ethical way to exchange something is by the value of the product -- period. Flat rating has flaws because no two jobs are identical, so to hit an average price some customers pay more and some pay less than the actual exchange value of the product. T&M has flaws because no two people can produce an identical quantity of product or even be consistent from day to day.
In the end it boils down to what the buyer and seller find agreeable to them. Many people seem to find flat rate is an easier venue in which to reach an agreement. Others find that T&M is a more acceptable method. Much elaboration is possible on why this is.
In the end, most of us just want to do the work. We like solving peoples' problems and getting paid fairly for doing it. The flat rate furor, faults or not, has made many people aware of another tool to use in doing that. Like any tool, judgment and skill are required in its use.
Hot Rod and Yox Plumbing, Heating and Solar
Park City, Utah
Thank you for the enlightening head-to-head combat in the "Point/Counterpoint" analysis. It's important to understand the real reasons for using flat rate approaches in establishing the selling price of services performed.
This is not "personal" merely business -- good business. It may be that Mr. Secor is able to return a profit with his business using the T&M method. If he would publicly share his P&L for analysis, perhaps PM could show once and for all that T&M pricing is the answer.
Advanced Radiant Technology
Against Flat RateI agree with Ken Secor 150 percent. I tried Maio and was very disappointed as were my customers. Why must we always believe someone who is making a profit off helping us? I work in a small part of Texas and people are not going to pay $250 to change a bowl wax.
Nichols Plumbing Service
I just read Ken Secor's article and, boy, did he hit it right on the head. These flat rate proponents selling books, videos and software are the ones getting rich.
The first time you send a flat rate invoice you become the new Frank Blau on the block, and with that comes a customer who will never call you again. My T&M billing system works well and is, like Mr. Secor says, somewhat adjustable to changes. I prefer it that way.
Also, in a small shop the more customers you have the better. And you must keep them happy and not rape them with prices from L.A. Keep up the good work, Ken. There are more of us than they may think.
The only reason for flat rate is to disguise that you are charging $200 per hour. You have to have some kind of hourly rate to develop a flat rate price.
But in all of Blau and Maio's articles, they never address this. Are they scared that the public won't understand? Most of these guys use flat rate to scam the public and hide their hourly rate
Lake Forest, Calif.
I just wanted to thank you for the fair manner with which you countered my article.
The only real criticism I would offer is that your suggestion that the term "flat rate" was not used in either legal citation -- and, therefore, other factors were the reason for the contractor's problems -- is false.
The term "flat rate" is a very specialized term used and understood only by readers of PM and now a handful of other sources. It is not in the lexicon of attorneys or judges. They prefer the more common language of the courts, which refers to it "excessive and unconscionable pricing strategies."
I had first-hand knowledge of the Fichner case; it was flat rate pricing that did him in. In Fichner's case, the Board of Master Plumbers (the license and administrative board) found him guilty of unconscionable pricing, and it was precisely flat rate that caused his fines and license suspension.
In Massachusetts, the state attorney general will make a more definitive opinion on flat rate in a short time. Flat rate is illegal in Massachusetts, and I believe the attorney general will actually refer to the method by its unofficial moniker.