Like most business owners, plumbing contractors tend to assume that the more work they get, the more money they’re going to make. Unfortunately for plumbers, the opposite is frequently true. Having completed their busiest year ever, the owners of plumbing companies all too often discover that rather than sitting in the catbird seat—where they ought to be—they find they’re actually looking at a huge loss.
The trouble is that pricing plumbing work is a lot more complicated than it seems. It involves more variables than we can list here. Labor rates and overhead allocation. Billable and nonbillable hours. Membership agreements and materials surcharges. Just to name a few. Even arriving at the right pricing model is challenging—let alone keeping track of all of those details.
The long and short of it is that most of the time, plumbing contractors who find themselves sinking into the red—even as their business booms—simply aren’t properly pricing their services.
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So in this article, we’ll provide a pricing and cost guide designed to help plumbing contractors avoid making some of the most common pricing mistakes, ensuring that as they get more business, they’re able to do it as efficiently as possible—and, most importantly, that they’re properly compensated for it.
Specifically, we’ll discuss:
Toward the end of this post, we’ll also explain how using a software tool like ServiceTitan can help plumbers make sure their specific system for pricing jobs is followed every time, and automate the pricing process so that their techs can apply it as quickly and cleanly as possible on-site during sales and service calls.
Want to see ServiceTitan in action? Schedule a call with us to learn more about how our software can streamline your pricing and help you grow your business.
Why Plumbers Should Consider Using Flat-Rate Pricing
Many of the plumbing companies in business today continue to use the same methods they’ve been using for decades. These ways of doing things are familiar, comfortable, and for the most part, they’ve worked well in the past. Pricing is no exception. Many plumbers continue to use a Time & Materials (hourly rate) pricing model.
We think this is one area of their business where they might want to think about making a change, in favor of flat-rate pricing. Flat-rate pricing offers some huge advantages, which we’ll get to in a moment, but it’s worth first looking at two major disadvantages of Time & Materials pricing.
1. Having to Justify Hourly Rates
As business owners, plumbing contractors have an intuitive understanding of the elements that go into an hourly work rate—all of the costs of doing business, plus some take-home margin for themselves. They know that if they’re charging $300 or $400 an hour, the vast majority of that revenue will be put toward expenses, not in their pocket.
But many homeowners—especially those who are paid an hourly wage—experience severe sticker shock when they see a plumber’s Time & Materials rate. If someone’s making $30 or $40 per hour, it’s often difficult to understand why someone would need to charge hundreds of dollars an hour for a service.
Trying to explain doesn’t usually get a contractor very far. Unless you’ve run a company yourself, it’s difficult to understand the many costs that must be accounted for by an hourly work rate. The upshot is that homeowners often feel like they’re being taken advantage of—a less than ideal frame of mind for a successful sales call.
2. Hourly Rates Can Reward Poor Performance
A plumbing contractor using a Time & Materials pricing model generates the most income from their least efficient technicians. If a tech is disorganized, inexperienced, untrained, inept, slow, or just plain lazy, they’re all but certain to spend much more time on each and every job they’re assigned to—whether it’s a water pressure regulator tweak, a sump pump installation, a slab leak, or a water heater replacement—running up the bill even as they sometimes do mediocre work.
At the same time, the tech who’s skilled, well-trained, and organized— completing assignments quickly and doing top-notch plumbing work—makes less money for their boss.
These conditions effectively disincentivize plumbers from improving their service. It can create a lack of alignment in the interests of customer and provider. Perversely, it can also lead business owners to value their worst employees more than their top performers.
3. The Advantages of Flat-Rate Pricing
One contractor we know was the first in their market to implement flat-rate pricing. The model was incredibly successful, helping to make his company not merely the dominant player in his immediate area, but in his entire state. But when the contractor first introduced flat-rate pricing, his competitors pilloried him for it, even taking out ads in local newspapers to say that he was ripping off customers. In fact, the opposite was true.
Flat-rate pricing allowed the contractor to invest in his team, making sure all of his employees were organized, technically skilled, and efficient. In other words, he aligned the best interests of his company with those of his customers: a Win-Win. Plus, with standardized plumber costs, there’s no room for the prejudgment of neighborhoods—where techs try to gauge who might pay more or less for the same service—ensuring that all homeowners are treated fairly.
At the same time, flat-rate pricing gives customers peace of mind, while also granting plumbers a degree of flexibility. Having agreed to a price up-front, homeowners don’t need to worry about watching the clock, keeping track of every lunch break and trip to the store for parts. In effect, standardized pricing limits friction between tech and homeowner over the course of a job, providing customers with a low-stress experience.
Why Plumbers Should Base Price on Process (Not Competitors)
One of the main things that leads plumbers to hesitate switching to flat-rate pricing is the fact that hourly pricing can appear to provide a degree of security. Unlike, say, HVAC installation or standard contracting work, much of what plumbers do involves fixing problems that are concealed: in walls, underground, and in ceilings.
Before they can fix those problems, professional plumbers have to diagnose them—determine what, exactly, is going wrong, and what they need to do about it. When plumbers charge by the hour, making a dead-accurate diagnosis might not seem all that important. If a job becomes more complex as they go along, demanding more time, energy, and materials at higher installation costs than they originally thought—a new toilet installation, tankless water heater, or drain line, let’s say, rather than a simple toilet repair, leak repair, or drain cleaning—they can simply account for these new developments in the bill.
It goes without saying that this kind of thinking is unlikely to endear a plumber to customers. It’s another way of misaligning the interests of homeowner and contractor, disincentivizing plumbers from improving the quality and efficiency of their work—at least in the short run.
Most of the time, in order to effectively (and profitably) switch to a flat-rate pricing model, plumbing contractors have to change the process they use to bid jobs.
With flat-rate pricing, it’s not enough to quickly size up a plumbing project without much in the way of preliminary investigation, and come up with an estimate, knowing that if things get hairy, the job’s billable hours will simply go up. Now, they’re locked into their quote for repair costs. If they underestimate how complicated the plumbing problems involved are—a kitchen sink project that turns into a garbage disposal project, which blossoms into a dishwasher project, say—they can end up losing money.
Flat-rate pricing requires a well-designed system for discovery. Before giving a cost estimate, plumbers sometimes need to do a little shovel-work or low-level demolition: digging in the yard or basement to expose a sewer line, water line, sump pump, or septic tank; cutting through some drywall to see a hidden section of a plumbing system or look for water damage.
The plumber can only give a solid flat-rate quote after understanding exactly what’s wrong, how long it’s going to take to fix, and what materials are needed.
That tends to scare a lot of people off from flat-rate pricing altogether. Among those that do adopt a flat-rate model, many aren’t quite sure how to implement a discovery process. And rather than figure it out, creating a system that properly prices each job according to its specs, they end up setting their prices based on what their competitors are doing—or on what they think their competitors are doing.
The trouble with this is that plumbers competing with each other on price alone wind up in a race to the bottom. In order to make flat-rate pricing work, plumbing contractors not only need a good discovery process to back up their estimates, but a finely-calibrated method for actually calculating prices—one based on the particulars of their business, rather than what the competition happens to be charging.
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What Plumbers Need to Consider in Calculating Price
Trying to keep track of all of the elements that go into pricing can be head-spinning, and using competitor pricing as a benchmark can often seem like a helpful shortcut. More often than not, though, it’s a recipe for trouble. And once plumbers know what they need to consider in calculating pricing, doing it for themselves becomes much less daunting.
To make things easy, we’ve broken down the key variables into a few basic categories:
Labor Rate
Overhead
Membership Agreements
Labor Rate
Perhaps the most important factor for plumbers in setting flat-rate prices is properly calculating their labor rate. Getting it wrong can set in motion the unfortunate pattern we discussed at the beginning of this post, wherein contractors end up digging themselves into a hole as they become busier. It’s also an area where mistakes are extremely common.
Most often, these arise from overlooking factors that reduce the number of hours that employees spend on tasks that are billable to customers. Keeping track of unbillable time is crucial, in that it’s part of the cost of doing business and thus essential to account for in pricing.
In an average year, there are roughly 2,080 working hours. That’s the baseline. Some subtractions will be obvious to pretty much every business owner: holidays, sick days, vacations. It’s clear enough that for the most part, these won’t be billable hours.
But others are less cut and dry. They will vary quite a bit depending on how a plumbing company is set up, what part of the country they’re located in, and other factors, such as:
How much time do techs spend on training every year?
How many hours do they spend driving, in meetings, working on planning?
How often do they wash their trucks, and how long does each wash take?
In order to arrive at profitable prices, all of these variables have to be accounted for. To go by the national average for a plumbing tech, only 40 to 50 percent of the workday is made up of billable hours. So if a contractor is figuring on much more than that, chances are their pricing is out of whack.
Overhead
Naturally, plumbers need to factor overhead into their pricing, too. Salaries, rent, taxes, vehicle repairs and tire replacements, marketing, insurance, utilities, material carrying costs: these add up fast. What many business owners are less clear on is how to effectively allocate overhead. This is particularly true for companies that are departmentalized, with divisions for plumbing and HVAC, for example, or plumbing and contracting.
Accurately analyzing the costs of production enables contractors to calculate appropriate pricing, which is to say, budgeting for profit. There are two basic ways to do this: as a function of sales, and as a function of labor. To many contractors, allocating overhead as a function of sales seems like the obvious choice. But in our experience, attributing overhead to labor is the better option.
The reason is straightforward: labor drives overhead, and some kinds of businesses have more overhead than others. For example, plumbing involves significantly more labor costs than construction: more demands on customer service reps, more drive time, and the like.
It might seem as though average costs will all just come out in the wash. But a business with plumbing and contracting departments allocating costs as a function of sales is likely going to end up attributing a disproportionately high percentage of costs to their contracting department. As a result, they might well be misled into setting their plumbing prices too low—and their contracting prices too high.
Membership Agreements
Most plumbing companies these days offer membership, or maintenance agreements to homeowners, providing a discount of 10 or 15 percent as a loyalty incentive. This is well and good—an effective marketing tool. The trouble is that plumbing contractors tend to apply membership discounts on top of their baseline prices, erasing all of the work that went into calculating profitable flat-rate pricing in the first place.
For best results, plumbers should set flat-rate pricing to incorporate their 10 percent membership discount. In other words, the membership price is the baseline price. All services performed outside a membership agreement should be charged at a premium.
Software Solutions for Plumbing Pricing
As we’ve emphasized throughout this article, there are tons of variables for plumbing contractors to account for in coming up with profitable flat-rate pricing. Just keeping track of them all is a lot of work. But as conditions change, most, if not all of these inputs will occasionally require fine-tuning. A new product might make a given kind of job more or less time-consuming, for example. Fuel costs rise and fall, and building regulations change. Tax rates sink and climb again with election cycles.
All of these things need to be taken into account over time in order to maintain a solid flat-rate pricing model. It ’s possible, of course, to do this the old-fashioned way, with pen and paper, and perhaps some Excel spreadsheets. But we speak from experience when we say: It’s a bear. And more and more plumbers are turning to software solutions like ServiceTitan to ensure that they stay on top of things—and ahead of the competition.
With ServiceTitan, once plumbing contractors have their flat-rate pricing figured out, they can upload their price book to the platform, and use the software to effortlessly make adjustments small and large as necessary.
Using the view shown above, plumbers can adjust pricing for individual products and services—water heater installation or faucet replacement, clogged drains, miscellaneous plumbing services, etc.—either on a per job, or long-term basis.
As shown above, a detail of ServiceTitan’s Edit Service view, which shows an array of options for price adjustments to individual services, in this case a water heater project. Here, users can input estimated work hours, standardize membership and non-membership pricing, and upload images, among other things. Contractors can even include add-on prices for each service, standardizing discounts for projects performed while a tech is at a customer’s home primarily for another plumbing task.
Alternatively, contractors can use the Price Setup view to adjust rates across categories, applying the changes to an entire pricebook: labor rate, surcharge, member discount, visit fee, and add-on pricing, for example. This saves contractors the considerable trouble of recalculating their price for each and every one of their services—and making sure that their techs use them while they’re out in the field, selling to homeowners.
Typically, contractors will have their materials linked directly to the services for which they’re required—available sink models to sink installation, water heaters to water heater repair, and so on. But ServiceTitan also provides an option to adjust material prices individually, as shown above.
Conclusion
Coming up with reliably profitable plumbing prices these days is tough. But by keeping in mind the key takeaways from this article—using flat-rate pricing, rather than an hourly model; pricing based on process, not the competition; and accounting for all of the essential variables in price calculations—plumbing contractors can ensure that as they do more work, they’ll make more money, rather than dig themselves into a hole.
Using a software tool like ServiceTitan isn’t essential, but for many plumbers, it’s a huge leg up. ServiceTitan allows the plumbing contractors that work with us to ensure that their pricing is properly applied on each and every job, and allows them to quickly and easily make adjustments over time as conditions change—as they inevitably do. That way, contractors can spend their time growing their business, rather than with a calculator and a notepad, worrying they’ve overlooked some crucial detail.
Want to see ServiceTitan in action? Schedule a call with us to learn more about how our software can streamline your pricing and help you grow your business.
ServiceTitan Plumbing Software
ServiceTitan is a comprehensive plumbing business software solution built specifically to help service companies streamline their operations, boost revenue, and achieve growth. Our award-winning, cloud-based platform is trusted by more than 100,000+ contractors across the country.
