Toolboxplaybook-back-btn Playbookplaybook-back-btn Chapter 6

CHAPTER 6

Billing Structure: Determine Your Pricing

Flat rate or hourly pricing? Making that decision wisely helps to ensure you’re charging rates that match the value of the service, and making sure there’s a profit from every job.

SECTION 4 OF 6

Pros and Cons of Flat Rate vs. Hourly Pricing

Each type of customer billing offers advantages and disadvantages for not only your company and employees, but also your customers. Just keep in mind it’s hard to please everyone, so do what’s best to improve your bottom line.

Pros of Flat Rate Pricing

For the customer:

  • Answers two important questions: What’s wrong and how much will it cost?

  • Closes the door on price concerns, because they know the fixed cost in advance.

  • Eases the pressure of a home-service call, removing the need to closely monitor the tech’s progress.

  • Eliminates repair bill surprises, even if a tech needs more time to complete the work.

  • Simple and easy for customers to understand, and for your techs to sell.

For the contractor:

  • Rewards high performance and efficiency, allowing your company to book more jobs per week and earn more revenue. Time savings = more profits.

  • Allows you to set prices based on the true value of your services and scope of work.

  • Eliminates the problem of unapplied labor (underperforming techs).

  • Allows you to sell a service with an end result, with no need to justify your hourly rate.

  • Shortens the billing cycle, allowing customers to prepay the fixed cost or pay the tech on site for completed work.

Cons of Flat Rate Pricing

For the customer:

  • With less itemization for your flat-rate fee, customers may view it as a sales gimmick or upselling.

  • It doesn’t allow for customers to negotiate or haggle over the price.

  • The service may seem overpriced, especially if the customer doesn’t understand the value your company brings to the job.

  • Creating a high-pressure environment to perform may leave your clients feeling like your techs rushed through the job.

For the contractor:

  • If the job takes longer than estimated as part of your flat-rate costs, you may end up earning less than your regular hourly rate.

  • Clients may insist on hourly invoicing, or want to haggle over your flat-rate pricing.

  • Flat rates are approximate, so you may get locked into a certain price even though the job turned out to be more complicated than you originally thought. 

  • With emphasis placed on performance, slower techs may struggle to earn.

  • Slow periods, especially for HVAC techs, may require creative job-reallocations to meet performance goals.

Pros of Hourly Pricing

For the customer:

  • Customers understand hourly rates, or T&M pricing, and use it as a baseline for comparable work.

  • Some customers appreciate an itemized list of exactly what’s included in their home repair bill.

  • Billing hourly tends to work better for clients with long-term projects, rather than short, sporadic jobs.

For the contractor:

  • Allows you to track the exact number of hours working on a job, and invoice the customer upon completion or at certain phases on bigger jobs.

  • Hourly rates allow you to account for changes and other variables (and charge for them) as they arise.

  • Your techs, CSRs, and other employees know their hourly rate and how many hours they need to work each week to reach a certain level of pay.

Cons of Hourly Pricing

For the customer:

  • Customers may feel compelled to stand watch over your techs to make sure they’re not wasting time on their dime.

  • Techs who don’t perform at a high level may cost customers more money for less work.

  • Unexpected changes and other variables may significantly increase the cost of the project.

  • Customers prefer predictability, rather than uncertainty of the outcome. 

For the contractor: 

  • Charging by the hour requires keeping detailed accounts, and many contractors stay too busy to do this regularly and accurately.

  • Billing hourly provides no incentive for your techs to perform quickly and efficiently, which means your company may be losing out on new revenue.

  • T&M pricing limits your profitability, but pricing focused on production boosts your revenue potential.

  • Nagging techs to correctly invoice customers remains one of your essential duties.

Go to Section 5: How Does Flat Rate Pricing Work?