SECTION 5 OF 6
How Does Flat Rate Pricing Work?
As mentioned previously, flat-rate pricing represents the direct cost your company charges for providing a service, plus markup. Many contractors believe it’s the most accurate way to charge the customer, because it values the true scope of work.
When determining how to calculate flat rate hours, start by figuring out the gross margin dollars you want to generate per day, says best-selling author and motivational speaker Weldon Long, who also owns Peak Home Performance LLC in Colorado Springs.
“You’ve got to know how many gross margin dollars per day you need to generate to cover your operating expenses,” Long says. “Maybe do three jobs a day, and generate $3,000 to $4,000 gross margin on average. Then, price the job with that gross margin, the cost of goods, cost of labor, and profit. It’s a very effective system.”
Long also believes in performance pay or paying his staff commissions based on a percentage of gross margin profits. He once did a ride-along with an hourly install crew, and says most of the conversations centered around what they did the night before or a girl they met.
When he did the same with a flat-rate crew, they talked about which parts they needed for the job at hand.
“It changes the behaviors when there’s a relationship between my compensation and my productivity,” Long says. “Commission all the way, in my book.”
It’s possible to create your own flat-rate pricebook for techs to follow, but it requires regular updates (at least once or twice a year) to stay on top of pricing changes.
Investing in flat-rate pricing software, such as ServiceTitan’s Pricebook Pro, simplifies the billing process, saves time, and improves efficiency. It also allows your techs to focus on the job, instead of worrying about calculating a correct customer invoice.
Other favorite features in the Pricebook Pro include customization, the ability to offer multiple options, and ease of updates.
A professional pricebook gives your techs a tremendous resource, provides better value to your customers, and improves your company’s bottom line, says Kathy Nielsen, a business development consultant and operations expert.
“Your pricebook is the foundation for everything you do in your company,” Nielsen says. “Your pricing guide drives your tech efficiency, profitability, reporting, truck replenishment and inventory.”
» READ MORE: Kathy Nielsen on creating a pricebook