Flat Rate vs. Time & Material Pricing

Plumbers charge by the hour (time + material) or they charge by the job (flat-rate). Both types of pricing have been around from the beginning of time. There is nothing new about either method. We offer both methods of pricing. All plumbing repairs represent some level of risk that the job will turn into a larger project than originally anticipated.

The two pricing methods determine who is taking that risk. When a plumber is charging by the hour the customer is taking the risk that the job could take longer or be more costly. When a “flat-rate” or contract amount has been agreed to in advance the plumber is taking that risk or padding the quote so high that the homeowner is paying even more than it would have cost by the hour.

The TIME & MATERIAL PRICING method for charging is typical & normal. Historically, plumbing repair services are charged by the hour and new construction work is bid at a contract dollar amount. If the customer feels more comfortable with a firm price they will ask for and get a firm price – once the plumber knows enough detail about the job to intelligently estimate the costs. The customers seldom know, however, that in order for the plumber to give a firm quote he must feel secure that he will not be working for free and he will bid accordingly in the higher range of anticipated cost. This is reasonable and prudent in order to avoid any misunderstandings later. In most cases a skilled plumber working by the hour can effectively estimate the final cost and can convey that information to the customer upon request. So it seems that time & material payment basis can optionally be converted to a “flat-rate” basis at the customer’s discretion (before the work begins).

The question then is – what is fair? The fairest it can be is this – The consumer pays for what he gets and gets what he pays for, no more – no less. Consequently, the plumber gets paid for his time and his materials – again no more and no less. From a fairness point of view this is as good as it gets. Time & Material is the way to go with repair work, in our opinion, if you want a fair deal for both yourself and the plumber.

FLAT RATE PRICING used to be called “contract price” Somebody needs to take a close look at where this flat-rate pricing has come from as it relates to small repairs. The customer didn’t dream this one up.

To the best of my knowledge, it originated some time ago, perhaps 25 years ago in Southern California. The concept was this: Increase the labor rate significantly, increase the profit margin on all materials sold and make a lot more money. The problem with the concept was that if the customer was aware that the labor rate and the material cost was significantly higher than normal then they would not agree to pay for it. The solution was to mask the higher price of both labor and material until it was too late to find another option. This was done by simply not having an hourly rate. With no hourly rate the consumer cannot price shop. Now the cost of the job could not possibly be known until the plumber had gotten into the house, racked up some kind of charges such as a “show up fee”, diagnostic fee” or “travel fee” – typically $100 to $125. Only then did the customer know the “flat rate” cost of the job. After the customer takes off work, waits for the guy to show up, and is already committed to the above minimum fee, he is hit with the whopper cost. The customer is now leveraged, as he now must accept the contract price, pay the $100 -$125 for nothing of real value – or go back to the phone book and call another unknown plumber. Neither option is very appealing to the customer in this position.

The bottom line is this: flat rate pricing for residential service and repair work is intentionally designed to dramatically increasing both the customers’ cost and the contractors profit.

Increasing profit is not a new business desire. What is new is the hiding of the cost from the customer until it is too late to do anything about it, and the total disregard for the traditional concept of truthfulness and fairness in customer relations.

As a business, we love the idea of increasing our profits and having more money to grow our business. We just cannot justify the method of getting there. The flat rate pricing method tends to alienate the customers as they typically feel that they have been taken advantage of (and they have in many cases).

As a contractor and a consumer, we see both sides of the fence. Our company charges $85 per hour for a Lead Plumber. We feel great pressure to raise the rate as our costs have increased significantly in recent years. We are afraid however to raise our rates as many customers believe plumber rates are too high already.  Our customers do not know that items such as our liability insurance and gas expenses have gone up significantly. We are vulnerable to the criticism we get from the flat rate marketers that we should be getting on their wagon as the business models they present insure our future business health, personal wealth etc.

In 1976 plumbers charged $45 an hour on average for plumbing service with a 1 hour minimum. In 2005 the average base rate per hour for a plumber was $88.00. The inflation rate since 1976 is 2.55 (http://inflationdata.com/inflation/Articles/CalculateInflation.asp) The hourly rate of $88 per hour (2005) has not kept up with the rate of inflation based upon the consumer price index. If it had it would be $114.75 per hour. It is actually much worse because insurance, licenses and real property (rent) has gone up more than the CPI since 1976. We don’t blame contractors for seeking a way to raise their profits – we just object to the methods used that the customers find so offensive.

Flat Rate pricing means commission paid plumbers in most cases. Most flat-rate service companies pay their mechanics on a percentage basis. Do you really want a commissioned sales guy diagnosing the nature of the problem and recommending a remedy? Wouldn’t you rather have a mechanic with no obvious conflict of interest telling you what will be required to remedy the problem? Who is most likely to oversell – a mechanic working by the hour or a salesman getting paid a commission? As consumers ourselves, we prefer hourly mechanics as the only way they can cheat us is by taking a nap when we are not looking or outright lying about how long the job took to complete.

The obvious and not-so-apparent results of Years of flat rate pricing:

  1. The general public is paranoid about calling a plumber out of the phone book. (For good reason).
  2. The average cost of plumbing service to the consumer has gone up dramatically, way beyond the cost of inflation – primarily due to the flat-rate. (Those of us on hourly have seen a dramatic drop in profits – leading to the conclusion that maybe these flat-rate shops are on to something)
  3. The mechanics are poorly trained, as the bulk of most training is sales oriented.
  4. There is little evidence that the plumber’s perspective is anything other than profit. If they do not up sell, they will not make the same if paid an hourly wage.
  5. The pride of being a professional plumber is very lacking today. Turnover is high within the flat-rate service shops due to burn-out from long hours and high stress.
  6. Customers rarely call twice, making larger ads necessary in the yellow pages. Full-page ads are common in the phone book. If you pay out this much to advertisers, there isn’t much left for payroll.
  7. Small local shops are invisible, as they can’t compete with large advertisers for exposure. Small neighborhood shops mean lower overhead and best pricing to the consumer.
  8. Liability insurance costs have skyrocketed for all due to poorly trained incompetent plumbers causing property damages.
  9. Employers certify many plumbers with little regard for proper training or knowledge of the craft.

In conclusion, flat-rate plumbing shops cost the consumer more for most repair jobs than an hourly plumber. The hijacking of the service & repair plumbing trade by the unscrupulous sales & marketing professionals has had a great negative impact on the quality of the mechanics and the integrity of the trade as a whole.