Is flat rate a scam?

[amiller099]

I'll say up front that I am a solid "maybe" on the answer to this question.

We've been billing time and materials since 1986. I'm considering flat-rate, and I just can't convince myself that it is not price gouging.. Ok not gouging. Price..... Poking? Bottom line is that the customer will pay more while the company uses the same amount of resources. Yes? And for that they get basically an insurance policy in case the jobs takes longer than expected.

Scam likely?

I'm interested in your thoughts.

And if you are billing flat-rate right now, I do not think you are a scammer. (ok maybe just a tiny bit) 😛

[carlon51]

When I apply flat rate pricing to my everyday life it definitely makes me appreciate it a lot more. For instance, when I get my hair done I know I am paying a flat price based on what I want done that day. If my hair dresser charged me T&M I would 1) be thinking to myself "I sure hope she doesn't drag this out in order to charge me more" or "I hope she hurries, but at the same time does a great job". Same goes with my nails, getting my oil changed, getting my car detailed, etc. Could you imagine paying more for your meal at a restaurant the longer the cook took to make the food? Not only that but you don't know what your price will be until after the fact? This is just me looking at it from a consumer's point of view. 

Not only is it a benefit to the company, but it really is a benefit to the customer as well. 

[wpowers11 · Accepted solution]

If you price things correctly, a flat rate will cover the direct and indirect cost with your budgeted profit left over. But calculating an optimal one requires a solid strategy — and a little guesswork although there are many completed worksheets out here with all the "guesswork" already done. So, if you want to determine a fixed rate that will work for you, follow these steps:

1. Start by estimating the number of hours it will take to complete a project. If you're unsure, use your work history as a guide —or research what your competitors charge for similar projects.
2. Multiply the number of hours you'll work on the project by your hourly rate. The resulting number is your total labor cost.
3. If applicable, calculate the cost of materials for the project.
4. Multiply the cost of materials by your markup percentage. The resulting number is your total materials cost.
5. Lastly, add your total labor cost and total materials cost to find your total flat rate.

There is nothing in this to call it a "scam" just be upfront and don't be greedy. You also want stay competitive by knowing what others in your market are charging. Building your flat rate with integrity will keep you competitive and profitable.

[thomashogan]

"Bottom line is that the customer will pay more while the company uses the same amount of resources."

My question is pay more - than what?

Here are three reasons Flat Rate - protects from scams:

1. Knowing that the neighbor down the street, or in a richer or poorer neighborhood was offered the same price.

2. Not being penalized for a less experienced technician taking longer on the job, or a company with less calls "banging a wrench" for a few more minutes to pad the ticket.

3. Being able to know the price prior to agreeing to work, to know that they can afford the work, understand the value, and even shop around if they feel the need to.

I'll admit before getting into the industry I may have had similar apprehensions, but I love knowing that our company can give the price upfront and the customer can be secure that - for that job - that is all they will pay, and that they aren't being charged a different rate based on how they, their home/car/etc. look...

(I would be happy to go on with the "Restaurant example" as well and ask if you ever ask what the lettuce on the BLT costs on its own when you are at the deli...)

[amiller099]

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@thomashogan wrote:

"Bottom line is that the customer will pay more while the company uses the same amount of resources."

My question is pay more - than what?

Hourly Rate + Materials.

Thank you for taking time to write this. I am thinking about it.

[thomashogan]

Do all of your employees work at the same speed? Do they all have the same years of experience? (Only asking to understand. The two companies I work for do not have technicians with equal skills as well as equal years experience.)