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Pricing: Time and Material vs. Flat-Rate

Most service companies offer some version of time and material (T&M) or flat-rate pricing. There are pros and cons to both and it’s important to understand what those are in order to make an informed decision about what kind of service company is right for you.

Summary

Both flat-rate and T&M service companies can offer integrity and competitive pricing. Our goal in writing this explanation is to educate our potential customers.

At this time, it is our belief that time and material is what’s best for our customers, and therefore best for our business. At Bolton, we understand how hard our managers and administrative staff must work in order properly prepare time and material billing. But in the end, our employees are willing to work a little harder to provide customers with what we consider to be the best service possible.

Additionally, we understand the need to know how much something will cost, and would be more than happy to offer a fixed price prepared by an experienced Service Manager. After reviewing your project, our managers are able to provide estimates promptly to fit your individual needs.

Definitions

Time and material billing simply refers to charging customers for the actual labor hours, parts, materials, equipment, etc. Each billing is created for that specific customer and what it took the employees to complete the job.

Flat-rate pricing refers to a pre-determined fixed price for repairs, maintenance, replacements or installations.

Why Many Service Companies Prefer Flat-Rate

  • Ability to give a customer prices immediately
  • Very little or no estimating is needed, all prices are set
  • Technicians are easily able to become salesmen since there is no estimating training required
  • Companies don’t have to worry about over charging a customer if a technician takes too long
  • Requires much less accounting, often meaning less office staff
  • If technicians are efficient, it is easy to be profitable
  • Companies using flat-rate pricing do not have to disclose their labor rates to customers
  • Companies using flat-rate pricing do not have to disclose material mark-up to customers
  • Technicians may be compensated or given bonuses per job, instead of being paid hourly

Issues to consider when deciding between flat-rate and T&M service.

As a customer, knowing what the repair or replacement costs immediately could cost you more.

Some people go to great lengths to care for their equipment, making sure it’s easily accessible, free from rust and corrosion, etc. Some home or business owners even make plans for when equipment needs to be replaced, making sure doorways are large enough and there is adequate space for newer, possibly larger, equipment. This type of customer, if using a flat-rate service company, would pay the same price as someone who neglected all those factors. Meaning, in flat-rate pricing, the efforts of conscientious home and business owners is ignored.

Flat-rate pricing could motivate someone to sell equipment or parts you don’t need.

Flat-rate companies must be very careful not to motive conflicts of interest. Some flat-rate service companies pay by commission, or bonus per sale. Because flat-rate technicians do not have to estimate, many are able to be mobile salesmen. If the flat-rate service company they work for pays commission or bonuses, they are then motivated to make more and larger sales. We hope all technicians have integrity and would never sell a customer something they didn’t need, but this payment method does create the temptation.

Service companies who charge a flat-rate often do not provide customers with a breakdown of labor or material charges.

If a flat-rate technician performing a repair service is well trained and efficient, a customer may end up paying $140 to $250 per hour. Because the flat-rate company took the risk that their technician could perform the work faster than the industry average, they were rewarded with additional profit when he did.

If the same technician had performed the work for a time and material company, such as Bolton, the charge would have been $95 per hour, plus material. The time and material company is taking less of a risk and therefore does not have the opportunity to earn as much profit.

Flat-rate pricing does protect customers from technicians who are slow or still learning the trade.

Companies who charge time and material must be very thorough in their technician training and invoice review. Managers, administrative staff, and technicians must dedicate a great deal time to staying informed in order to not overcharge T&M customers.

A low diagnostic charge does not always mean a low repair price.

Many flat-rate service companies are initially very appealing based on the trip or diagnostic charge. The diagnostic fee is what a flat-rate service company bills in order to tell you what the problem is. Often times this fee is lower than what a time and material company charges for one hour of labor. However, to compensate for a low diagnostic fee a flat-rate company may inflate the price of the repair to make up the difference.
Please Contact Us to inquire about how we can improve your home or business with our quality products and services.

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