What You Might not Know About "Flat Rating" or "Fixed Pricing"!
Flat rating or Fixed Pricing are really just other names for Quoting and yet they carry with them a Stigma....they seem to be dirty words in the Plumbing Industry. But why, when the word Quoting is used without so much as anyone blinking an eye?
It's actually got more to do with a Company's ethics, and staff training, than it has to do with how they Quote a job - ie by Flat Rate calculations or the old Time and Materials.
Fixed Price/Flat Rate Companies seem to have the reputation of Rip-Off merchants and yet all they're actually doing is Quoting a job based on the charge-out rates and average times they know they need to cover their costs and make a little profit. It's funny that Time and Material quotes aren't thought of in the same way? Or is it?
You see when you Quote someone by Time and Materials you're doing a few little sums in your head of how long you think the job might take YOU (notice I said YOU, you're not thinking about how long it might take someone else...), you're roughly adding up the materials you think you might need, and then you decide on the markup you'll whack on top.... or what you can get away with..... I mean you don't want to upset the customer by seeming too overpriced, but then they do live in a nice street and there's a BMW parked in the driveway so maybe you could whack on a couple of extra hours...... Do you see where this is going? There's way too much room for error or 'what if's' and 'I think this' and 'personal stuff' that get in the way.
And then what if you're someone like me? You're really good at what you do - so good in fact that you're twice as fast as you're best plumber and you're work is of a much higher quality.
Whilst my work isn't 'plumbing', (it's Admin and P.A. and Finances) I'm an absolute whizz at my job! It never occurred to me that someone with lesser skills and quality would actually be getting paid more than me - I mean how could that be, I was twice as good as they were? It wasn't until hubby Steve pointed out "Quoting by the Job or Task" to me that I started to realise I was robbing myself - even though I felt like I was getting the Gold Star I wanted from my customer because I'd finished in record time. Not only that, how could I expand my contracting business when I was always limited to the number of hours in a day? I couldn't charge more than 8 hrs....but hang on a minute, my 8hrs of work is really someone else's 16hrs of work, so why wasn't I charging my customers more. Because the thought of putting up my hourly rate or 'adding' on extra hours (even though it would have taken someone else those extra hours), made me want to vomit.
Here's the thing: if I sat my butt down and spent a good day or more working out what all of my main tasks/services are, and then worked out how long each of these would take (based on not ME, but someone who's considered average), and then added on the 'average' cost of any materials I'd need, I could work out a system that turned all of my services into PRODUCTS!
OK, so now I want to vomit again!!! That sounds like a hell of a lot of work, surely it's just not possible....
I mean what about if I used that system for my prices and a job went over? Or under? I'd lose money and then I'd make extra money...... Oh, hang on....... now I see where Steve was going with all of this, him and his favourite phrase "Swings and Roundabouts"..... It doesn't matter if one job's over and one's under because they all balance out eventually, and hopefully you'd have more jobs going under time (because you're so bloody fast!).
BUT it's still a hell of a lot of work to turn my business from "Time and Materials" to "Quoting by the Job/Task". Note: not many businesses have managed to do this in my industry, but there's more and more now doing this in Plumbing and other Trades with the help of 'ready-made price books'........
So the question is: IS IT WORTH IT? Well, if you're a highly skilled plumber who's great at his job and really efficient..... then.... YES...
....it's worth giving this 'Quoting' system a go - you'll stop RIPPING yourself off and you're customers are still getting a fair price (because you've based the time allowed on the average Joe), and you (or your staff) can't whack on more because of the BMW in the driveway - the prices are already set. Everybody wins.
BUT.... if you're the average plumber, or even one that's good but really pedantic and a bit of a perfectionist that works slowly (we had one of these work for us - fantastic plumber but needed a rocket put up him to speed him up), then maybe it's best you stick to Time and Materials, because basing your 'Quoting' system on the average plumber could possibly have you appearing in the 'job's gone over' category more often than not.....
I guess the main things I ended up learning about "Flat Rating" were:
- There's less room for error or 'personal shit'
- You're not ripping your 'Speedy Gonzales' self off
- You're not ripping the customer off (and they love the fact that they see the total price before you start work - no surprises after the fact...)
- You don't have to be the one doing all the quoting, you're staff can now quote every job whilst in the field because they have a clear system and prices to follow.
- You're not limited to only being able to charge for 8 hrs a day
Hmmmm, maybe it doesn't deserve it's bad rep after all?
If you want to know more about how we changed our Plumbing business from Time and Materials to 'Quoting only', or where we got our 'Price Books' from then drop us a line at [email protected] or call us on 02 8022-8477.