Flat Rate Pricing
Flat rate pricing is a pricing structure in which the customer pays a fixed price for a particular service regardless of how long it actually takes the worker to perform the task.
Some businesses euphemistically call it "up front pricing", but more often than not, it is much higher than a straight hourly rate plus materials. Although flat rate pricing can be used in a responsible manner, many companies use it to hide their pricing for labor and materials. Flat rate pricing is a great way to hide high labor rates or materials mark up into a set pricing figure that you can't see or understand. Flat rate is also ripe for abuse by the technicians themselves.
For example: If a company pays their technicians based solely on how many billable hours they accumulate, the technicians will be under pressure to meet or be under those hours. If a job takes longer than it's supposed to take – the technician makes less money. If a time consuming project puts the technician behind schedule, causes him to lose money or gets the boss breathing down his neck, he may try to rush the job by taking shortcuts.
Flat rate pricing may encourage the worker to perform as much work as possible in as little time as possible in order to achieve greater profit. This leads to poor quality work, systems that break down more often and return visits for things that should have been done correctly the first time around. Bottom line, the customer usually loses.
Most customers will carefully scrutinize a detailed invoice that includes parts and labor. With a flat rate pricing invoice, a company can easily add $20, $30 or more to an average service call and the change will be imperceptible. With a detailed invoice, these arbitrary mark ups are very noticeable. In order for a company to offer flat rate pricing – they must overestimate the repair time and material costs to ensure they make enough profit on each job. This means that the consumer pays much more than they would if they are charged for the actual time and materials.
It seems hard to believe that people still think they can get something for free, but people like to hear that the "service call and diagnostic time is FREE". It sounds like a great offer and it is a time tested sales pitch, but think about this: You call a technician to diagnose a problem with your system and a 1.5 hour repair job, with a part cost of $75, is billed at $257.50 (including the trip charge). With a flat rate pricing, the same job would be quoted and billed at $350 or more. Flat rate pricing is always based on a "worst case scenario" estimate of repair hours.
To protect yourself, call a time and materials company first, once they diagnose the problem and give you an estimate, call a flat rate company and ask what they charge to repair that problem. Since they’re flat rate, they should be able to give you a price without even looking at it. More often than not, the flat rate will be higher than the time and materials quote.