Questions to Consider When Converting to Flat-Rate Pricing

Deciding to get away from a time and materials pricing structure doesn't automatically mean that aspect of the job will get easy. Implementing a flat-rate system has its own challenges.

Questions to Consider When Converting to Flat-Rate Pricing

Anja Smith

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When we were first implementing flat-rate pricing in our plumbing company, I was complaining to another contractor about the painful transition.

With my usual exuberant outrage, I fussed, “We have to make SO MANY edits, there is hardly any training, and my guys are so confused!”

As someone who had been down this road, he shrugged his shoulders and asked, “Did you expect this to be easy?”

Yes. Yes, I had expected the experts would have it all figured out. Wasn’t that why we paid for an expensive price book? Wasn’t this flat-rate pricing nonsense their entire job?

While everyone acts like flat rate is a given and, of course, you should drop time and materials like hot potato, the reality is more complex. Plumbing and drain cleaning is a complicated and challenging field with an incredibly diverse set of services, materials, local regulations and expert opinions.

I agree that flat rate is a better option than time and materials. However, I also understand the operational complications of flat rate. It presents a fresh set of challenges.

Here are a few things to consider as you are choosing your flat-rate pricing system:

How long have you been in business? How many trucks do you have?

The context of this question is really about training support. The more entrenched your current invoicing process, the more resistance you’ll likely find from your technicians. More employees and old-timers mean less one-on-one instruction and more grumbling.

If this describes your company, pay special attention to training support options. It may even be worth hiring a consultant who specializes in change management to come in and help implement the change in your organization if you have 20 or more trucks.

One of my beefs with a lot of the current price book options is that the price book is really a catalyst to sell software or a sales strategy program. Sometimes it’s like the price book itself is an afterthought. To me, this is a strange perspective considering how much pricing, invoicing, and cash flow affect the health of your organization.

The consequences of “and we give you a price book!” is a lack of training on daily use, how to find tasks, what to do in outlier situations, and documentation responsibilities.

If training is a key concern for you, address it early in the sales conversation. Get promises in writing and hold the account representative responsible for the promises of the sales team.

Next, find internal champions who will lead the charge — ideally one in the office and one in the field. Prepare them to spend time with frustrated employees who have questions and concerns. Their job is to support the staff, so give them the time and resources to do so. The better supported the technicians are, the less you have to worry about someone going rogue.

What is your current invoicing method?

Do not — I repeat — do not transition from paper to digital invoicing at the same time you change from time and materials to flat-rate pricing. That is way too much change at one time. I learned this the hard way.

Make sure that the price book you purchase can support your current invoicing method. If your primary goal is really changing to a field management software, start by setting it up to work with your current pricing structure. Give that 90-120 days and then work on rolling out flat-rate pricing.

If pricing is the primary concern, hold off going digital and stick to pen and paper until the price book is comfortable for the team. An acceptable compromise is to skip a printed version and use a searchable PDF reader for the price book. This will allow your team to get used to the categories, tasks and prices.

Then, that same price book integrated into new software provides a sense of familiarity and comfort when the time comes. I realize this requires a lot of planning and foresight. Many, or most, companies operate with more of a “fly by the seat of your pants” mantra. I get it. However, making strategic decisions in advance and letting them play out over a year to 18 months will save you a lot of time and frustration. Be patient.

Who will manage the price book?

I’m convinced a completely off-the-shelf perfect price book is impossible. Again, there is too much variation in skills, services and local regulations. Therefore, whatever price book system you purchase will require a level of customization.

A flat-rate price book is a living document because prices and services change. Material prices fluctuate, new products come on the market, you decide to bundle services, or a global pandemic changes the way everything works.

To further complicate things, there are two levels of maintenance. First, identifying changes. This step includes someone reporting the issue, calculating the effects and documenting it for approval. Then, there is implementation, a.k.a, editing of files, formatting, re-publishing and distribution. This last step is crucial so your technicians aren’t operating off different versions.

Some programs make this easy, and some are harder. Either way, most change has to come from within your organization. That means someone has to add price book maintenance to their job description. This person should understand pricing calculations, acceptable margins, be comfortable with the software or document and have the time, skills and authority to issue recent versions.

If you want to minimize that person’s time and effort spent, ongoing support from the price book provider could be helpful. This is likely to come at a price but may be well worth it to keep your office staff optimized.

My last note is to make sure you understand who owns the copyright to your edited price book. Once you change the stock price book, it is proprietary trade secret information. Who owns that? If you stop paying a subscription or switch to a new software, do you own that data or do they? Whatever the answer, make sure you are comfortable with it.

Luckily, there are a growing number of options for flat-rate price books in the industry. Take your time to figure out the best option for you. I’m a big fan of flat rate and think it is the right move for most residential service companies. Just do your due diligence for choosing who you trust with this tremendous investment. 

About the Author

Anja Smith has worked in the plumbing industry since 2012 in Greenville, South Carolina. You can find her on LinkedIn at www.linkedin.com/in/anjasmith.



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