Flat Rate Part 2

March 20, 2003

Not flat rate, but fair rate.

By: Matt Michel


One of the great ironies of charging time and materials is that you make more money with your slow technicians than your fast ones. The customer actually pays more for a less competent service technician.

How so?

Your slower technicians are usually your less experienced and less competent technicians. This is not necessarily a bad thing. Not everyone is a superstar and not every superstar started that way. Regardless, slower technicians are probably paid less than faster technicians. Yet companies charge the same rate, no matter whom is sent on the job. Thus, the longer a tech takes, the more the company makes:

- Slow technician = longer time on the job = more billable time.

- Slow technician = lower pay = more gross profit per hour.

By contrast, your faster technicians probably cost you more and bill less:

- Fast technician = less time on the job = less billable time.

- Fast technician = more pay = less gross profit per hour.

The customer pays more to give your slow technician experience. That's not fair to them. You profit less because your fast technician costs more and bills less. That's not fair to you.

Granted, a fast technician might be able to work in one more call per day, overcoming the penalty his speed and efficiency has cost you. He might be able to. Then again, he might not. He might end up with more windshield time (and his windshield time is more expensive).

Flat rate evens out the differences. The customer pays the same whether it's a fast tech or a slow one.

Your slow techs may take longer than the flat rate time estimate (though most flat rate systems are padded so that even the rookies can keep up). Even so, you pay them less per hour.

Fast techs may run under the time estimate, but you pay them more per hour. You see, things tend to even out with flat rate.

If a service company is to charge time and materials correctly, then they would take a page from the lawyers and the consultants. When I do consulting, I charge $3,000 per day. By contrast, I only charge $2,000 per day for one of my employees. We charge different rates because we bring different skills and experience to the table.

If a time and materials company were going to be really fair about it, they would charge different hourly rates based on the skill level and experience of the technician. Of course, this can get mighty confusing. It's far simpler to charge the same hourly rate for everyone.

It's even simpler to charge the same rate for every given job/task/repair. And while we're at it, toss the parts and materials into the price to simplify it down to a single number. That's called flat rate pricing.


Source: Comanche Marketing. Reprinted by permission.
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Copyright © 2002 Matt Michel

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