Flat Rate Part 3

March 20, 2003

Flat Rate Myths

By: Matt Michel

If flat rate is so wonderful, then why doesn't everyone use it? Well, for one thing, service companies seem to be notoriously slow to change. Actually, that's characteristic of most small businesses…make that most businesses. In fact, few established businesses would innovate at all without the forces of a competitive market compelling them. Inertia keeps many companies from attempting change.

While inertia might be the major inhibition, several myths also restrain the diffusion of flat rate in the service industry. Let's look at them.

The Flat Rate Myth

Some contractors believe everyone using flat rate are price gougers.

Nonsense. Flat rate is a pricing presentation method, nothing more, and nothing less.

When you buy a hamburger at a fast food drive through, you're charged a flat rate. You don't pay separate charges for the labor to cook it or the materials that went into the assembly. No one gets an itemized list of the individual cost for two all beef patties, special sauce, lettuce, cheese, pickles, onion, and a sesame seed bun (and if you know what that refers to, it dates you, and also shows how long a repetitive advertising message can endure). No one gets a discount for asking them to hold the pickles.

It would be silly if they priced everything separately. It would bog down the process, which is designed to be fast.

In fact, the fast food restaurants are bundling burgers, fries, and a drink into a single flat rate priced meal these days.

"Give me a #3," you say. It saves time. It's easier. It's simpler.

When a contractor switches from time and materials to flat rate, the pricing does not need to change. Yet, it often does.

Pricing often does change with flat rate for two reasons. First, many contractors do not charge enough to pay their people well, support their customers properly, pay themselves well, and have a little bit left over for the bottom line. They hesitate to charge enough for a variety of reasons, which include a lack of self-worth and fear.

Flat rate won't persuade a contractor his services are worth more, but it can help overcome the fear his customers will cough and choke when presented with a labor rate that's higher minimum wage.

Customers don't choke and cough because they don't know the underlying labor rate. Frankly, it's none of their business. I don't know the labor rate when I get my hair cut, when I visit the doctor, when I buy product off the shelf in a store. I don't need to know or want to know. Just cut to the chase, give me the price, and let me decide. Flat rate allows you to cut to the chase.

The second reason that prices change is things get simpler. No longer does the service company need to tap dance around the price with the old soft shoe. Step to the left and charge a trip charge, truck charge, fuel surcharge, response charge, or what have you. Step to the right and do a quick spin with a first half hour charge or one-hour minimum charge. With flat rate, you can figure the rate you need, bundle it with the material, and present a single fixed amount.

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

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