It’s important to know what your CODB (Cost Of Doing Business) so you’ll know how much it costs you for each hour of labor you provide to customers when performing repairs. And knowing what it costs you for each hour of labor you provide is a critical factor in implementing the a flat rate pricing system into your business. You need to plug your hourly rate into any system you employ in order to allow the system to calculate all the flat-rate jobs that are listed. Determining your true cost of doing business isn’t easy. To do it effectively often involves understanding all of your overhead costs and using all available records for at least a full year, involving a series of P&L (Profit & Loss) statements. While we’re not going to cover P&L statements in detail here, we will attempt to give you some insight on understanding your overhead so you can come to an understanding of what your hourly rate should be.
When considering how to calculate your hourly labor rate, consider five factors:
1. Overhead Ratio
2. Average Daily Wage
3. Average Daily Total Cost Burden
4. Total Daily Productive Hours
5. Percentage Profit Goal Average
Often, a service manager or service company owner who goes through the process of calculating their necessary hourly rate is surprised to discover that they haven’t been charging enough for their services. If that’s what happens for you, then you now have another situation to deal with in regard to yourself and any other technicians in your organization….which is getting over the common myth that using a flat rate guide will make you too expensive, cause customers to complain long and loud about your service rates, and ultimately drive business away.
Our experience is that the exact opposite is true. For hints on implementing flat rate pricing into your business, consider the following:
…Often, technicians are of the opinion that the service rates charged by a business are already too steep because they just don’t consider some of the fundamental topics we discussed on calculating the cost of doing business.
…It’s easy for a technician to undervalue what they do, especially if they’re good at it. They sometimes see only the actual time it takes them to make a repair, not the amount of time they had to invest in gaining the experience and skill to be able to make that repair quickly and efficiently. Ask a technician if they think they only pay for a lawyer’s actual time spent while they’re sitting across a desk from them discussing their case and they’ll get the idea. Spending time and money for law school is no different that spending time and money becoming a Journeyman Level technician in the major appliance service industry. And, as in any profession, there is time and money invested in keeping up to date on new developments in order to be able to stay current in the industry.
Here’s what you should not do to implement flat-rate pricing into your business if you employ technicians other than yourself:
Buy the guide, get one printed up for each technician, and call a morning meeting to hand them out while you announce “This is what we’ll be using from now on.”
Here’s a 7-Step Plan that outlines what you should do:
1. Schedule a meeting to discuss your plan to implement flat-rate pricing and allow plenty of time for discussion and addressing concerns that are sure to come up. Advise everyone of the date you’ve chosen to implement the program, which should be at least 30 days from the date of this initial meeting. And, remember, in any situation in which there is a change in a work environment, employees often go directly to the fear that the end result of the change might be that they’ll be looking for work.
2. Schedule a follow-up meeting to further discuss concerns and answer questions about how it will work. Printing up one sample page from the guide and distributing copies to everyone (both technical and administrative personnel) who will be working with it is a good idea. Hand out a list of why the reasons flat-rate is a good idea for everyone…customers, the service company, and the employees. Making more money isn’t the only motivator (although it’s certainly a good one) for people when they’re dealing with change. A flat-rate pricing system is good for the customer because they don’t have to pay for inexperience. It’s better for the service company and its employees because it allows a business owner to calculate costs, get a fair price for professional services, and make an honest profit in the process, while at the same time set money aside for things like capital improvements and increased employee benefits.
3. Schedule a second follow-up meeting that is at least 2 weeks away from the implementation date. Hand out more example pages and announce the date that you’ll be distributing complete copies of the guide to everyone who will be working with it.
4. Schedule a third follow-up meeting that is at least 1 week away from the implementation date, and that is a few days after you’ve distributed the complete copies. This will allow necessary time for everyone to become familiar with the guide and consider what questions they want to ask and what concerns they want to discuss. Remember, asking questions and raising concerns takes courage, so give everyone who will be working with the guide time to gather that courage.
5. Do whatever it takes to schedule a meeting at the end of the first day the guide is in use. Talk little and listen a lot at this meeting. Be open to accepting suggestions and ideas for using the guide effectively while at the same time standing your ground on the price issue. Remember, it’s your responsibility to calculate the necessary hourly rate to plug into the guide so it will work for your business, and it’s not just a figure you pulled out of the air.
6. Schedule a meeting after the guide has been in use for a full week. Again, talk little and listen a lot. Don’t be discouraged if there is still resistance to the change. And keep in mind that there may be situations in which somebody will never accept the change you’ve implemented.
7. At your regularly scheduled staff meetings, always have the guide as an agenda item so you can discuss any questions or comments about it. Be ready to be happy at these meetings when it comes to discussing the guide. By this time, you’ll be hearing mostly positive things about it and expect to hear admissions from those who had their doubts about how it would work, but are now convinced that they wouldn’t want to work with any other system than a flat-rate.
Technical Training Associates offers three flat rate pricing programs. If you service HVACR equipment or appliances, check out these links:
If you need information on customer service, communication and sales skills for technicians, click on this link: