Pricing a service call without guessing

Every trade eventually argues about flat rate versus time and materials, and the argument is usually conducted as a matter of principle. It is not. The two models fail in different places, and which one suits you depends on how predictable your work is and how much you trust your own numbers.

What each model really is

Time and materials bills the customer for what happened. It is honest, it protects you from a bad estimate, and it is nearly impossible to sell over the phone. The customer cannot compare your hourly rate to anything, so they default to comparing it to what they earn per hour, which never ends well.

Flat rate bills for the outcome. It is easy to quote, easy to approve, and it puts the risk of a slow day on you. Priced correctly, it earns more than time and materials on the same work, because the customer is buying certainty and certainty is worth paying for.

Diagnostic fee, credited on acceptance is the hybrid most service trades land on: charge for the visit that finds the problem, and credit that charge against the repair if the customer proceeds. It filters out tyre-kickers without making the repair look expensive.

Building a flat rate that survives contact with a bad day

A flat-rate price has four parts, and shops get into trouble by pricing only the first one.

1. Labour at loaded cost. Not the tech's wage. Wage plus payroll taxes plus benefits plus the hours they are paid but not billable: training, drive time between stops, the morning meeting. If your techs bill six hours of an eight-hour day, your loaded cost is at least a third higher than the number on the payslip.
2. Materials at your real cost, including the parts you carry and never use, and the ones that walk off the van.
3. Overhead recovery. Rent, insurance, the truck, the phone, the software, the person answering the phone. Divide annual overhead by expected billable hours and add that number to every hour you sell.
4. Profit, as a deliberate number rather than whatever is left.

The common mistake is pricing at labour plus materials plus "a bit", which recovers overhead by accident and produces a business that is busy and broke.

The number that tells you your flat rate is wrong

Track actual hours against the hours assumed in the price, per task, for three months. You are not looking for an average. You are looking for the spread.

A task that takes 45 minutes on average but ranges from 20 minutes to three hours is not a flat-rate task. It is a time-and-materials task with a misleading name, and it will quietly lose money on the tail while looking fine on the mean.

Tasks with tight spreads should be flat rate. Tasks with fat tails should be priced as a diagnostic plus a quoted repair.

Discounting, and why it should be a permission

The fastest way to destroy a carefully built price book is to let every tech adjust it on the driveway. Not because techs are dishonest, but because a tech standing in front of a disappointed customer at 5pm on a Friday will discount to end the conversation, and nobody will ever tell the office.

Make discount authority explicit, as a permission rather than a convention. A tech can take 5%, a lead can take 10%, anything more needs the office. Record the reason. After a quarter you will know whether your prices are wrong or your objection handling is.

Price increases

Raise prices annually, in small increments, on a fixed date. Shops that avoid raising prices for three years and then raise them 18% lose customers who would have absorbed 5% a year without noticing. The increase is the same; the shock is not.

Tell existing agreement customers before it happens, in writing, with the date. Nobody leaves over a 5% increase. People leave over discovering one.