Going Flat

Service dealers are discovering that flat rate pricing can end billing disputes on repairs while rewarding experience.

 By James J. Hodl

 Major appliance service dealers have only two things they call sell: Their technicians' skills and time. Thus, each customer invoice should be computed strictly on the amount of time it took a tech to complete that individual job to the best of his ability.

            Many servicers subscribe to this long‑held theory. But a growing number of service dealers are saying, "That's not quite right," and are shifting to flat‑rate pricing systems. It is estimated that about 30 percent of service firms now bill jobs based on flat rates; up substantially from 10 years ago.

            "There are many benefits to using a flat‑rate system," says Dean Landers of Landers/Atlas Appliance, Baltimore, author of The Major Appliance Service National Price Guide (MASPG) "Blue Book", and himself an early proponent of flat rate pricing. "By being able to quote a standard rate from a book, you look more professional, and you end most billing disputes with customers. The system makes it easier for servicers to charge what their services are worth." For information on Landers' Blue Book, Click Here.

            Flat‑rate pricing is a system under which all factors that determine the labor charge on a job (complexity of the repair, time needed for completion by individual techs, etc.) are averaged out to arrive at one standard price that will be applied to all like jobs. These prices can differ by brand and model for a like job. For instance, because of a differing complexity in performing a job, the standard rate for changing a compressor may differ broadly between two GE models, or between a GE and Sub‑Zero model.

            "The main benefit of flat‑rate pricing is greater customer acceptance of your charges," explains Landers.

            "The greatest fear the public has with appliance repairs is the cost. They have long heard that the price will be high, and that the technician will try to cheat them. And it does nothing but fan these fears when they see a technician scribbling figures on a pad to provide an estimate for the job at hand," he notes.

            "These fears can be easily alleviated by the tech explaining that the washer needs a new timer, and then pull out an important‑looking booklet, turn to a particular page, and point to the price based on the brand of model washer the customer owns," Landers says.

            "Besides," he adds, "This bolsters the professional standing of your field representatives to your customers."

            Paul Boin of Urban & Suburban Appliance, Bel Air, MD, agrees, adding that using flat‑rate pricing "provides a comfort level for service dealers, as they can plan ahead to make a profit on each job, without worrying that field techs might be skimming charges out of fear customers might not accept his computations.

            And flat rate pricing provides servicers with a "psychological advantage, in being able to project to customers that 'I am worth it!'" Boin notes.

            Several servicers add that using a flat‑rate guide on the job also leads to a cleaner, easier to understand invoice that eliminates what some called "shenanigans." Said one servicer, "During industry conventions in the 1990s, one association's attorney was always urging us to add disguised charges to our bills like 'miscellaneous materials' and 'clean up.' These were supposed to indicate use of things like solder and soap, but were really profit add‑ons. And customers quickly caught on to the phoniness of these invoice entries, and told us so in unprintable language!

            "With flat rate pricing, everything is figured into the single labor charge for the specific job, and the customer receives an easier‑to‑understand ‑ and thus more acceptable ‑ invoice," he noted.

            "Flat‑rate pricing likewise benefits service firms where it most counts, by shifting the emphasis to working skilled instead of just putting in time," says Larry Bergo of Box Appliance Service, San Diego.

            Every service firm wants to employ techs who are knowledgeable about the latest appliance technologies and related repair techniques, as they can complete more jobs in a day, Bergo notes. More completed jobs can mean more income, so servicers often provide a commission on top of salary to encourage field techs to bring in more revenue.

            But when the commission is based on straight billing of labor time, a service dealer ends up rewarding the least skilled techs, Bergo warns.

            For instance, a tech with only two years experience may take 35 minutes to clean the condenser on a Sub‑Zero refrigerator/freezer, while a tech with 10 years experience will have the skills to do the same job in 20 minutes, he notes. With straight billing of labor time, the inexperienced tech, by taking longer to do the job and extending it past the initial 30‑minute labor billing period, gets a bigger commission on the job than the better skilled tech who did the same work in nearly half the time. This, Bergo claims, removes the incentive for techs to improve their skills.

            With flat rate pricing, the times required to complete the job will be averaged out. The Sub‑Zero condenser cleaning will be billed based on an average 25 minutes to complete. Thus the better skilled ‑ and thus more efficient ‑ technician will earn a greater commission for completing more similar jobs in a day than the less experienced tech.

            "Besides," adds Bergo, "It just isn't fair for the customer to have to pay more for the slower work of a less experienced technician."

            Service firms that wish to convert to flat rate pricing have several options.

            One way is to compute the rates yourself.

            Landers recommends that you start with at least one's years worth of productivity data stored through your firm's service management software programs. Such data will reveal the times needed to complete individual repairs, as well as the varying times its takes individual technicians to perform them.

            "The one constant in these computations is that techs work at different speeds, so you should seek an average speed to use in setting the flat rate," Landers explains.

            Landers recommends that average completion times be taken down the brand/model level. Due to differing designs, servicer access to a specific part can vary widely. Thus, it can take twice as long to replace a pump in one dishwasher model as in another, even if they look similar on the outside.

            Other factors that should be incorporated into a flat‑rate formula are the complexities of a product, Landers says. These should include the availability of repair parts and manuals, the need for special tools, and the cost of liability insurance.

            Box's Bergo agrees, noting that the more expensive a product you service is, the higher the cost of liability insurance premiums your firm will pay, as the loss liability of such equipment is higher. He adds that one should consider other factors, such as might an appliance need to be pulled from the wall or a built‑in installation to service, which could result in potential damage to a customer's floor.

            "Flat‑rate pricing is just a smarter system," notes Urban's Boin. "It rewards experience, and helps us legitimize a fair return on our work. Which is why I have been using flat‑rate pricing for 25 years."