How To Keep Technicians When You Go Flat Rate

May 3, 2002
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Contractors 2000 offers a variety of business management courses, including one on how to successfully implement flat-rate pricing.
It is a topic that is widely debated among hvacr contractors. Which is the better way to price a job, time and materials (T&M) or flat rate? Both systems can be successful if done correctly. But more and more service contractors are seeing the benefit in switching their current pricing system to flat rate. In fact, according to Greg Niemi, president of Contractors 2000, less than 1% of contractors were using flat rate over 10 years ago. Today, 30% in the service end of hvacr are using flat rate. And Niemi believes that this number is on the rise.

There are a number of issues to think about when making the transition to flat rate. One of those issues is technician retention. How do you make the pricing change without losing your technicians in the process?

According to Niemi, service contractors need to take the time to educate their technicians about flat-rate pricing and explain why the transition is being made.

According to Contractors 2000, the key to implementing flat-rate pricing is to teach employees about the system.

WALKING OUT THE DOOR

Ed Wolfe, Jr., owner of Wolfe Plumbing, Heating and Air Conditioning (Newburgh, NY) knows the challenges associated with flat rate and technician retention. Wolfe implemented flat rate at his business back in 1994. He says that the initial reason for making the change was to simply make more money. “I knew I was working my butt off and not getting anywhere with my company or with my career,” said Wolfe. “What I discovered was that flat rate is a tool for presenting a palatable solution to the customer. It is not a strategy, but a tactic. The strategy is to know your costs and charge enough to cover your costs and to make a reasonable profit.”

When Wolfe implemented his strategy, he says that customers were very receptive. The techs, on the other hand, were not. Over the course of a few years, Wolfe found himself without any of the same employees he had when he implemented flat-rate pricing.

“I think technician buy-in is the single most difficult part of the transition process,” Wolfe said about going flat rate. “The irony is the replacement technicians have a much better job and career path than their predecessors because proper pricing substantially improves the workplace and our ability to serve the customers.”

Other contractors and owners like Wolfe have experienced similar challenges.

Jerry Johnson, owner of Johnson Heating & Cooling (Bedford, OH), and Larry Sinn, owner of The Service Company (Greer, SC), did not lose any techs when going flat rate, but both were able to see how uncomfortable their technicians were with the idea at first.

According to Sinn, his techs initially did not understand the complete flat-rate program. He also says that his techs had some difficulty justifying the new, higher costs to the customers. The problem was the same for Johnson.

“Techs are thinking of themselves,” said Johnson. “They don’t want any grief from customers.”

All three contractors agree that this may be the No. 1 reason why technicians have an opposition to the flat-rate transition.

Wolfe says that he believes technicians have problems with flat rate due to fear of change and failure. More importantly, Wolfe feels that technicians have a fear of cheating the customer.

He also says that some technicians believe that “it’s easier to leave [a contractor] than to face that new challenge in many cases. One key element that is important is the technician’s understanding of basic business fundamentals.” It’s been Wolfe’s experience that once the technicians understand and accept the idea, it is projected to the customers as well. The transition for the customers is smooth as long as the technician believes in the system.

WHAT FLAT RATE IS ALL ABOUT

Wolfe, Johnson, and Sinn are now all successful with their flat-rate pricing. Although it may not have started out that way, all three men credit proper education of their techs for the successful transfer to flat rate.

Contractors 2000 echoes this sentiment. The contractor organization aims to provide the skills needed to survive the business end of the industry. Although Contractors 2000 does not dictate one pricing method over another, the organization does instruct members on how to make a smooth changeover to flat rate.

“There are occurrences of this,” said Niemi about techs that leave because of flat rate. “It’s a change issue. Some people choose to leave rather than change.”

And although Niemi says that losing techs due to flat rate is not a widespread problem, it does happen. When it does occur, he says it usually comes down to a lack of education.

“The issue is a lack of understanding,” he said. “Techs don’t understand what it costs to run a business.”

So Niemi says that you must train your techs on what flat rate is all about. Contractors must take the time to explain the new pricing system, how it works, and why the change has been made.

Contractors 2000 teaches members how to calculate break-even costs and pricing. It advocates an open-book management approach that shares with employees the costs of running a business.

Wolfe, Johnson, and Sinn all did this. The three contractors took the time to walk their techs through the pricing system, and that has made all the difference in successfully going flat rate.

Wolfe used Contractors 2000 to help with his transition. He has also held in-house training to keep technicians up to date.

“We do regular training at all levels of the company using Contractors 2000 and other consultants and this is a key to our success,” said Wolfe. “We do weekly meetings to keep the information fresh and interesting and to get feedback on what’s going on in the field.”

Johnson also held regular meetings for his technicians and educated them on how the new pricing system would be a benefit to them. “When you show the techs flat rate, initially they see bigger numbers,” he said.

Johnson had his techs track their own hours and how much money was being brought in. Once they did this, Johnson showed them where the money went. For example, he demonstrated the costs of payroll, supplies, overhead, etc. This, according to Johnson, illustrated to the techs that the business was practically giving away parts and services.

“I used the education and weekly meeting material I received from Contractors 2000 to enable me to make the transition to flat rate successfully,” said Johnson.

The next step, according to Johnson, was getting his techs over the fear of charging more.

“I phased them into it,” explains Johnson. He did this by slowly raising the prices over time. Johnson would ask his technicians to begin charging a new, higher price on all jobs just to see how the experience would be.

“When they did it and didn’t experience any pain, we continued,” he said.

Many of the techs from these three businesses did not run into problems. In fact, most of them found that they were getting fewer complaints than they did under the previous pricing system.

Sinn says that his business changed because of complaints customers had with T&M billing.

“Our best and most senior tech would go to his van and fill out the paperwork. The customer would pay, but then call to complain that they had been charged for the 15 minutes that the tech was sitting in his van and not doing anything. The customer did not seem to understand that filling out the invoice was part of the call,” said Sinn.

He also explains that his company switched because “estimates for hourly repairs given upfront never came in at the amount of time quoted, but the customer expected to have the work completed for whatever the dollar amount that was given as an estimate. This caused a lot of problems over billing and delayed collection.”

Flat rate has cured this problem for Sinn, and it has made the job easier for his own technicians. “[The techs] appreciate the flat rate system because it requires customer approval up front and because it eliminates the collection problems when they are completed,” says Sinn.

MAYBE IT’S A BLESSING

No one wants to see a technician go, but in some cases, if they are uncooperative about a change in pricing, maybe it’s not such a bad thing if they decide to leave.

“If some left, it might not be the worst thing,” said Niemi. “You want your troops to travel with you.”

You also want your “troops” to be of the best quality possible. Flat rate could give contractors a perspective on what type of technician you have on your hands.

“The owner can set the prices, but the employees must make the profit,” says Sinn. “We have priced too low for too many years and flat rate is the best way to get to a fair profit. It the tech does not support making a profit, I say that you just wish him the best of luck on the way out.

“Flat rate also helps you to rate techs and see the strengths and weaknesses of each one. For instance, we had a tech who didn’t like doing certain repairs or exaggerated the needed repair so he pushed hard for a sale. We would be embarrassed by a call from the customer saying they had a cheap fix from someone else. His equipment sales were good, but not his repairs. Another tech looked good, but consistently closed less than 33% of his repair calls. He had to go also.”

CONCLUSION

Niemi says that both T&M and flat rate can be successful pricing systems.

“In both systems, we need to know our costs and charge enough to cover our costs in order to make a reasonable profit,” he says. “Simply said, a business cannot survive, prosper, and continue to serve customers if its costs are higher than its selling price.”

Niemi also says that flat rate benefits the customer because they receive the price up-front before the work is done. Technicians benefit because they do not have to estimate each and every routine service job. And the company benefits because no direct or indirect costs are forgotten, which in turn enables the company to make profit.

“Technician retention is highest when the change to flat rate includes them in the process,” said Niemi. “Take the needed time to explain the whys and wherefores of the change and the transition will be win, win, win — a win for the customer, a win for the employees, and a win for the company.”

Publication date: 05/06/2002

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