Determining a Price with Flat Rate Pricing
First of all, keep in mind that the only price the customer will see is the one final price. The customer will not see the breakdown of materials and labor that were used to determine the final price. With Flat Rate pricing, gone are the days where the dealer will “break out” his pricing for a customer. So, like any price, we will focus on six major cost categories below to set the flat rate price.
- Labor Rate
- Estimated Time for Specific Repairs
- Labor Markup
- Parts and Equipment Repair Expenses
- Parts Markup
- State and Local Taxes
The Six Major Cost Categories
Most dealers use the highest labor rate they pay to their top service tech as the basis for their flat rate labor. Some dealers use an average of the labor rates they pay all their service techs.
This is where most dealers get wrapped around the axle and this is the reason that most dealers do not implement flat rate pricing. It’s hard to determine what the estimated time is to do a specific repair. There are lots and lots of variables. But if a dealer goes back and evaluates his repair tickets over a year’s period, he will see that in about 85% of the tickets, the repair time is about the same on each ticket. In about 15% of the tickets, the time is longer or shorter. So, use the time on the 85% of the tickets. Your increased profit on 85% of the jobs will more than overcome the “loss” on 15% of the jobs.
– A far bigger loss to your company would be to not implement flat rate pricing.
This rate should cover profit on labor, taxes, social security, vacation, sick days and unapplied labor hours. Most dealers do NOT charge enough to cover these things, so we recommended that dealers closely evaluate these expenses to better determine a more accurate rate to use.
A dealer shouldn’t get hung up on the exact cost of every repair item purchased. They are usually within a few dollars of each other wherever they are purchased. Plus, most generic parts for any size of HAVC equipment are pretty close to the same price. Granted, a 1 HP blower motor is more expensive than a 1/3 HP blower motor, but does it really matter? Just use the 1 HP price for all of them and have one repair for any blower motor. The one instance where this does not work is in OEM parts which are usually quite a bit higher in price than generic parts. Therefore, have one price for generic blower motors and one price for OEM blower motors. Don’t forget the cost of freight in the cost of ANY part (both regular freight and having to pick up a part at the supply house).
There are several charts published showing different parts markups. These are usually based on the cost of the part and the mark up usually gets smaller as the part’s cost increases. It is far better to have more “levels” of markup based on cost rather than less.
Be sure to include the appropriate state or local sales tax for the parts and/or repair in the total price of the repair.
- How Many More Sales Dollars Do You Need To Cover An Expense? | HVAC Pricing Series Part 14 – December 23, 2019
- How Do You Raise Your Prices? Part Two | HVAC Pricing Series Part 13 – December 9, 2019
- How Do You Raise Your Prices? | HVAC Pricing Series Part 12 – November 25, 2019