Upcoming ISH Convention

mp1969 · August 2002

Wet Heads

I am very excited about attending the upcoming ISH convention and especially look forward to the forum about
flat rate vs. conventional pricing and hope the exchange can point out the strengths and weaknesses of both and benefit the industry.
Please keep an open mind about the articles in the last few issues of the PM magazine , they are very slanted in favor or flat rate pricing due to Jim O.........s obvious
close association with Mr. Blau and his belief that it is the geatest thing since sliced bread.
For the most part the contributors to the PM magazine are giving sound business and technical advice and it is a valued resource for all of us in the industry. Others tend to use their columns and articles for personal gain and I feel that this is not good jounalism practice for any publication.
I only hope that the moderator for the upcoming debate is fair,unbiased and truly leading a group forum that will benefit all in attendance.
A fair amount of contractors, wholesalers and other industry related individuals from the Milwaukee area should be in attendance and can add accurate input.
By the way Dan Holohan is not one of the self serving contributors, his dedication to the industry and shared experiences are extremely valuable (The wall is a great resouce and learning tool!)

M.P. 1969

Paul Pollets · August 2002

Flat rate myths

Here's a recent Comanche Marketing column by Matt Michel. Matt's one of the brightest in the industry and has a unique perspective. PM Mag does not necessarily "slant" towards flat rate because of Jim O. It's Frank Blau that is the proponent. One needs to look at flat rate as a businessman, not as a technician or plumber.

FLAT RATE MYTHS

If flat rate is so wonderful, then why doesn't everyone use it? Well,
for one thing, service companies seem to be notoriously slow to
change. Actually, that's characteristic of most small businesses
make that most businesses. In fact, few established businesses would
innovate at all without the forces of a competitive market compelling
them. Inertia keeps many companies from attempting change.

While inertia might be the major inhibition, several myths also
restrain the diffusion of flat rate in the service industry. Let's
look at them.

The "Flat Rape" Myth

Some contractors refer to flat rate as flat rape. By this, they
impugn everyone using flat rate as price gougers.

Nonsense. Flat rate is a pricing presentation method, nothing more,
and nothing less.

When you buy a hamburger at a fast food drive through, you're charged
a flat rate. You don't pay separate charges for the labor to cook it
or the materials that went into the assembly. No one gets an itemized
list of the individual cost for two all beef patties, special sauce,
lettuce, cheese, pickles, onion, and a sesame seed bun (and if you
know what that refers to, it dates you, and also shows how long a
repetitive advertising message can endure). No one gets a discount
for asking them to hold the pickles.

It would be silly if they priced everything separately. It would bog
down the process, which is designed to be fast.

In fact, the fast food restaurants are bundling burgers, fries, and a
drink into a single flat rate priced meal these days.

"Give me a #3," you say. It saves time. It's easier. It's simpler.

When a contractor switches from time and materials to flat rate, the
pricing does not need to change. Yet, it often does.

Pricing often does change with flat rate for two reasons. First, many
contractors do not charge enough to pay their people well, support
their customers properly, pay themselves well, and have a little bit
left over for the bottom line. They hesitate to charge enough for a
variety of reasons, which include a lack of self-worth and fear. Flat
rate won't persuade a contractor his services are worth more, but it
can help overcome the fear his customers will cough and choke when
presented with a labor rate that's higher minimum wage.

Customers don't choke and cough because they don't know the underlying
labor rate. Frankly, it's none of their business. I don't know the
labor rate when I get my hair cut, when I visit the doctor, when I buy
product off the shelf in a store. I don't need to know or want to
know. Just cut to the chase, give me the price, and let me decide.
Flat rate allows you to cut to the chase.

The second reason that prices change is things get simpler. No longer
does the service company need to tap dance around the price with the
old soft shoe. Step to the left and charge a trip charge, truck
charge, fuel surcharge, response charge, or what have you. Step to
the right and do a quick spin with a first half hour charge or
one-hour minimum charge. With flat rate, you can figure the rate you
need, bundle it with the material, and present a single fixed amount.

The "Technician Resistance" Myth

A lot of contractors are afraid of their technicians. They think the
technicians won't react well to going flat rate. In some cases, this
has merit. The technicians have bought into the flat rape myth and
get their boxers in a tangle.

Yet, flat rate is easier for the technicians. They don't have to
calculate up the bill. They can look it up. They don't have to worry
about the customer watching them to ensure they aren't padding time.

Technicians will adopt flat rate IF it is presented correctly. This
means hearing them out. Listen to their concerns. Then address them.

Flat rate is new and different to them. As such, it's a touch
frightening. Give them a chance to get used to the idea, to
understand why it's important, how it benefits them, and so on. A
heavy-handed mandate is doomed to fail, while a training approach will
speed a successful implementation. Remember, tens of thousands of
technicians have managed to successfully adopt flat rate.

The "Perfection" Myth

Contractors hesitate to adopt flat rate because it's not perfect.
Nothing in this world is perfect. Most flat rate systems are close
enough and exceptions can be corrected over time.

If every possible task were found in a flat rate book, it would be
impossible to hoist it. From time to time, a technician is going to
encounter something in the field not covered. When this occurs, the
technician should calculate the flat rate price or call back to the
shop where they can do it. If the task is one that will be
encountered in the future, it can be added to the next book that's
printed.

When the time for a task is off, it can also be corrected with the
next printing. By now, most flat rate systems are stable enough that
it's unlikely many tasks will be off by much. If a task is off, it's
not the end of the world. Finish the job, fix the task for the
future, and keep going.

Do not feel the need to perfect the system before starting. If you
do, you'll never start.

The "One Long Job" Myth

I know one contractor who hesitated for years because of the fear of
that ONE job that would run long. He fixed on that and couldn't move
ahead because he might stumble across one job sometime, somewhere, and
lose money.

Remember, that ONE job is balanced by others. It's like that ONE
warranty where you lose money. You can afford it because there are
many, many more warranties where you make money.

The "I Can Do It Better" Myth

Many contractors, who sneer at and despise the DIY trade, try to
do-it-themselves when it comes to flat rate pricing. They spend
countless hours creating their own flat rate system, which often never
gets implemented. What a waste!

Flat rate systems require an investment, but they return it very, very
quickly. Unless you want to get into the flat rate business, it makes
no more sense for you to develop your own flat rate pricing system
than it does for you to hand build your service trucks.

There are too many good flat rate systems in the market. Buy one,
keep it up to date, and go make money doing what you do best.

Copyright © 2002 Matt Michel

To Learn More About This Contractor, Click Here to Visit Their Ad in "Find A Contractor"

DanHolohan · August 2002

Just so you know

Jim doesn't tell any of us what to write about, nor does anyone else at Business News Publishing. He never has and I don't think he ever will. All he has ever asked of me since January 1990 is that I turn in my column on time, which I do. We columnists hardly even talk to each other, for Pete's sake. I'll be meeting Paul Ridilla for the first time at ISH-NA, and we've been writing in the same magazine since 1990. I've met Frank a few times and had dinner with him (he bought). I've met Maurice Mayo once for about five minutes in a hallway at a PHCC convention. I've been on the same program with Siggy a couple of times but we don't talk about our columns. Ellen is a dear friend and I recommended her to Heather McCune, PM's former editor, because she, Ellen, is one of the best writers I know, and also one of the most insightful business people I know. Same goes for Al Levi. He's like a brother to me and I owe much of my own business success to his fine advice and guidance over the years. We hang out all the time. I've spoken to Julius, but I've never met him in person. None of us get together and discuss magazine policy, and none of us take direction from Jim or anyone else. I pick my own topic each month, as do the other writers. We don't consult with Jim and if anyone at PM tried to slant my input one way or the other, I'd quit. That's the reality of what goes on.

You're welcome to express yourself here but you're mistaken about how PM gets done each month. And please keep in mind that Ken Secor was given quite a platform a few issues back, and the Letters to the Editor were very well balanced afterwards.

And I write this to you, as you say, from my position of dedication to the industry, and especially, through my experience. Pound for pound, Jim Olsztynski is the best (and fairest) magazine editor the PHC industry has ever seen, and I've worked with many of them.

Rich Kontny · August 2002

Response to my message

Thank both of you for your input as it continues to accurately give me the feel for what has gone on and what I need to present as a participant. The myths about flatrate are justified except that comparison about a loave of bread!
Producers of these products constantly look for ways to cost cut and this process lowers costs to consumers. Others (and enough names have been mentioned) feel the sky is the limit and marketing can overcome careless overhead control.
Slugs is a very unkind word to toss at hardworking cost conscience contractors. Bid and spec contractors learn this in order to secure work. Others can't grasp this concept
and move out of the industry or re-invent the wheel ex: flat-rate method (I'm yet to be convinced that I am slow to change)I have and continue to thrive as a cost conscience contractor and use word of mouth (references) as my primary souce of new customers. If the wheel is broke fix-it however if it works leave it alone. Why all of a sudden the need for fixing?
Chief Wet Head, I deserved that correction and truly do not know Jim O , he has in defense of his pro-flat rate stance sent some zingers my way and I would like to use the forum to put faces to thoughts and hopefully clear the air.
Thanks for the mag structure lesson as it is uncharted waters for me.

With respect,
MP 1969

chuck shaw · August 2002

one other thing

My accountant mentioned this to me at one point. He said, and please bear with the terms I use, as I am not an accountant. The problem he sees with the flat rate program is sales tax. In some states, you are required to charge sales tax on the materials you provide. My understanding, is, if you charge sales tax you must itemize the bill. Therefore, your "flat-rate" bill must be completly broken down for the customer. And also for the local State department that collects sales taxes.

I am not say that I am pro or con on flat rate, nor do I want to get into a debate, I am just passing along information, (as I understood it) that my accountant passed on to me

Chuck Shaw

To Learn More About This Contractor, Click Here to Visit Their Ad in "Find A Contractor"

DanHolohan · August 2002

The power of words

"Slugs" is an unkind word to use when talking about any contractor. I agree with you and I've always felt that Frank makes a mistake each time he uses that word, but that's Frank. "Scheme," a word you used in your post, is also unkind because it implies that a contractor who uses a certain type of pricing is automatically out to cheat people. If you feel that way then you may need to come here more often and get to know some of the Wallies who use flat-rate pricing, but who are anything but cheats.

The challenge, as I see it, is to communicate without tossing these hurtful words at each other. For the most part, we do a remarkably good job of that here on the Wall. I think that most people come to this board with a sense of community and respect for others. We don't always agree, but I think that most of us weigh our words and consider the Golden Rule before posting. Many of us have learned the tough lesson that it sometimes pays to wait a day before answering. And it's because of this that we get things done. This is a place where you can ask questions and learn, whether it be about heating or how magazines get put together. All you have to do is ask. We treat each other with respect, and we also understand and respect the power of words.

No slugs here. No schemes either, Rich.

You're welcome here. Thanks for your understanding and your consideration.

Rich Kontny · August 2002

Intent

Correct, words do take on different meanings to different people. My intent was to have the pros and cons debated to come up with ideas that have worked for both sides of this issue. I could have left it at re-inventing the wheel or something less assumptive.Not above adjusting my approach!
I do respect the ideas and experience shared here and hope to become more active. As I learn and hopefully contribute I will get a better feel for the wall's structure and manners.

MP1969

P.S. I worked for Frank for 2 1/2 years I learned a great deal about C.O.D. payments , inventory control , customer treatment and his aggressive/ innovative marketing skills. I also learned how excessive overhead cannot be left unchecked even with the above mentioned skills. I have over 28 years as a plan and spec mechanical contractor and have been involved with concerns that cost account and know costs but also must compete so they watch overhead and use innovative installation and management procedures to profit and compete!

DanHolohan · August 2002

Flat-rate and T&M

We've talked about this a number of times here on the Wall, Rich, always with the same conclusions. Some favor one method of pricing, some favor another, while still others favor both, depending on the job and the circumstances.

So how about them heating systems?

Upcoming ISH Convention

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