Frank Blau
Contributing Writer

I first got into flat rate pricing as a defense reaction. My company made a transition from new construction to service, replacement and major remodeling in 1972. Since I was one of the few people in my market who knew what it cost to operate my business and what kind of selling prices I needed to be competitive, my prices were a lot higher than the going market rates.

It was tough competing at first. Consumers could see that my hourly labor rate was a lot higher than what other PHC service contractors charged. I got a lot of complaints about overcharging.

There must be a better way, I thought. I wasn’t about to take the route so many PHC contractors do in similar circumstances – lower my prices to the point where I couldn’t make a decent living. So I came up with the notion of de-emphasizing the selling price of labor via flat rates.

Almost immediately the complaints disappeared. Cash flow also improved dramatically because of the ability to collect on the job. The customer knew exactly how much it would cost before we got there. Therefore, he/she made sure to have the money available either in cash or by depositing enough in the household checking account to cover the cost.

Numbers Crunching: Ultimately, I developed a comprehensive pricing system that takes into account thousands of simple repairs and major replacements spanning plumbing, heating and A/C. These selling prices incorporate material, labor, overhead, and net profit goals that vary in accordance with the type of service provided. We strive for higher net profit on the more technically complex heating and cooling services than we do for most plumbing and sewer jobs, because the risk is greater on this work.

I developed these prices based on accurate record-keeping over a long period of time. First, you must have a thorough job cost history. From that you must derive an average time of completion for each different kind of job. The more examples of a given type of job, the more confident you can be in coming up with a reasonable price for that task. As with all averages, some jobs will take longer than others. You may even lose money on certain calls. The key is to set your profit margins high enough to compensate for the losers.

It is critical for a contractor to perform detailed numbers crunching before going to a flat rate system. Otherwise you may as well set your flat rates below your true cost of doing business.

The Blau System: As many of you know, for several years I have marketed the Blau Flat Rate System throughout the country. At first it consisted of field and office manuals detailing thousands of different price formulas for various types of jobs, updated on a regular basis to accommodate price changes.

It is important to understand that exact flat rate prices differ for individual companies because of differences in operating costs, profit targets and a variety of other factors I have taken great care and spent much in legal advice not to run afoul of laws pertaining to price-fixing. What I wish to promote is not a bunch of specific prices but the concept of flat rates as opposed to outmoded T&M billing.

Psychological Barrier: Since I began marketing the Blau Flat Rate System, I have received testimonials from dozens of contractors who said their businesses had been saved by adopting flat rate methodology – and even more important, the numbers crunching discipline that goes hand-in-hand.

Common to most of these stories is how nervous they were starting out. It is hard to change habits that were formed over many years of doing business. It is hard to introduce pricing that frequently runs much higher than the firm used to charge for similar work done T&M. It is hard to believe that customers will not leave in droves when you start quoting prices a different way.

But hundreds of contractors have found that it works. They have found that many customers not only don’t complain, but react positively to knowing exactly how much a given job will cost before work begins.