How does flat rate pricing work for a plumbing company?

We use flat rate pricing so customers know the total cost before work begins. It also keeps pricing consistent and encourages technicians to work efficiently instead of focusing on how many hours they can bill. We include an additional 15% in the price, as noted below, so technicians can offer an approved discount when they believe the price may prevent the customer from moving forward or when the customer genuinely cannot afford the full amount. This gives them the flexibility to help the customer without waiting for manager approval. The additional amount also helps cover consumable supplies and incidental materials used on jobs, larger discounts, and occasional work completed at no charge, while protecting the company’s overall profit.

The calculations may seem time consuming at first, but building the pricing correctly makes quoting jobs easier, keeps pricing consistent, and helps protect the company’s profit over time.

The following explains how we calculate our flat rate price.

Flat rate pricing starts with figuring out two things:

1. The number of billable hours your plumbers produce during the year.
2. The total cost of operating the business for the year.

STEP 1: CALCULATE BILLABLE HOURS

A plumber may be scheduled for eight hours, but that does not mean the company has eight billable hours.

Part of the day may be spent driving, picking up materials, preparing estimates, completing paperwork, or working on calls that do not produce revenue.

For example, suppose a plumber works an eight hour day and completes four calls. Two of those calls produce revenue, and the plumber spends a combined total of four hours performing that paid work.

That plumber produced four billable hours that day.

If the plumber averages four billable hours per working day and works 261 days during the year:

4 billable hours × 261 working days = 1,044 billable hours per year

Calculate this for each plumber and combine the results.

If three plumbers each produce approximately 1,044 billable hours:

1,044 × 3 plumbers = 3,132 total billable hours per year

Vacation, holidays, training days, and other days the plumber does not work should be removed from the total number of working days.

STEP 2: CALCULATE THE BREAK EVEN HOURLY RATE

Suppose the company has $500,000 in yearly operating expenses, not including materials.

This should include the expenses required to operate the company, such as payroll, commissions, payroll taxes, insurance, vehicles, fuel, office employees, software, advertising, tools, rent, and other overhead.

Divide the yearly operating expenses by the total billable hours:

$500,000 ÷ 3,132 billable hours = $159.64 per billable hour

The company must bring in approximately $159.64 for every billable hour just to cover its expenses.

That is the break even hourly rate. It does not include profit.

STEP 3: ADD THE DESIRED PROFIT

If the company wants a true 20% profit margin, divide the break even rate by 0.80:

$159.64 ÷ 0.80 = $199.55 per billable hour

The hourly selling rate would be approximately $199.55 without the additional discount allowance.

DISCOUNT ALLOWANCE

This is where we account for the additional 15%.

After a 15% discount, the company collects 85% of the original price.

100% minus 15% = 85%, or 0.85

To maintain a 20% profit margin after the discount, multiply the remaining profit percentage by the amount collected after the discount:

0.80 × 0.85 = 0.68

Now divide the break even rate by 0.68:

$159.64 ÷ 0.68 = $234.76 per billable hour

The hourly selling rate, including the discount allowance, would be approximately $234.76.

STEP 4: CALCULATE THE LABOR PORTION OF THE JOB

Suppose replacing a garbage disposal normally takes two billable hours.

$234.76 × 2 hours = $469.52

The labor and operating cost portion of the flat rate price would be $469.52.

STEP 5: ADD MATERIALS AND MATERIAL MARKUP

Suppose the disposal and other materials cost the company $130.

With a 50% material markup:

$130 × 1.50 = $195.00

Now combine the labor portion and the marked up material price:

$469.52 + $195.00 = $664.52

The flat rate price for the garbage disposal replacement would be approximately $664.52.

The company may choose to round that amount to a cleaner price, such as $665.

Once the customer approves the price, it remains the same whether the plumber completes the standard replacement faster or slower than expected.

However, if the plumber discovers additional problems or the scope of the job changes, the additional work should be explained, priced, and approved separately.

The way I go about flat rate is mainly how it is presented to the customer. When people say flat rate it means an up front, complete price. Our goal is to keep actual costs under that number (profit). 

calculating that number to charge the customer is easy said-- hard to do accurately, unless you have a really good idea of your costs, labor costs + material costs + margin for profit and ovrehead = customer price