Got Flat Rate

?Got Flat Rate?

The Advertising

You’ve probably seen them: six-wheel box vans with billboard-size ads on the sides, sometimes displaying a blown up picture of a white-toothed smiley-faced middle class woman on the phone, suggesting everything in life is better for her, now that she’s found a disposable-booties-wearing plumbing & HVAC company. Or perhaps you’ve called one of those colorful full-page ads in the Yellow Pages. You know the kind, they make you feel warm and fuzzy, and define everything you thought you wanted to hear. And what about their application of every credit card logo under the sun? Did that reassure you that if your unplanned plumbing emergency caught you short on cash, then you should, without further thought, simply use your plastic? Did the 800-number, blazing red as fire, subliminally suggest: “”hotline straight though to the Maytag Man, who sits patiently awaiting to soothe your flustered mind””? Welcome to the world of Flat Rate plumbing and HVAC advertising!

I bet there’s something you don’t know, unless, of course, you did hire one of these companies – they charge between $125 and $400 an hour. If you didn’t know they charged that rate, you are not to be ridiculed for your ignorance, as that rate is disguised in the sell price of every part that they say (wink) you need.

Well, I am going to shed some light on the dark magic behind the M.O. of the Flat Rate model, then maybe you won’t go into cardiac arrest from sticker shock should you find yourself paying one of these companies after your next plumbing or HVAC emergency.

The Background

Among the self-employed in the HVAC and plumbing trades are those who have long struggled to eek out a decent living, myself among them. Traditionally, we’ve charged an hourly rate, plus a modest mark-up on materials. As a service technician for two 2nd generation fuel companies – Tenney Fuels, and Ferns Energy Centers – in the early ’80s, I was paid $3.75 per hour to start, ten cents above minimum wage. Those companies charged $25 per hour and made a profit on parts, furnaces, burners and boilers, and the sale of fuel oil, the latter bringing in the lion’s share. Then, in 1983, Tenney sold out to a hot shot “”petroleum marketer”” and my pay was raised to $6.90 an hour. In parallel, the new fuel oil conglomerate raised Tenney’s rates, and started charging the customer for everything from pipe thread compound, and a few sprays of parts cleaner in a can, to speedy dry (kitty litter) to absorb oil we spilled on the floor. It didn’t matter that I spit-cleaned the burner electrode porcelains, the customer still was charged for noxious spray cleaner. The name of the game changed from, service and installation work of the utmost quality (at a fair price), to slap-it-in-as-fast-as-you-can, and maximize profit in every conceivable way, irrespective of quality. The new company even brought in technicians already trained on their new method at other branches, to show our service department how it would now be done. It was a shock to me, a green horn, as every traditional practice bestowed upon me over the previous 2 years was clearly and painfully on its way out. The shock on the faces of the customers, some who had been with the company since its inception, was a poignant experience for them and me. Steadily through the 1980s and ’90s, the endangered Old School slid closer to ultimate extinction, along with the family-run feel that we were all used to. The Big Boys made their entrance with slick, grand, unimaginative signage, sporting corporate logos that left us – the employees and the customers – feeling like an invasion was underway.

In 1988, I’d nearly had it with the new model that I felt imprisoned by, and resorted to recanting positive affirmations I placed on my service van console – anything to affect peace of mind so I could make it through another soul-wrenching day working for The Man. By this time I was employed by a plumbing contractor who seemed to embody the New School philosophy of taking the customer for all they were worth. Though I had been in the trade for 8 years, a co-worker and junior technician – experience-wise – set out to “”show me the ropes”” my first day on the job. By noon he’d managed to bill for 8 hours, per man, charging each customer for the time it would hypothetically take to travel to their home and back to the shop. It didn’t matter if 3 of the customers lived on the same street, they still got charged the full hour round trip, as if they were the only service call out their way that day. During the course of our rounds, the profit-motivated technician charged one customer – my dentist – for a light bulb in the furnace room that he bumped his head on and broke. While there, he only wiped the dust from the furnace. The bill came to over $300. Next, he charged a customer for an ignition transformer that was not defective. Then, he charged a 93 year-old woman in a mobile home $285 dollars for wiping the dust from her furnace, and a new oil burner nozzle, despite the woman’s plea that she could barely manage on her deceased husband’s Social Security check. (A month later, when the woman called with a no-heat emergency, she got me, the on-call technician. I went to her house, after normal business hours, and found that the burner master control had failed, so I replaced it…free of charge, as recompense for the bath the technician gave her months earlier. I’d lied on my report, stating that call was a non-chargeable callback due to improperly adjusted electrodes.)

I was paid piecework for the exact time I billed a customer. Otherwise, if I didn’t charge them for, say, a trip to the supply house for parts, or travel to their home and back, or for completing the day’s paperwork, I didn’t get paid for that time. I thought the company owner was a criminal for making his living the way he did, and nostalgically pined for the early days at Tenney and Ferns – honest and ethical companies. I felt the present company not only ripped off (in many ways, not fully explainable in the context of this writing) the customer, but also ripped off me, the employee, by illegally docking my pay for not filling out the daily paperwork correctly.

The last straw for me was when the company charged Kay O’Brien, an elderly woman of 84, for several service calls by a plumber-employee who had no knowledge of oil burners. When I was finally sent to straighten out the original problem, and the additional ones he managed to create with a bountiful helping of sheer ignorance, I suggested that she call the main office and explain (complain). The owner’s daughter (the company bookkeeper) told her to “”pay the f-ing bill, or we will take you to court!”” This unbelievably disturbing and aggressive lack of gratitude upset me as much as it did Kay, and profoundly affected my attitude, unlike anything I’d felt working for any prior company. I withdrew from participation in company meetings and events and, ultimately, I was fired. The boss man said I “”wasn’t a team player””, and I agreed, at least not on his team, which lead me down the solitary road of self-employment…and hard knocks.

5 excruciating years had passed and I realized I could have been making more money working for a New School employer during that forlorn period of pure angst. My earnings peeked over the poverty level barely enough to see the other side, gazing at what the Joneses had that I couldn’t muster from no matter how hard I’d worked. Soon, my wife left me for a lawyer. (Whatever happened to for richer or for poorer? I think she opted for richer.) Instead of giving in to working for The Man””, I chose to risk everything on my luck as an inventor (see my essay, “”Lessons In Invention Development””), which, by the way, is like jumping out of an airplane without first checking to see that the chute on your back is not really a backpack full of bricks.

Just prior to falling like The Old Man of The Mountains, I was approached by a company wanting to sell me a Flat Rate franchise and poured on the sales pitch in equal parts to the, aforementioned, over-the-top, advertising on the sides of certain trucks. I rejected their solicitation because their business model and methods seemed like voodoo. Bankruptcy seemed a more attractive option. A local plumbing company owner did buy into the franchise, and soon he was focusing all his efforts on service, all the while his excessive drinking showed his behind-the-scenes stresses that apparently forced him into his decision to change his business model to the Holy Grail the Franchiser sold him on. He had a great many service vans with inventory levels I had not seen since the old days. He had a huge color ad in the phone book that must have cost upwards of a $1,000 a month. (I paid $250 for my black & white quarter-page ad.) He had an 800-number, in bold red ink, and slogans that I knew he wasn’t clever enough to dream up by himself. The ad, with credit card logos all in a row at the bottom, convinced me he had gone Flat Rate. I visualized him with voodoo dolls that resembled his customers, squeezing them until their wallets spilled out of the pockets, cash flowing from them for him to seize – the how-to instructions printed on some secret page in his Flat Rate pricing book. I was skeptical of his ethics, as it seemed he had bought into something that suggested profit trumped quality, fairness, and full disclosure. I thought, “”If it quacks like a duck…””

I pondered the methodology behind the new buzzword, Flat Rate. Being a creative thinker, and problem-solver, I thought the method was ingenious, juxtaposed to that of the Old School way of generating revenue. I examined the core problems in the trade, but also the lack of fulfillment associated with being self-employed, from my humbled and beaten down point of view. Competition was fierce, and there seemed no way to go up on rates without losing bids, customers, and sales. I felt I was on the precipice of defeat, the sanctified martyr for the cause of doing honest work at a fair price, which seemed pass�. Also, there seemed no way to afford employees, and the requisite benefits package they routinely demanded. I held back my spiteful tone with retained thought so as no interviewee would notice when he uttered demands like “”vacation””; “”insurance””; “”holidays””, like so much lava from a volcano, scorching my patience to cinders. He didn’t know, nor would I reveal, out of certain embarrassment, that I had none of these bennies. Once upon a time, I enjoyed all that he asked for at the family-owned fuel companies. Nonetheless, it seemed ironic to provide others with the very things I was missing by not working for The Man.

An established company with 15 technicians in the field can generate sufficient revenue by the Time & Materials model, but I was beginning to see the employee prospects that I interviewed demanded a full compensation package, and that I would never become the company that could afford to pay them. And with customers questioning, “”What, you charge $35 an hour? I can get so and so for $25 and hour!”” the pressure to suppress the urge to charge more was what I feared and loathed the most, but was ever present. The over arching problem in the trade, that desperately needed fixing, was the perception in the mind of the consumer that no matter the hourly rate, there was always someone out there who should be sought for a “”competitive”” bid. That sounds like Free Market Competition at work. By not charging by the hour, rather charging for ‘materials only’, albeit, with a hefty price tag that obscures the true cost of the parts, the Flat Rate model appeared to have offered up a solution to the problems I experienced. I’ll explain.

The Way it Works

When you call a Flat Rate Company, typically it’s because you are desperate to have your no-heat, no-hot-water, or worse, “”no water”” problem remedied, quickly. The typical Flat Rate customer gravitates to the “”Yellow Pages”” like steel to a magnet, and dials the number in the most eye and emotion-catching ad. The company behind the ad anticipates them coming, and, in a sense, is like the Maytag Man who sits waiting for the unsuspecting and desperate voice on the other end of the phone line. The troubled voice is a common one, and the prepackaged mantras of the Flat Rate Company – “”Honey, just call ________.”” (Fill in the blank with a name of Flat Rate Company.); “”Repairs and maintenance on all systems””; “”You get firm, up-front estimates and fair, competitive prices””; “”Better quality guarantee””; “”90 days no payments, no interest financing””; “”At last, a serviceman who is always on time, or you don’t pay a dime””; “”Never an overtime charge””; “”You know the price, before we start””; “”Clean, professional technicians””; “”Immediate response””; “”Our prices are based on established standards””; “”_______ solves over thousands of residential problems a year and we can solve yours now”” – are like valium to ease the caller’s anxiety. Those lines hook you fast in your greatest time of need. Hey, if you can get an experienced, neat, clean, and professional plumber who allows you to approve the price before he does the work, and he smells nice (yes, there is an ad for nice smelling plumbers), and you can slap the repair on plastic, then who wouldn’t call? It’s true, the Fat Raters are usually there in short time, have the parts in their warehouses-on-wheels necessary to solve your problem, and you do approve the price before they begin work. However, there’s more to their formulae, and intent by some, than catches the eye.

The Catch

Many Flat Rate companies tell you over the phone when you call, not in the ad, that there will be a trip charge (leverage) if you don’t “”approve the price”” for remedying the diagnosed problem when they arrive. By then you’ve already done all the hunting for a technician in the jungle of ads that you can stand. When they assure you they can speedily solve your problem, you agree to pay the trip fee should you disagree with their price. Shortly, the technician arrives, and in time he tells you that your problem is such and such, and the cost to fix it is…well, on page 7 of his Flat Rate pricing book. The price seems like a lot, but you have no way of knowing if it is too much – it’s not like comparing brand names to generics side by side on the shelf of the supermarket. Besides, you are in a hurry to get your kids off to school, and get to work, and everyone needs to brush their teeth first. YOU WANT WATER, NOW! So you whip out your Visa card and he swipes it before you, and then busies himself in the basement for a while. Once the repair is made, your nice smelling plumber comes upstairs, utters niceties, and when he is positively out your door, removes his disposable booties, hoping you’ll notice he didn’t dirty your floor, which might be the most profound thing you remember about his visit.

On his way to his next service call, the technician whistles with glee, knowing he just made a 7% commission (an incentive to sell as many parts as possible) on the gross sale, on top of his $75,000 salary. Some of these guys make over a hundred grand a year!

[As a salesman for the last company I worked for, in 2002, I made 2% commission on net profit, which was determined by the owner of the company, though I wasn’t privy to his calculations. I quit a year later and they refused to pay my commission check.]

The Math

So how do they arrive at their high prices? Hypothetically, the well pump pressure switch at the root of your no-water problem cost the Flat Rater $12, but you paid $379.25 (the charge that you ‘approved before they did the work’). $379.25 – $12 (their cost of the switch) = $367.25, the Company’s mark-up. If you hired a time and materials guy, say, at $85 for the hour in your home and one on the road, plus $24 – an average sell price for the switch, you’d pay $194. Now, subtract $24 from the Flat Rate price of $379.25 and $355.25 is the labor amount you’ve been charged. But wait, there’s more. Divide their labor amount by two (hours) and their equivalent hourly rate is $178 per hour – more than twice that of the time and materials guy! You think, “”How can this be? He was only here for 45 minutes?”” Then you suck it up and remember his booties and your clean floor, rationalizing away your concerns, especially about the new balance on your credit card, which you can make minimum payments on anyway. But don’t forget to factor in the interest, bringing the total cost of the Flat Rate Company’s repair to new heights never before seen in the Old School model. What is the Flat Rate technician’s cut? 7% X $379.25 = $26.55, but that’s in addition to his salary, or high hourly pay.

These are average numbers, of course, but you get the idea.

Some Flat Raters take price-setting to an extreme, raking in up to $400 and hour, then laugh through their admission of guilt to fellow tradesman at the supply house. I’ve actually heard them there, at the counter.

It’s all about their marketing, paired with the desperate consumer’s emergency, otherwise, the entire business model wouldn’t hold up. The consumer pays a premium for the company’s means of letting you know he can have a technician there with the requisite parts, within an hour. But that doesn’t mean that a wholly qualified technician will show up at your door. Anyone can change parts. Besides, the more parts they sell you, the more often you pay that premium…until finally he fixes your problem. It’s almost always a net gain for the company, but a loss for the consumer. If the unqualified technician sells you 3 parts, or more, depending on the true problem and how long it takes to replace parts until the right one is found, the equivalent hourly rate quickly skyrockets to the aforementioned $400 an hour range. It’s math 101.

There is an army of these companies now canvassing the populous neighborhoods all supported by their big ads, hoping to add new customers, as many are one-timers, given the unwanted economic bath they took the last time. Speaking of being taken to the cleaners, how does $950 for a plastic Zoeller sump pump suit you? Maybe $1,900 for a 40-gallon electric water heater sounds attractive? I think not! Check Home Depot’s prices for those items the next time you are there. Flat Rate pricing seems to save the consumer from information they shouldn’t see. What they don’t know won’t hurt them?

More often these companies are franchises and they are popping up around the country, from California to New Hampshire. But a local company (though I suspect it is only a matter of time before they sell franchises) boasts of having 35 fully stocked trucks on the road, in New Hampshire! Surely there must be as many dead moose on the road.

Two Schools Collide

With pricing like that the Flat Rate Company can afford to pay their employees better than the non-Flat Rate competitors, thereby attracting the labor pool away from the Old School guys like me. However, guys with talent, skill, and ethical fortitude tend to work for themselves. The dilemma is omnipresent. I ask, why would anyone work for me if all I paid them was $40K a year, and meager benefits? The Flat Rate method answers this question, as it addresses the quandary of how to make self-employed tradesmen profitable, so they, too, can have the same benefits that their employees demand.

The New School, and Flat Rate have convinced me of the direction the trade has been headed in for some time, and that it will never return to the days when I began as an oil burner technician for fuel companies that had been around since the beginning of oil burners themselves, and coal-fired systems before them. Still, I choose to work by the traditional ethics that I was fortunate enough to be taught, at a time when the winds of change were shifting. I’ve let go of the idea that I would employ many and reap the profits they generated for me. Now I work alone and hire another self-employed guy when I need a second pair of hands to complete a job that requires more than one, rather than go Flat Rate and take advantage of the customer. I do believe in business ethics (surely some of you are laughing at my naivet�). Maybe I’ll never sway from the Old School approach, as I still have zero patience for the sub quality work done by the bottom of the labor pool barrel, and by some of these Flat Rate companies. Call it ego, or call it nostalgia, I call it freedom, freedom to choose to feel great about the work I did today, without having to scam anyone.

Presently, where once I charged only for the time on the job, I charge for the total time that I commit to my customer, including travel time both ways. Also, I charge for diesel fuel to get there. After all, the time and expense of traveling to my customer’s site is not for my benefit; it’s to solve their HVAC problems – my primary business.

I know every task required to complete any HVAC job, and the order in which they should be performed. With 28 years experience, I feel unlike many of the Flat Raters who often only have a few. Really, many are simple parts changers in a neatly pressed uniform, behind the wheel of a moving billboard / warehouse, carting around 25 grand of inventory…and a Flat Rate pricing book.

Despite my many complaints about them, I feel the Flat Rate innovators were very creative and insightful when they formulated their solution to the ills in the trade. However, I feel their method is fraught with deception, and opportunity for fraud. Not all are bad, but take the following as example:

The Fraud

A case in point is my customer Cheri Whittaker’s experience with a Flat Rate company. Cheri called me for a “”free estimate”” to change the boiler in her home, in Exeter, after seeing my �-page black and white ad (that cost $450 per month), in the Portsmouth telephone book. Being a savvy and knowledgeable salesman, I knew enough to get a lot of information up front, before I agreed to give a free estimate – something everyone calling ads in the phone book expects. Estimates take a lot of time, if done carefully and accurately. The answers Cheri gave to my queries – namely who the (Flat Rate) company was that condemned her old boiler two weeks earlier – caused me to suspect she just needed an honest and experienced technician to diagnose the problem correctly. I felt I was her man, and agreed to give the estimate.

Upon arrival in her basement, I noticed that the air gate on the oil burner had been intentionally shut, causing the fire to burn incredibly dirty. Black smoke spewed from the chimney, and the boiler was plugged with soot. Before long, damage to the oil burner would result. Cheri showed me the invoice and recommendations the technician had left with her. There were many reasons listed on the invoice for condemnation of the boiler – every one false and designed to pressure Cheri into buying a new boiler from a “”Comfort Advisor”” they planned to send out to give an estimate. Had she gone along with their diagnosis and prescription, the technician would have received a $700 commission in his paycheck that week. Imagine him doing this more than once a week, and you can see how he would easily approach a $100,000 annual salary.

The last time the boiler and burner had been serviced, prior to the Flat Rate Company’s visit, was over a year, so I knew the Company technician had sabotaged the boiler intentionally. Otherwise, an oil burner starved of air would have caused it to fail in a matter of weeks, and it was nearing that point. In a way, the technician’s statement on the invoice was correct: “”the boiler is due to imminently fail””.

Cheri and her husband asked me to confront the Flat Rate Company, in their presence, so no surprise, I agreed. Soon, the technician and his service manager arrived at their home and we converged in the basement. Within 15 minutes, I proved false the Company’s claims in their invoice and of no wrongdoing. The Whitakers were not impressed with the hollow answers and guilty looks from the two, and evicted them from their home, telling them they would never return. I proceeded to clean the very dirty boiler and bring it back to good, safe operating condition for a few hundred bucks – a far cry from the $10,000 it would have cost to replace the boiler.

The Summation

Clich�’s abound for situations like the aforementioned such as, caveat emptor – “”buyer beware””. And, “”if it seems too good to be true, then it probably is.”” Think of all the claims, promises, and guarantees in the phone book ads, then recall what they charged you. Was it a steep price? Had you ever been charged that kind of money for a service call in your past? What about the so-called Trip Fee, did you opt for that and disapprove of their Flat Rate? Did the technician fix the problem correctly the first time, or did you have to call him back? Gimmicks like disposable booties, and surreptitious slogans – “”you approve the price”” – are devised to dupe the layperson from thinking about the price for a repair. These companies are clever, and getting rich without doing much quality work for the money, but they do sell a lot of parts, which I suppose bolsters the economy.

My Mom and her husband in California were just hosed by a Flat Rate Company, paying twice the price for outmoded air conditioning equipment that is being phased out because its refrigerant destroys the Ozone layer. I wished I could have saved them from the wolf-in-sheep’s-clothing Comfort Adviser that sold them on the idea of replacing their functioning furnace and condensing unit, before that company loosed their disposable booties in their home. I don’t blame the one’s who’ve been bitten; I hold the snake charmer responsible for allowing the snake to bite.

But, hey, at least the owner of that one-hour flat rate company is content with not having to work for The Man – something we do have in common