How to Grow your Business With Piece Rate Pricing
As an HVAC contractor, you may have considered making the switch from a traditional pricing model (time and materials) to piece rate pricing. While some HVAC professionals are hesitant to switch from the traditional T&M pricing model, many other repair industry professionals have proved that piece rate pricing can be an excellent way to grow your business — but only if it’s done right.
What is Piece Rate Pricing?
Piece rate pricing (also known as “flat rate”) is a pricing model that focuses solely on the end result. For business owners and skilled HVAC contractors, piece rate pricing is particularly appealing, as it rewards skill and gives employees an incentive to turn around jobs faster.
In contrast, the traditional pricing model most contractors use – time and materials pricing – focuses solely on the amount of time spent on a job and the cost of materials used. Based on this model, more experienced HVAC contractors may get the short end of the stick. After all, there’s no financial incentive for skilled contractors who are able to get the job done fast!
Benefits of Piece Rate Pricing
Many HVAC repair companies have found piece rate pricing beneficial for a variety of reasons. First and foremost, it’s much easier to forecast potential revenue when you’re billing most jobs at a flat rate. As one electrical contractor put it, “It takes the mystery out of running a contracting business for me, as I know to the dollar how much profit each house will net me.”
Of course, piece rate pricing is also good for your employees. Piece work gives your crew the opportunity to take ownership of their abilities and rewards your most skilled employees – the ones who you want to keep happy! Your most experienced contractors should be able to earn more through a piece rate pricing model, as they’re typically able to turn jobs around faster.
Also, another thing to keep in mind is that T&M pricing sets a limit on your profitability, whereas a pricing model that’s focused on productivity increases your potential revenue. Because your team is financially motivated to complete jobs quickly and more efficiently, productivity and output tend to increase, allowing your business to serve even more customers than ever before.
Customers Prefer Piece Rate Pricing!
As every HVAC contractor knows, customers are more apt to agree to repairs if they have a precise quote. For customers, piece rate pricing means there will be no unwelcome surprises when they receive their bill. In turn, this makes it easier for you to collect your payment when the job is done. Additionally, because your customers aren’t paying an hourly rate, they’re less likely to hassle or micromanage your employees while they’re on the job.
Offering your customers flat rate pricing can even help put an end to the type of pricing disagreements that tend to result in unwarranted negative online reviews. A recent case study found that a whopping 31.5% of negative online reviews for contractors relate to pricing issues like unexpected charges, inaccurate billing and overall price. It goes without saying that negative online reviews have a huge impact on your business’ revenue – in fact, they can cost your business as much as $6,552 per employee, per year.
Switching to Piece Rate Pricing: The Nitty Gritty
Before you switching your HVAC repair business to piece rate pricing, there are several important factors you must be aware of.
Calculating piece rate pricing can be complex. If done incorrectly, it can have a negative impact on both your employees’ earning potential and your bottom line. When determining your flat rate prices for your HVAC repair business, make sure you’re covering all your overhead expenses, including non-billable hours, supplies, and insurance. Most importantly, you need to make sure your contractors are taken care of. Don’t set your rate based on how long it takes your fastest or most experienced employees to complete a job, as that’s unfair to your less experienced contractors. Your best bet is to calculate the average for all employees and use that.
Ultimately, the goal is to find a flat rate that includes a reasonable profit that works for your business and your employees, yet is also fair to your customers.
- Record Keeping
When making the switch to piece rate pricing, it’s important to both follow labor laws and cover your rear by keeping detailed records. By law, your employees must make minimum wage. For example, say one of your guys took seven hours to complete a piece rate job that would have paid him $40. If minimum wage in your area is $10 an hour, you’d have to pay him $70, as it would be illegal to pay him just $40 for the day’s work. Furthermore, all work hours must be considered in the minimum wage calculation.This means that if he spent an hour traveling to and from the job site, you’d need to include that in his pay. Also, remember that overtime laws must be taken into consideration as well.
As with most things in business, it’s important to C.Y.A. Be sure to keep detailed records to prove that your employees were paid above minimum wage at all times. Your reporting must include both the production on which piecework is applied as well as the timekeeping of all hours.
- Quality of Work
When adopting a piece rate pricing model, you’ll need to take additional measures to ensure quality of work isn’t affected. While you likely trust your team, some may be tempted to rush through a job in order to earn more money, potentially making costly mistakes along the way. Because piece rate gives employees the opportunity to earn more, some repair industry professionals suggest it should be treated as an honor, not a right. Before making the switch, set clear work standards that employees must meet for every job. If the quality of an employee’s work begins to suffer after switching to piece rate pricing, consider switching them back to hourly.
In fact, you may actually find that piece work is best reserved for your more experienced employees who are able to complete jobs quickly without impacting quality of work. Take into consideration that novice employees may not be able to earn enough through piece rate.
Finally, it’s a good idea to take advantage of team management and flat rate billing tools like Breezeworks to help make the switch from T&M to piece rate pricing even easier. Such tools will make it easier for you to track time spent and output to confirm that piece rate pricing has been effective for your business.CLICK HERE FOR INFO ON BREEZEWORKS.COM SERVICES
This post was sponsored by Breezeworks. Click the link above to learn more about their team management software. With Breezeworks you can organize customers, jobs, invoices, and accept payments while running your team from wherever you are.