Flat Rate vs. Time and Material: How Electrical Contractors Should Price for Profit

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Welcome to the Master of the Neez podcast, the ultimate
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destination for anyone passionate about the electrical trade. Whether you're
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a season electrician, an eager apprentice, or just someone who
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wants to dive deep into the world of electrical work, You've.
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Come to the right place. Join your host, Paul.
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Abernavi, a true authority in the industry with over thirty
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eight years of trade experience, as he electrifies your mind
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within depth discussions, expertips, and valuable insights.
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That will keep you ahead of the curve.
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Each episode, Paul will illuminate the complexities of the trade
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de code, the National Electrical Code, and share the latest
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industry trends, all while empowering you to take your electrical
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career to the next level. So gear up, plug in,
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and get ready to supercharge your knowledge because with the
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Master of the Neez podcast, the power is in your hands.
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Now get ready. Here is your host, Paul Abernavi.
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What up, everybody? Welcome to another episode of Master the
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NEC podcast, where I Paul Abernathy discuss anything electrically related,
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whether it's the National Electrical Code, or maybe it's electrical
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contracting and pricing and estimating, or maybe hr problems, things
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that I've experienced through the years as an active electrical
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contractor for years before retiring from that part of the
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business and focusing more on education. I've helped thousands and
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thousands of people navigate certain things about electrical contracting and
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answering questions. Again, by no means am I the expert
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on all things electrical contracting. Again, whether it's taxes, consulting
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tax people CPAs or people that are in the know,
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or getting legal advice from a lawyer. I don't give
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legal advice. I just give you kind of my experiences
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as a contractor. In some of these episodes, when it
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comes to the National Electrical Code, I am a bona
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five should we say? How we say that bona fide
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expert on the National Electrical Code, so I can give
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advice on that with very very high level of competence.
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And so again I've been doing that for nearly forty
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years now. Today's episode, we're going to talk about a
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very popular subject that have been asked many times on
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the show. To talk about flat rate pricing versus time
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and material estimating can be a real touchy thing for
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people and how you price your work, and again So
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in this episode, we're not going to get so much
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into estimating in what estimating software which is again in
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my opinion, the best bid Hybrid Pro. You can google it.
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The best Bid Hybrid Pro is probably the best estimating
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software that I recommend you get started in if you
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want to really start dialing in your bids and your
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estimates and kind of staying consistent. But a lot of
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times you need to come up with your pricing based
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on service calls or quick in the field type of stuff,
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and you need to know whether or not you know
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what's better doing time and material or is it better
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doing something like flat rate pricing. And again that might
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be you know, one of those questions that you've asked
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yourself about doing it. So we're going to kind of
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discuss that a little bit today, try to give you
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some things to think about. Again, it could be a
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rather long episode, but we'll try to keep it to
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an hour. So again today's topic is flat rate pricing
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versus time and material. Now I've done both through my
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years as a contractor. In the latter part, I did
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more of a flat rate pricing and I had a
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structured you know, whether it was different levels of complexity
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to the work and that dictated the pricing. And again
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that didn't mean that that price was set in stone.
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I mean that was an estimate based on Okay, this
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is what it is. If it becomes something that is
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hidden that I could not see, then my price would change.
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I'm not eating it. That's why they call them estimates.
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That's why they call them quotes. Right. But again, you
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don't do things that are unscrupulous and try to jack
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up your rates arbitrarily. That's not a good contractor that's
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not what you're trying to do. So you're trying to
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stay honest with how you do things. But when it
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comes to flat rate versus time and material, today we're
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going to discuss one of the most important discussions in
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small electrical contractors and in the business that they must
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make is how should you charge customers for your work?
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Should you use a flat rate pricing where the customer
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approves a total price before the work begins. Again, with
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caveats the things that you can't see, okay, but generally
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you're going to be right on par. But that's flat rate.
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They pay the price, they know what they're getting. Or
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should you use a time in material pricing, where the
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customer pays for the actual labor, time and materials required
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to complete the work. The difference a lot of times
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with the flat rate pricing is that you have to
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kind of know that this is going to take me
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two hours. If it takes you four hours, you're losing money. Okay.
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So but if you've done it well enough, and you've
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done certain things, and there's certain projects, and it does
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not mean that you as a contractor cannot have a
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mixture of both. Certainly you can can have a mixture
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of both. But there's a lot of things service work
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that you go out to that be honest with you,
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if you've got a well stocked vehicle, the flat rate
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pricing is going to make you money, so you know.
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And so we'll discuss all that today. Now, there are
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strong opinions on both sides, okay, and I have done both.
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So some contractors believe that flat rate pricing is one
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the only way to operate a professional service business, while
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others believe that time and material is more transparent because
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customers pay according to the actual work that's performed. Now,
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I've seen fairly fairly many arguments that have been shared online.
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It's not necessarily always in the electrical world. But I
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hear where somebody gives them one flat price and they
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do the job, and you know, the guy does it
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in two hours because it got five or six people
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there or whatever it is. And then the guy goes,
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wait a minute, this why you know you charge me
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this price, but you did it this quickly. Well, you're
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not paying for that time, you're paying for that experience.
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You're paying for me as a contractor my experience and
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what I can do. You know if I get it
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done quicker, does it really matter? Does it really matter
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at all? As long as we achieve the same goal.
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So again, this is where the argument can be because
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when somebody says time and material, they want to see
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that you put five hours, six hours in it. But again,
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it's it. There's an argument that can be made for both. Okay,
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Now the truth is, to be honest with you, neither
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method is automatically right or wrong. Neither method is automatically
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more ethical. Neither method guarantees that you will make money. Okay,
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So the best pricing method depends on the type of
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work not predictable in the scope. Is that when you
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understand your costs and how clearly you communicate this with
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the customer, it can make the difference of whether or
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not flat rate pricing makes more sense versus time and material.
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So today we're going to look at the advantages and
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disadvantages of both of those methods and you're going to
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have to make that decision. We're going to discuss how
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each affect a small electrical contractor and explain why the
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combination of the two may be your best approach. And
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that's what I had, a combination of the two. I
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had a pre defined thing for certain things. It was
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flat rate because I knew my truck was equipped and
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I could handle these things. And you give a price,
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and it's like it's kind of like a all right,
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I'm here, I'm ready, I've got the stuff you want
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me to do it. Now, this is the price I'm
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giving you, that convenience price. I'm right here, that type
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of thing. Okay, So we'll look at both of that
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which one. Now, as always, contract requirements consumer protection laws
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vary by state by state, by localities. So this discussion
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is general business education and not individualized legal, tax or
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accounting advice. Okay, make that very clear. I'm just giving
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you the thoughts from somebody that's been in the business
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for nearly forty years and I've had the opportunity to
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do both both flat rate pricing and of course time
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and material. So let's begin with the basic differences of
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the two. So what is time and material pricing? So,
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under time and material pricing, the customer pays for the
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labor time required to perform the work, the material that
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is used, and any agreed service charges, equipment charges, permit costs,
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or other expenses that are associated in that. So let
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me kind of give you an example. If it's one
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hundred and seventy five dollars per hour for the service electrician,
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then it's ninety dollars per hour for an apprentice to
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help that service electrician, and then we have a seventy
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nine dollars dispatch or service coffee. Materials are at the
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company's established selling price, so you may have your markup
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of your material. Okay, a widget cost you one dollar,
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you may list it in an invoice for a dollar
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twenty five. Okay, I'm just giving you examples here. So
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these are time, your hourly rates, and material what it
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is on the established selling price that you establish. Typically,
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trying to make at least ten to fifteen percent markup
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on material. Okay. Now, if the electricians work for three hours,
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the customer pays for three hours. Pretty straightforward, right. If
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the electrician works for five hours, the customer pays for
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five hours. Okay. So the final price may not be
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known when the work begins, because it depends on what
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the electrician discovers and how long the work takes, right
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the unknown. And it's always a case in it. We
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get into a job and you know, we go in
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and somebody says, hey, I just want a simple ceiling
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fan hung in this bedroom. And you get there and
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you realize that the box is a simple plastic nail
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up that it can't support the weight of a ceiling fan.
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Do you unscrupulously install the ceiling fan anyway? No, you
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go on and say, look, we're gonna have to I
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didn't know that in the price. We're gonna have to
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do a ceiling box. But that's why it took me longer.
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And as long as you articulate that to the customer,
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you can explain it. Okay, The code requires that I
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have a certain boxes designed to support the weight of
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that ceiling fan that you want and I have no
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way of knowing before I got started, so that's why
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it took me a little longer. And get what I'm saying. Okay, Now,
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this method is particularly useful when the scope is uncertain.
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You don't know, you haven't done enough of them, you
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don't know what you're going to see, so it's kind
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of time and material. So suppose a homeowner says this
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calls and says, half the receptacles in my living room
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stopped working. Okay, Well we get that call as electrician
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all the time. Something just stops working, all right, Well,
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we got to do troubleshooting. We don't know what it
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takes to fix it that point, so you don't know
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yet whether the problem is failed in the receptacle, whether
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there's a loose connection, maybe it's a downstream connection, maybe
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a damaged conductor, or maybe it's just a failed breaker.
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Maybe the water damage got in, maybe rodents chewed something up,
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Maybe it goes up into the attic. Okay, maybe some
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wiring was done because somebody did some alterations, maybe unpermitted
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alterations or something that was done and the owner just
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hired a handyman to do it, and now something's not working,
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you don't know these things, so you know you may
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be able to find this. If you're you've been doing
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this a long time and it depends on the complexity
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of the issue, you may find this in fifteen minutes. However,
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as many of you can probably attest to, some of this,
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troubleshooting can take several hours just to troubleshoot it before
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you even start correcting anything. So if I quoted a
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fixed price for repair before diagnosing the problem, that could
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expose the contractor to unnecessary risks. This is where time
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and material pricing can make sense the unknown. You're bidding
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a job, you're going out, you're doing something, you get
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a call service related, let's say, and I don't even
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know what the deal is. Okay, that's an example where
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time and material is obviously going to rule the day here.
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You just don't know what you're going to run into yet. Now,
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fixed rate pricing under flat fixed rate pricing. Under the
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flat rate pricing, the contractor provides a total price for clarity,
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defined task and the scope of the work. The customer
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approves that price before the work begins. For example, replace
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a standard ceiling fan four hundred and seventy five dollars
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Install a whole house search protector device nine hundred and
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fifty dollars. Install a dedicated circuit for two hundred and
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fifty under the stated condition. Maybe it's for an EV
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charger or whatever it's for. Maybe it's replaced a standard
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disconnect seven hundred and twenty five dollars. Now, the custom
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is not purchasing a specific number of hours here, They're
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just trying to They're trying to purchase the completion of
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a project. They're purchasing a complete result. Now here's where
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it can get difficult. If the contractor completes the work
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faster than expected, the customer still pays the agreed price.
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And that is where customers sometimes can say, wait a minute, this,
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what would have been the cost if it was time immterial,
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if you solve something in an hour, then they would
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have said, well, what's your hourly rate? I could have
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come out cheaper. That is not up to them, and
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stop letting your customer dictate that. Your choice is very clear.
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If the task is straightforward, right, then you take care
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of it, and you take care of it and you
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handle it. Now, a lot of the flat rate pricing
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structures is they'll set a price for this standard ceiling fan,
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for example, and they'll have notations in there. If it
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doesn't have the proper box, which is unseen at the
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time of the pricing, that is an extra cost. Okay.
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So it's really up to you how you do it.
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So somebody say, well, that's not that's time immaterial. No no, no,
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no no no no, that's not. That is making sure
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you're setting your various levels of complexity. One your base
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rate is that you assume the box back there is fine.
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The next level is it's not and you have to
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replace it with a box. Okay. So you have different
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levels of complexity, but that just comes from you doing
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things over and over and determining how to do that
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and understanding the situation. Okay. So if the job takes
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somewhat longer than you expected based on your experience, then
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the price normally remains the same, provided the work remains
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within the agreed scope. Right. If it's outside of that scope,
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for example, there isn't a proper mounted box above that
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ceiling that you can't see, okay, then that's different. If
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if it's a ceiling fan already there, we can only
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assume that it has a ceiling fan rated box up there.
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But again, if it's from twenty years ago, it probably
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does not, and so that's going to change it. And
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all you have to do is if you want to
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do flat rate pricing is understand those complexities, those nuances.
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You can still build it in there yet still set
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a solid price that kind of just doesn't break it
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down in the labor. Now in some states, for example,
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I just give you Texas residential work. You didn't pay
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taxes on it if you gave them a flat price.
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If you did time immterial, then you had to account
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for taxes and pay taxes. And that's residential, not commercial
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service work, service calls. So it was beneficial to you
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to give one flat price. Okay, so you didn't pay
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taxes on that yet. Not a tax guy, not telling
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you what to do. Check your own tax accountant or
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CPA or whatever. But that was the rules in Texas
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when it came to charging sales tax and things like that. Okay,
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makes sense, price not time I material things like that,
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because when you got material, then you've got to charge
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sales tax on material. Again, not a tax guy. I
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don't know your state, so don't quote me to that
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I'm just giving you some examples. Okay, Now, the contractor
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accepts more of the production risk because because may also
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benefit from the greater efficiency. However, flat rate pricing does
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not mean that quote a contractor must complete anything and
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everything discovered, okay for the original price. It's about defined work,
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for example, and a flat rate pricing applies to defined work,
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but concealed damage, customer quested editions, code violations outside of
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the original scope, or other unexpected conditions may require a
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written change order. And when you're doing flat rate pricing,
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that is why we develop different levels, right, and we
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make it very clear when we give a flat rate
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price that if everything goes great in the scope of
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the work that we're pricing, you want me to change
300
00:17:06.920 --> 00:17:08.920
that fan, That's what I'm going to do. I'm gonna
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do it for this flat price. However, I take that
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fan down and it's not the proper box, then we
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got a problem that is not within the original scope.
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We didn't foresee that it would not be the proper
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box to support the weight you would not need. And
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so that's got to be a different level.
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You know.
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That's fine as long as you're making your customer aware
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of this because you can't see what you can't see.
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That's not deceiving anybody, that's not misleading anybody that's giving
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them the option of a flat price, understanding that things
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can happen that you can't see. It's not your responsibility.
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You don't need to eat that. Whereas time and material
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you just keep going and then fund you find this
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issue and then you've got to have to fix this issue.
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But you're still racking up the time and you're still
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buying more materials. Just two ways to do it, Okay, Now,
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who accepts the risk? So the biggest difference between the
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00:18:07.519 --> 00:18:12.000
two systems is who accepts the risk of uncertainty under
320
00:18:12.079 --> 00:18:15.000
time and material pricing. The customer accepts more of the
321
00:18:15.119 --> 00:18:17.319
time risks because you don't know what you're gonna find
322
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and it takes longer, and the course, if it takes longer,
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they're gonna pay for it. They may not like it,
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they can't help it. They may they may criticize you
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you should have found that issue quicker. Well that's that
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might be their opinion, but that's all it is, is
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an opinion. It's not doesn't make it fact. I mean,
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some things are just tough to troubleshoot some things you
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may find in ten minutes. It doesn't make you a
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00:18:40.200 --> 00:18:44.200
better electrician than anybody. Because every situation is different. Everything
331
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can get complex or it could be pretty simple now
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under time and material Again, the customer accepts more risks.
333
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If the job takes longer, the customer pays more. If
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the job is completed quickly, the customer generally pays less.
335
00:18:59.359 --> 00:19:03.119
Under flat rate pricing, the customer accepts more of the
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production the contractor excuse me, the contractor accepts more of
337
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the production risk. If the job takes longer than they anticipated,
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the contractor may earn less money. If the contractor completes
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the work efficiently, the contractor may earn more money based
340
00:19:19.440 --> 00:19:22.240
on that flat rate pricing. The difference is why the
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00:19:22.279 --> 00:19:26.279
contractor should not use the same pricing method blindly for
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00:19:26.480 --> 00:19:29.920
every type of work they're doing. Some stuff, it lends
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itself to be simply a fixed rate. I'll do it
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for this price, And you may not have called it
345
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flat rates, you know, fixed rate or flattrate, flat rate.
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You may just say this is what I'll do it for,
347
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but that's essentially what you're saying. I'll take care of
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it for this, I'll cover the material, I'll cover everything,
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and I'll do it. Okay, but that's what it is.
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So there are a lot of softwares out there. I
351
00:19:53.839 --> 00:19:55.799
even think on our mobile app, we have something that
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establishes the flat rate pricing structure that takes into account
353
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all your stiff and we're gonna talk about burdens and
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overheads and things like that. But there is a way
355
00:20:04.000 --> 00:20:06.720
to do it that can make sure. But again, there
356
00:20:06.720 --> 00:20:08.480
may be times when you need to use a time
357
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and material because of complexity. Right, So there you go.
358
00:20:12.680 --> 00:20:15.519
So now what are the advantages though of time and
359
00:20:15.640 --> 00:20:21.440
material pricing? Okay, well, time and material this is this
360
00:20:21.480 --> 00:20:25.000
one's this one's critical because so we'll look at it
361
00:20:25.039 --> 00:20:27.559
is it works well when those when the scope is
362
00:20:27.640 --> 00:20:31.400
unknown for troubleshooting. Any of those calls that I get
363
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called out other than somebody just saying I want to
364
00:20:33.640 --> 00:20:35.119
have a ceiling fan or I want to do this,
365
00:20:35.160 --> 00:20:37.400
I want to they know what they want. I need
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00:20:37.400 --> 00:20:40.680
you to replace this receptacle. That's pretty much flat rate.
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This is what I'll do it for. I'm gonna come
368
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and do it time and material. Anytime that I get
369
00:20:46.160 --> 00:20:50.319
a call in there's troubleshooting involved. Circuit just stops working.
370
00:20:50.359 --> 00:20:52.200
Something's not where, and you're gonna have to pull out
371
00:20:52.200 --> 00:20:54.119
your meter, You're gonna have to do some testing running
372
00:20:54.160 --> 00:20:56.160
back and forth through the house or the building and whatever.
373
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That is a clear example of when time and material
374
00:20:59.400 --> 00:21:02.359
is your friend. So time and material pricing can be
375
00:21:02.480 --> 00:21:08.480
appropriate for things like intermittent electrical problems, underground fault locations.
376
00:21:08.640 --> 00:21:13.920
Let's see here older buildings with undocumented modifications, stuff that's
377
00:21:13.920 --> 00:21:15.799
been done in that building, and every it's kind of
378
00:21:15.799 --> 00:21:20.920
been hodgepodged. Anytime there's wire, water damage on the wire,
379
00:21:21.039 --> 00:21:24.240
or fire damage evident near in proximity, that's a time
380
00:21:24.279 --> 00:21:25.960
and material because you just don't know what you're gonna
381
00:21:25.960 --> 00:21:29.680
find work started by another contractor. If I'm walking in
382
00:21:29.720 --> 00:21:32.440
and finishing up a project that somebody else started but
383
00:21:32.519 --> 00:21:35.039
walked away from, there is no way that I'm doing
384
00:21:35.079 --> 00:21:37.559
a flat price on that. I am time immterial because
385
00:21:37.599 --> 00:21:40.279
now I have to go through because I don't know
386
00:21:40.319 --> 00:21:42.759
where their circuits start, where their circuits in. My brother
387
00:21:42.799 --> 00:21:45.240
does this a lot because he does houses where contractors,
388
00:21:45.400 --> 00:21:49.680
you know, they stopped and the contractor whatever stopped doing
389
00:21:49.680 --> 00:21:51.599
the work, and it was maybe three quarters of the
390
00:21:51.599 --> 00:21:54.079
way done or half the way done, and he'll it'll
391
00:21:54.079 --> 00:21:57.400
take him sometimes a day or two to start tracing
392
00:21:57.440 --> 00:21:59.640
out things to make sure there's not you know, too
393
00:21:59.680 --> 00:22:01.480
many things are loaded on a circuit that's going to
394
00:22:01.559 --> 00:22:05.319
cause other problems, make sure they didn't deadhead something, make
395
00:22:05.359 --> 00:22:10.279
sure something's improperly wired. It takes him time, so in
396
00:22:10.319 --> 00:22:13.920
that scenario, it's purely time and material at least for
397
00:22:13.960 --> 00:22:16.720
that phase of it. Now, once that's done, he breaks
398
00:22:16.759 --> 00:22:20.359
that up, so that's a separate charge time and material diagnostics,
399
00:22:20.799 --> 00:22:23.920
and then after that he'll bid the price of the
400
00:22:24.000 --> 00:22:26.440
job to take it over from the other contractor. Okay,
401
00:22:26.799 --> 00:22:29.160
some people may do the whole job time and material,
402
00:22:30.000 --> 00:22:34.680
but again that's how he does it. Remodel projects with
403
00:22:34.839 --> 00:22:37.599
concealed conditions that you don't know what's in there, Dude,
404
00:22:37.960 --> 00:22:41.240
you cannot give a flat price when you don't know
405
00:22:41.279 --> 00:22:43.599
what you're going to encounter. So that's a time and material.
406
00:22:44.440 --> 00:22:50.000
Equipment problems that require extended testing, long term testing. Again,
407
00:22:50.200 --> 00:22:52.400
time is money, and if it takes you longer to
408
00:22:52.440 --> 00:22:54.599
diagnose something because you have equipment that you have to
409
00:22:54.640 --> 00:22:57.359
monitor the condition, then that should be time and material.
410
00:22:57.880 --> 00:23:03.400
How do you give a flat rate for that emergency
411
00:23:03.440 --> 00:23:06.519
repairs when the damage is not yet known, you get
412
00:23:06.559 --> 00:23:09.759
called out emergency loss of power. It's really hard for
413
00:23:09.799 --> 00:23:11.680
you to give a flat price on something you just
414
00:23:11.680 --> 00:23:15.440
don't know what you're getting ready to walk into. Right, So,
415
00:23:16.000 --> 00:23:19.799
when the contractor cannot reasonably predict the amount of work,
416
00:23:19.839 --> 00:23:24.200
the time and material, that reduces the risk of giving
417
00:23:24.240 --> 00:23:28.279
away hours of labor by going with the time and material. Okay,
418
00:23:28.799 --> 00:23:33.880
now it can It can reduce estimating time. You know,
419
00:23:33.920 --> 00:23:38.160
one person contractor may not have an estimator or an
420
00:23:38.240 --> 00:23:41.400
office staff, or you may not be very good at estimating.
421
00:23:42.240 --> 00:23:45.759
Just this be real. You may not understand your burdens
422
00:23:45.799 --> 00:23:49.759
yet and everything like that. So preparing a detailed proposal
423
00:23:49.799 --> 00:23:53.640
for every small service call can consume valuable time. So
424
00:23:53.680 --> 00:23:57.119
when time and material pricing is in play, the contractor
425
00:23:57.160 --> 00:24:00.680
can explain the rates, it can obtain the authorization. He
426
00:24:00.680 --> 00:24:04.759
can begin diagnosing the problem without first creating a complex
427
00:24:04.839 --> 00:24:07.720
fixed price proposal for things that he doesn't even know
428
00:24:07.759 --> 00:24:12.400
what exists yet. That makes no sense. So remember, flat
429
00:24:12.559 --> 00:24:16.079
pricing is for projects that we know that you've done.
430
00:24:16.200 --> 00:24:19.200
You know the termined outcome. Yes, you may change it
431
00:24:19.200 --> 00:24:21.599
and alter it for something you find. But if it's
432
00:24:21.680 --> 00:24:23.759
just putting in a ceiling fan, if it's just running
433
00:24:23.759 --> 00:24:26.240
a circuit from point A to point B, and you're
434
00:24:26.279 --> 00:24:30.480
looking at it, and it's pretty straightforward. Same example be
435
00:24:30.519 --> 00:24:34.160
a panel change, that could be a flat price to
436
00:24:34.279 --> 00:24:37.160
do this and all that. So those things are the knowns.
437
00:24:37.720 --> 00:24:41.039
It's the unknowns that flat pricing will come back and
438
00:24:41.079 --> 00:24:45.200
bite you in the butt. Okay, So key things to remember.
439
00:24:45.880 --> 00:24:49.799
It is easy for many customers to understand the basic concepts.
440
00:24:49.839 --> 00:24:52.200
It's pretty simple. You pay for your time we spend
441
00:24:52.279 --> 00:24:54.480
and the material we use. That's it. You're going to
442
00:24:54.519 --> 00:24:59.440
get your markup and your designed labor rate. That's it. Now,
443
00:24:59.599 --> 00:25:05.039
this canfield transparent when the contractor clearly explains his rates
444
00:25:05.079 --> 00:25:08.359
per hour, his helpers or apprentices rates per hour, and
445
00:25:08.440 --> 00:25:14.559
provides detailed invoices. It works well with established commercial customers
446
00:25:14.559 --> 00:25:19.240
as well, whether it's property managers, industrial facilities, general contractors,
447
00:25:19.279 --> 00:25:22.960
and repeat commercial customers who may already understand the company's
448
00:25:23.000 --> 00:25:27.400
labor rate and billing procedures so they're already used to this, okay.
449
00:25:27.480 --> 00:25:32.160
Whereas residential it's more of a flat rate pricing is
450
00:25:32.400 --> 00:25:35.880
going to be something that solves an issue immediately on
451
00:25:35.920 --> 00:25:41.480
a predictable outcome, so they may issue a purchase order.
452
00:25:41.519 --> 00:25:44.720
That's a commercial property. Commercial customer may issue a purchase
453
00:25:44.839 --> 00:25:47.279
order authorize work up to a specific amount because they
454
00:25:47.319 --> 00:25:51.960
already know you're pricing. They already know that. Now, for
455
00:25:52.000 --> 00:25:55.799
those relationships, time and material can be efficient and practical.
456
00:25:56.200 --> 00:25:59.240
And in all of those small projects like that, I
457
00:25:59.319 --> 00:26:03.720
encourage time and material. Now we're not talking about wiring
458
00:26:03.759 --> 00:26:07.319
a house, doing a tenant fit up. That's a predictable thing.
459
00:26:07.440 --> 00:26:09.839
That is like flat pricing. But we call that just
460
00:26:09.920 --> 00:26:14.799
plane out estimating and bidding. But essentially it's like flat pricing.
461
00:26:15.200 --> 00:26:18.359
It's just not service oriented related. It's essentially the same thing.
462
00:26:19.920 --> 00:26:21.559
And I like to think of flat rate pricing is
463
00:26:21.640 --> 00:26:25.119
estimating and bidding on the fly. Okay for service type
464
00:26:25.160 --> 00:26:28.359
of work. Anything else, for a bigger project that's new
465
00:26:28.359 --> 00:26:31.079
project or somebody that's bidding and estimating, that's a totally
466
00:26:31.119 --> 00:26:34.160
different thing. And then I encourage you to get an
467
00:26:34.240 --> 00:26:37.440
estimating software, encourage you to understand how it works and
468
00:26:37.480 --> 00:26:40.599
do pricing that way. Now, there are bigger projects that
469
00:26:40.680 --> 00:26:45.000
have been done with time and material. Contractors do this
470
00:26:45.079 --> 00:26:47.839
all the time. Owners don't necessarily like that all the
471
00:26:47.880 --> 00:26:50.200
time because it's kind of an open book. We don't
472
00:26:50.240 --> 00:26:51.880
know where it can be, how long it can take,
473
00:26:52.359 --> 00:26:56.000
and so the meter just keeps running. So that's why
474
00:26:56.039 --> 00:27:00.440
they like to get prices, you know, estimates and bids
475
00:27:00.440 --> 00:27:03.680
and things like that. Okay, now let's talk about the
476
00:27:03.759 --> 00:27:07.319
disadvantages of time and material pricing, because people don't talk
477
00:27:07.319 --> 00:27:09.960
about that because it sounds really great. Okay. It's just
478
00:27:10.079 --> 00:27:11.799
I go there and I'm going to start a project,
479
00:27:12.039 --> 00:27:13.880
and you'll pay me for how much time I put in,
480
00:27:14.400 --> 00:27:16.839
and you'll pay for my material and my markup on material.
481
00:27:17.079 --> 00:27:20.759
You got it, John, But there are disadvantages to it.
482
00:27:22.240 --> 00:27:25.519
The customer does not know the final price. This is
483
00:27:25.559 --> 00:27:28.599
the largest weakness. This is where the customers bulk because
484
00:27:28.640 --> 00:27:32.319
most customers don't like an open ended process. Okay, so
485
00:27:33.160 --> 00:27:35.599
customer may understand that your rate is one hundred and
486
00:27:35.640 --> 00:27:39.119
seventy five thousand hour, but the customer does not know
487
00:27:39.200 --> 00:27:41.640
whether the job will take one hour or it takes
488
00:27:41.680 --> 00:27:46.839
eight hours, and they're okay, past the first hour, into
489
00:27:46.880 --> 00:27:50.920
the second hour, into the third hour. You may legitimately
490
00:27:51.680 --> 00:27:54.599
be trying to solve an issue, and they just think
491
00:27:54.640 --> 00:27:58.359
you're milking the clock. Now, look, that's just human nature. Okay.
492
00:27:58.880 --> 00:28:01.000
You know, I think a lot out of that's how
493
00:28:01.039 --> 00:28:05.039
professional you look, how you present yourself, how you explain yourself,
494
00:28:05.039 --> 00:28:09.279
how you run your business, how professional you treat it.
495
00:28:09.279 --> 00:28:12.359
Can say a lot. But the human nature is when
496
00:28:12.400 --> 00:28:15.519
something drags on, they're thinking, are you just milking the clock?
497
00:28:16.200 --> 00:28:19.880
It's just human nature? Okay. So as the job continues,
498
00:28:19.960 --> 00:28:22.720
the customer may begin to watch the clock, start looking
499
00:28:22.799 --> 00:28:26.079
at it, and they may ask why is this taking
500
00:28:26.079 --> 00:28:28.839
so long? Why did the electrician go to the supply
501
00:28:28.920 --> 00:28:32.400
house so many times? Why are two people working when
502
00:28:32.440 --> 00:28:34.440
one person could do this work? And they don't know
503
00:28:34.480 --> 00:28:37.319
your business, but they're going to ask those questions. Why
504
00:28:37.319 --> 00:28:39.000
am I paying for you and a helper when this
505
00:28:39.079 --> 00:28:41.319
is clearly something you could have done and saved me money?
506
00:28:42.079 --> 00:28:46.319
So why am I paying for a cleanup? Okay? Provided
507
00:28:46.359 --> 00:28:48.720
you hear all over social media electricians don't clean up
508
00:28:48.759 --> 00:28:52.559
after themselves. Most of them do, So you know why
509
00:28:52.640 --> 00:28:54.880
am I paying for your cleanup? You made the mess,
510
00:28:55.480 --> 00:28:57.799
so they're asking you why that should just be part
511
00:28:57.839 --> 00:29:01.519
of your price. Well, I'm still and it's still time
512
00:29:01.519 --> 00:29:03.319
and material, and I got to clean up. I can't
513
00:29:03.400 --> 00:29:08.440
leave your house looking like crap. I'm still working because
514
00:29:08.480 --> 00:29:10.920
and then they say why am I paying while the
515
00:29:10.960 --> 00:29:14.839
technician is testing the circuit? Is he really working? He's
516
00:29:14.880 --> 00:29:19.440
just testing things, dude. That's my skill, that's my training.
517
00:29:20.079 --> 00:29:22.000
I need to do this test. This is all part
518
00:29:22.000 --> 00:29:25.920
of the work. So, even when a contractor is operating honestly,
519
00:29:27.079 --> 00:29:33.480
uncertainty can clearly create distrust by the customer. And you
520
00:29:33.519 --> 00:29:36.720
didn't even try to do it. It's just the way it works, Okay.
521
00:29:36.799 --> 00:29:40.160
They think you should be quicker, faster, you should eat
522
00:29:40.240 --> 00:29:42.839
your costs, that you should not have to charge them
523
00:29:43.440 --> 00:29:46.279
both ways for transportation to and from a project. That
524
00:29:46.319 --> 00:29:48.759
they that's just the way they think. Okay, and you're
525
00:29:48.759 --> 00:29:53.359
not going to change that. It's just human nature. Okay. Now,
526
00:29:53.960 --> 00:29:59.759
efficiency may reduce the contractor's revenue. Okay, so let's think
527
00:29:59.799 --> 00:30:05.279
of it this way. Suppose two electricians diagnose the same problem. Okay,
528
00:30:05.400 --> 00:30:07.319
to kind of show you how this works out. So
529
00:30:07.480 --> 00:30:10.200
say one has twenty five years of experience and finds
530
00:30:10.240 --> 00:30:13.759
the issue in an hour. The other is less experienced
531
00:30:13.799 --> 00:30:17.440
and it takes them four hours. Now the customer doesn't
532
00:30:17.480 --> 00:30:21.480
know this, right, but it's as part of your efficiency
533
00:30:21.519 --> 00:30:23.200
as a company, because you still have to pay this.
534
00:30:23.279 --> 00:30:25.440
If you're a contractor and you have employees, you got
535
00:30:25.440 --> 00:30:29.119
to pay this out. Okay, So at the same hourly rate,
536
00:30:29.599 --> 00:30:34.759
the less experienced electrician generates four times the labor revenue.
537
00:30:34.880 --> 00:30:39.440
That does not make sense from a value standpoint. Obviously,
538
00:30:39.559 --> 00:30:45.359
the experienced contractor should not be financially punished for knowing
539
00:30:45.440 --> 00:30:49.240
how to solve a problem quickly. So the customer is
540
00:30:49.279 --> 00:30:52.799
benefiting from years of training. You're understanding your tools, you're
541
00:30:52.880 --> 00:30:58.000
licensing your diagnostic experience, not merely the number of minutes
542
00:30:58.039 --> 00:31:01.599
spent on the property. Okay, they're benefiting it because you
543
00:31:01.680 --> 00:31:04.200
found it a lot quicker. That's not saying you drag
544
00:31:04.279 --> 00:31:07.160
it out. I'm just saying from a standpoint of a
545
00:31:07.200 --> 00:31:11.839
project pricing, that's where you can have a problem, okay,
546
00:31:12.319 --> 00:31:14.359
is things get drug out into the labor and the
547
00:31:14.440 --> 00:31:17.440
labor starts. You know, that's what causes people to start
548
00:31:17.519 --> 00:31:23.759
questioning certain things. Right now, hourly rate may look excessive.
549
00:31:24.119 --> 00:31:28.039
So a customer may hear that company charges one hundred
550
00:31:28.039 --> 00:31:29.519
and seventy five to two hundred dollars an hour, and
551
00:31:29.559 --> 00:31:33.440
they say, quote, now, this is a customer quote. Electrogiens
552
00:31:33.480 --> 00:31:38.240
do not make two hundred dollars an hour. Okay, so
553
00:31:39.640 --> 00:31:45.119
they don't, that is correct. The employee does not personally
554
00:31:45.240 --> 00:31:52.759
receive the entire bill rate. The company rate must cover wages, payroll, taxes,
555
00:31:53.319 --> 00:31:59.480
workers compensation, health insurance, paid time off, vehicle expenses, fuel expenses,
556
00:31:59.559 --> 00:32:05.759
tool expenses, test equipment, maintaining that test equipment, licensing, continuing education,
557
00:32:06.240 --> 00:32:10.480
ongoing training. But then there's office expenses, software expenses, you
558
00:32:10.519 --> 00:32:16.720
have advertising expenses, you have liability insurance, okay, workers compensation insurance, travel,
559
00:32:17.559 --> 00:32:20.759
might have to pay for meals, got warranty work that
560
00:32:20.799 --> 00:32:22.519
gets factored into this where you have to go back
561
00:32:22.599 --> 00:32:25.599
under a warranty. Then you have this unproductive time where
562
00:32:25.680 --> 00:32:28.119
helpers may be standing around or somebody is standing around
563
00:32:28.160 --> 00:32:30.799
doing nothing. Then maybe even you have bad debt where
564
00:32:30.799 --> 00:32:32.519
people haven't paid you. But then at the end of
565
00:32:32.559 --> 00:32:35.079
the day, you still got to make a profit. So
566
00:32:35.160 --> 00:32:39.720
the customer sees one hourly number, but may not understand
567
00:32:39.839 --> 00:32:44.519
everything else that's required to support that number. They just see,
568
00:32:44.680 --> 00:32:48.960
I'm paying two hundred dollars an hour for this electrician. Now,
569
00:32:49.079 --> 00:32:54.400
with that said, rates can vary, right, and not every
570
00:32:54.440 --> 00:32:57.799
electrical contractor, whether it's a one man show or a
571
00:32:57.880 --> 00:33:03.039
whole fleet. Icing they charge per hour for electrician and
572
00:33:03.200 --> 00:33:06.319
helpers is going to vary. And I see a lot
573
00:33:06.359 --> 00:33:09.119
of people who will look at electrician Jimmy Johnny that
574
00:33:09.240 --> 00:33:12.759
works out of his truck that charges one hundred and
575
00:33:12.799 --> 00:33:15.680
twenty five an hour, and then they see somebody that
576
00:33:15.759 --> 00:33:18.920
charges three hundred dollars an hour for maybe a major
577
00:33:19.079 --> 00:33:24.559
chain electrical contractor, and they think that's outrageous. Well, they
578
00:33:24.599 --> 00:33:27.240
don't think for a minute that that three hundred dollars
579
00:33:27.240 --> 00:33:30.119
an hour rate is not what that electrician is getting.
580
00:33:31.279 --> 00:33:35.079
There's a lot of burdens to having a company with
581
00:33:35.119 --> 00:33:38.119
employees and benefits versus the man that's working out of
582
00:33:38.119 --> 00:33:41.200
his truck does not have it, so he obviously can
583
00:33:41.240 --> 00:33:46.119
be cheaper. That doesn't make him better. So at the
584
00:33:46.200 --> 00:33:49.240
end of the day, everybody has to determine what their
585
00:33:49.279 --> 00:33:52.039
hourly rate is based on their burdens, what they need
586
00:33:52.079 --> 00:33:54.559
to pay, what their profit is, what their overheads are,
587
00:33:54.799 --> 00:33:57.759
and that's what dictates your price. That's not some arbitrary
588
00:33:57.839 --> 00:34:01.480
price that somebody just makes up. A contractor that is
589
00:34:01.559 --> 00:34:03.640
large could not charge one hundred and twenty five dollars
590
00:34:03.680 --> 00:34:06.960
an hour and still make any money because they have
591
00:34:07.039 --> 00:34:09.360
to balance that across all of their employees at all
592
00:34:09.360 --> 00:34:12.679
of their expenses, whereas a one man show, he is
593
00:34:12.719 --> 00:34:17.239
the only expense. Right, Yes, he still has insurances and
594
00:34:17.280 --> 00:34:20.840
still has other things. But again it's it's the reduction
595
00:34:20.960 --> 00:34:24.239
in price doesn't mean the electrician himself is going to
596
00:34:24.320 --> 00:34:26.639
make any more than the one that's getting paid that
597
00:34:26.679 --> 00:34:29.320
the one that's charging three hundred dollars an hour. It
598
00:34:29.400 --> 00:34:31.679
all works out in the end because they have way
599
00:34:31.719 --> 00:34:34.480
more overhead. So think about that when you see the
600
00:34:34.519 --> 00:34:37.400
price tag, it's not the electrician that's getting that money.
601
00:34:38.679 --> 00:34:42.079
It's to pay burdens. The electricians getting their normal electrical
602
00:34:42.159 --> 00:34:49.199
rate that they would get from payroll. Now with this understanding, folks,
603
00:34:49.320 --> 00:34:53.679
it can create disputes over time. A contractor must establish
604
00:34:54.119 --> 00:34:59.119
when billable time begins, when travel is included, where there's
605
00:34:59.119 --> 00:35:04.800
supply house time time is billable, How partial hours are calculated,
606
00:35:04.840 --> 00:35:07.760
whether they're rounded up or dropped off, however that works,
607
00:35:08.760 --> 00:35:12.599
whether time is a minimum charge. In other words, if
608
00:35:12.639 --> 00:35:14.639
I work for thirty minutes, you're going to pay me
609
00:35:14.639 --> 00:35:19.679
an hour, How multiple technicians are billed, and how after
610
00:35:19.760 --> 00:35:23.320
hours work is priced. If those details are not explained
611
00:35:23.360 --> 00:35:27.199
in advance, then this is where you have disagreements with
612
00:35:27.320 --> 00:35:30.679
your customer. So this is why I always had a
613
00:35:30.679 --> 00:35:35.079
little document that I would give my customers about my pricing. Okay,
614
00:35:35.119 --> 00:35:37.360
when I'm pricing it, time, material, whatever. I made it
615
00:35:37.440 --> 00:35:40.800
very clear on the back that we would document billable
616
00:35:40.840 --> 00:35:43.280
time when it started that it would include travel to
617
00:35:43.360 --> 00:35:47.280
the supply house. I never included travel to the job,
618
00:35:47.480 --> 00:35:49.519
but it did include when it left the job to
619
00:35:49.519 --> 00:35:51.679
go to the supply house. Because I'm still actively a
620
00:35:51.679 --> 00:35:54.000
part of that job. I'm still putting I'm still paying
621
00:35:54.039 --> 00:35:58.199
that employee for that time. Okay. Now, some people charge
622
00:35:58.360 --> 00:36:01.960
going to a project and from a project. Okay, I
623
00:36:02.000 --> 00:36:08.519
paid one way to my employees, and they knew this beforehand. Now,
624
00:36:09.159 --> 00:36:11.760
all these things have to be established in order to
625
00:36:11.880 --> 00:36:17.559
avoid any disagreement between the customer. Now, time and material
626
00:36:17.679 --> 00:36:21.880
does not guarantee profitability. Just because you're doing more time,
627
00:36:21.880 --> 00:36:24.039
you're getting paid more. You still got that labor, you
628
00:36:24.079 --> 00:36:26.079
still got that burden, you still got that expense it
629
00:36:26.159 --> 00:36:29.280
draws out that does not get. Time and material does
630
00:36:29.320 --> 00:36:34.000
not guarantee profitability. Some contractors believe that they cannot lose
631
00:36:34.039 --> 00:36:38.480
money using time and material that is incorrect. If the
632
00:36:38.519 --> 00:36:42.639
hourly rate is too low, the contractor loses money every hour.
633
00:36:43.119 --> 00:36:46.119
If material is sold at cost, they do not mark
634
00:36:46.159 --> 00:36:50.199
it up, and some guys don't. The contractor may fail
635
00:36:50.239 --> 00:36:54.480
to recover the cost of purchasing, receiving, transporting, storing, returning,
636
00:36:54.559 --> 00:36:58.840
and warranting those materials because they broke even because they
637
00:36:58.880 --> 00:37:03.280
did not charge at really mark up for that material. Hey,
638
00:37:03.360 --> 00:37:05.400
I've heard it all over the place. You may think, well,
639
00:37:05.440 --> 00:37:08.320
that never would happen. Look, I wouldn't talk about it
640
00:37:08.360 --> 00:37:12.719
on here if it didn't see it happen. Really, there's
641
00:37:12.760 --> 00:37:14.599
a lot of contractors out there that are so worried
642
00:37:14.599 --> 00:37:17.119
about getting that job that they price theirselves so low,
643
00:37:18.000 --> 00:37:23.480
thinking that by getting more work that'll make more money.
644
00:37:23.639 --> 00:37:26.800
That is not the truth. You can get more work
645
00:37:26.840 --> 00:37:31.440
and still lose money. Yeah, I don't know if that's
646
00:37:31.480 --> 00:37:34.840
not a shocker to anybody. But you can't outgrow yourself
647
00:37:34.880 --> 00:37:38.280
out of profitability. If your expenses are still there and
648
00:37:38.320 --> 00:37:41.639
they're still high, and you don't control what's going out
649
00:37:41.719 --> 00:37:43.840
versus what's coming in. You can bring all the money
650
00:37:43.880 --> 00:37:45.360
you want to come in you want, but if you
651
00:37:45.400 --> 00:37:48.000
still continue to increase what's going out, you're not going
652
00:37:48.079 --> 00:37:50.920
to make money. And if you don't understand your rates,
653
00:37:51.000 --> 00:37:54.480
you're not going to make money. So a contractor can
654
00:37:54.519 --> 00:37:59.400
remain extremely busy and still make very little profit. And
655
00:37:59.440 --> 00:38:01.639
this is something than that I see all the time.
656
00:38:02.119 --> 00:38:04.920
They think that, well, I'll just expand and hire more people.
657
00:38:05.559 --> 00:38:07.440
That way I can do more jobs. And if I
658
00:38:07.440 --> 00:38:09.239
got more jobs, I got more money coming in. They
659
00:38:09.239 --> 00:38:11.920
don't realize when you still got your payroll, you still
660
00:38:11.920 --> 00:38:14.679
got the same burdens. You just got more of them
661
00:38:15.079 --> 00:38:20.679
that you've got to pay. You cannot expand your way
662
00:38:20.719 --> 00:38:27.039
out of nonprofitability. It's all based on your rates, and
663
00:38:27.079 --> 00:38:30.039
you have to really focus on what you're charging, and
664
00:38:30.159 --> 00:38:34.639
you don't want to be too cheap, so you set
665
00:38:34.679 --> 00:38:36.639
your price based on things that you know, and you
666
00:38:36.679 --> 00:38:39.400
may need to sit down and think about those things.
667
00:38:40.440 --> 00:38:43.000
With that said, people are saying, well, dude, I can
668
00:38:43.000 --> 00:38:45.400
see how that would be bad. So let's talk about
669
00:38:45.440 --> 00:38:47.760
what are the advantages of choosing a flat rate pricing.
670
00:38:47.800 --> 00:38:50.199
Come on, Paul, and you've told me all this stuff,
671
00:38:50.199 --> 00:38:52.079
and you're putting all this stuff in my head about
672
00:38:52.199 --> 00:38:56.599
the time and material, What about this? What are the
673
00:38:56.639 --> 00:38:59.679
advantages of flat rate pricing at this point, okay, well,
674
00:39:00.039 --> 00:39:03.440
advantages the customer knows the price before the work begins. Again,
675
00:39:03.559 --> 00:39:05.400
that's part of what the scope of the work is
676
00:39:05.480 --> 00:39:08.679
not unseen or what you find because there's other things
677
00:39:08.719 --> 00:39:12.800
wrong like violations or hazards. Okay, no, no, no, no, no, no, no, no, no,
678
00:39:12.840 --> 00:39:16.159
come on, draw the line here. The flat rate pricing
679
00:39:16.199 --> 00:39:18.400
is based on the expectation of the scope of the project.
680
00:39:18.480 --> 00:39:22.840
The customer generally accepts the price certainty. So it is
681
00:39:22.920 --> 00:39:25.360
easier to approve a total price of six hundred and
682
00:39:25.360 --> 00:39:29.000
twenty five dollars for something than it is to say,
683
00:39:29.039 --> 00:39:31.360
our rate is one seventy five an hour plus material,
684
00:39:31.880 --> 00:39:34.280
and we do not know exactly how long this will
685
00:39:34.320 --> 00:39:39.599
take at that point, when a customer looks at that
686
00:39:39.639 --> 00:39:43.920
and they're going six twenty five and if this thing
687
00:39:44.000 --> 00:39:46.599
takes six seven eight hours, I'm gonna if I pay
688
00:39:46.639 --> 00:39:49.239
time and material, I'm going to be you know, I'm
689
00:39:49.280 --> 00:39:52.400
gonna come out negatively here. So I'll take this flat
690
00:39:52.440 --> 00:39:55.000
price and I'll just run with it. Well, that's why
691
00:39:55.000 --> 00:39:57.880
the customer has to understand that when we give them
692
00:39:57.880 --> 00:40:00.280
flat rate pricing, or we do time and material that
693
00:40:00.320 --> 00:40:03.079
we have already factored in each one of these jobs individually.
694
00:40:03.400 --> 00:40:05.000
We know what we're going to accomplish. So if I'm
695
00:40:05.039 --> 00:40:08.440
giving you a six twenty five, this is accounting for
696
00:40:08.519 --> 00:40:10.920
the scope of the work that's in this agreement, not
697
00:40:11.039 --> 00:40:13.719
for things I'm not going that I'm gonna find that
698
00:40:13.800 --> 00:40:16.400
are hidden because you're gonna pay for that, and I
699
00:40:16.480 --> 00:40:18.639
make them very clear. I don't want nobody to think that,
700
00:40:19.000 --> 00:40:21.480
you know. That's the thing It also really irks me
701
00:40:21.840 --> 00:40:23.400
is when you give a customer, let's say, a flat
702
00:40:23.440 --> 00:40:25.119
rate of six twenty five, and they turn around and
703
00:40:25.119 --> 00:40:27.320
you say, well, that wasn't a ceiling fan box. I
704
00:40:27.320 --> 00:40:28.760
got to buy that now, so it's another on hundred
705
00:40:28.760 --> 00:40:30.920
and twenty five dollars another They go, what you gave
706
00:40:30.960 --> 00:40:34.920
me a price, it never changes. Yeah, they could argue
707
00:40:34.920 --> 00:40:39.159
that with you if you didn't explain this. So this
708
00:40:39.199 --> 00:40:42.719
is a difference between being professional and just a hobby
709
00:40:42.760 --> 00:40:44.800
that you're trying to make a living out of. Is
710
00:40:44.800 --> 00:40:46.960
that you have this stuff written down. You have a
711
00:40:47.039 --> 00:40:49.400
document that you can give to the customer to explain
712
00:40:49.440 --> 00:40:53.119
your pricing, explain the unforeseen things that you can't see,
713
00:40:53.519 --> 00:40:55.840
so that they're aware of this upfront. There's no way.
714
00:40:55.960 --> 00:40:58.960
I mean, they can argue, they'll always argue, but there's
715
00:40:59.000 --> 00:41:03.559
no way that they can't understand what's taking place. And
716
00:41:03.599 --> 00:41:07.679
so that's a benefit to the flat pricing. Okay, So
717
00:41:07.800 --> 00:41:11.000
the customer can decide whether to proceed before the contractor
718
00:41:11.039 --> 00:41:16.280
performs the repair. The contractor themselves are rewarded for efficiency.
719
00:41:16.840 --> 00:41:19.760
So if you're a skilled electrician, you may complete this
720
00:41:19.920 --> 00:41:24.239
task faster because you have the experience, proper training, better tools,
721
00:41:24.559 --> 00:41:29.199
better troubleshooting skills and procedures. A properly stocked service vehicle
722
00:41:30.079 --> 00:41:33.559
that goes a long way, folks, A properly stocked service
723
00:41:33.639 --> 00:41:38.199
vehicle if you're going to do flat rate pricing, familiarity
724
00:41:38.320 --> 00:41:43.199
with the equipment, and good organizational skills. Flat rate pricing
725
00:41:43.239 --> 00:41:47.199
allows the business to benefit from that efficiency. So the
726
00:41:47.280 --> 00:41:50.440
six twenty five may have a understanding that yes, I
727
00:41:50.480 --> 00:41:53.480
can do this, replace this ceiling fan. If everything goes well,
728
00:41:53.519 --> 00:41:55.400
I can do this in two hours. If I did
729
00:41:55.400 --> 00:41:57.519
it at one seventy five, I would get you know,
730
00:41:57.639 --> 00:42:00.760
one seventy five times two, and then my MATERI Okay,
731
00:42:01.000 --> 00:42:04.920
but I can make more by doing the flat rate pricing.
732
00:42:05.639 --> 00:42:07.159
And if I get it done in an hour and
733
00:42:07.199 --> 00:42:11.360
a half, then I just make more money. And maybe
734
00:42:11.400 --> 00:42:15.679
you have an electrician that is that is skilled experience,
735
00:42:15.840 --> 00:42:19.800
that knows this. And again that's not including what they
736
00:42:19.960 --> 00:42:23.480
run into the unforeseen. That's why you have to write
737
00:42:23.480 --> 00:42:26.800
this into your procedure so that's not a surprise inbody. Okay,
738
00:42:26.840 --> 00:42:28.679
that's why I tell people all the time. Estimates and
739
00:42:28.719 --> 00:42:32.920
bids are estimates and bids. If somebody gives you a
740
00:42:32.920 --> 00:42:34.719
price and says, and you say them the time, I'm
741
00:42:34.719 --> 00:42:37.480
gonna give you an estimate for a thousand dollars, and
742
00:42:37.480 --> 00:42:39.960
then they get into something and at the end something
743
00:42:40.079 --> 00:42:42.559
came up and it's and the guy goes, well, now
744
00:42:42.559 --> 00:42:44.360
it's twelve hundred fifty dollars. And he goes, well, wait
745
00:42:44.400 --> 00:42:46.000
a minute, you said a thousand dollars. He said, well,
746
00:42:46.000 --> 00:42:49.199
that's an estimate. That was a bid. That was that
747
00:42:49.280 --> 00:42:54.199
was you know, that was a quote. But there's unforeseen
748
00:42:54.320 --> 00:42:58.840
things that price can change. Don't think it's fixed. Now.
749
00:42:59.280 --> 00:43:02.320
There is different between you getting and writing a set
750
00:43:02.400 --> 00:43:05.119
price based on the experience or whatever the job is.
751
00:43:05.159 --> 00:43:07.639
And you go, okay, this is very clean cut. You're
752
00:43:07.639 --> 00:43:10.480
going to do a service change YadA, YadA, the permits, fees, everything,
753
00:43:10.679 --> 00:43:14.800
I want to pay thirty eight hundred dollars. That's everything,
754
00:43:17.039 --> 00:43:19.760
and that's what you ask You say, does that include everything?
755
00:43:20.039 --> 00:43:21.679
And is it going to be any higher than that?
756
00:43:22.880 --> 00:43:25.199
Don't be afraid to ask the contractor to put in
757
00:43:25.239 --> 00:43:27.519
there that this is the final price. It will not
758
00:43:27.599 --> 00:43:32.119
exceed this price. Okay, the contractor can choose to agree
759
00:43:32.119 --> 00:43:35.840
to that or not too. But quotes in estimates are
760
00:43:36.519 --> 00:43:40.880
simply as they sound, quotes and estimates that type of thing.
761
00:43:41.480 --> 00:43:43.400
But if you agree to a price, and both agree
762
00:43:43.440 --> 00:43:45.480
to a price, and the project of whatever the job
763
00:43:45.599 --> 00:43:48.760
is is pretty clean cut, then that is the price.
764
00:43:49.800 --> 00:43:51.800
You don't give me an estimate and then you come
765
00:43:51.840 --> 00:43:53.760
back two hours later and it's done and now it's
766
00:43:53.800 --> 00:43:55.880
twice the amount and say, oh, that was an estimate. No,
767
00:43:56.239 --> 00:43:58.760
we understood what the price was going to be. So
768
00:43:58.800 --> 00:44:02.079
you're giving me an estimate. It's now me to accept
769
00:44:02.119 --> 00:44:04.280
that and ask you whether or not this is a
770
00:44:04.280 --> 00:44:06.639
firm price based on what you see. Is this the
771
00:44:06.679 --> 00:44:10.400
maximum price I'm going to pay? Yes, okay, put that
772
00:44:10.480 --> 00:44:14.280
down in writing. I accept your estimate, but now I
773
00:44:14.320 --> 00:44:17.119
want it to be converted into a fixed price. This
774
00:44:17.199 --> 00:44:20.239
is the price for the project. There's nothing wrong with that,
775
00:44:21.440 --> 00:44:24.239
nothing wrong with that at all. Don't expect a contractor
776
00:44:24.239 --> 00:44:27.639
to eat something when there's an unforeseen condition comes up
777
00:44:27.679 --> 00:44:29.320
that they had no way to know it, and the
778
00:44:29.440 --> 00:44:32.440
owner wants to say, oooho, it took you three days
779
00:44:32.440 --> 00:44:34.119
to do something. It should have took you two hours.
780
00:44:34.320 --> 00:44:37.039
That's on you, bubba. That is not how it works.
781
00:44:37.079 --> 00:44:40.440
That is you know owners that do that. Pretty poor
782
00:44:40.960 --> 00:44:45.639
people that do those type of things. Okay, So again,
783
00:44:45.800 --> 00:44:48.719
flat rate pricing allows the business to benefit from efficiency,
784
00:44:49.000 --> 00:44:53.079
good employees, properly trained, well stocked, vehicle less trips to
785
00:44:53.119 --> 00:44:55.800
the supply house, get in, get out, do it in
786
00:44:55.840 --> 00:44:59.760
a expected amount of time, and be done. If I
787
00:44:59.800 --> 00:45:02.199
know that I can replace that ceiling fan in two hours,
788
00:45:02.679 --> 00:45:05.800
that means pull the other one down, put the fan together,
789
00:45:06.239 --> 00:45:08.000
put it back up, and be out of there in
790
00:45:08.039 --> 00:45:11.079
two hours, and then my flat rate pricing will have
791
00:45:11.199 --> 00:45:18.519
already figured in that efficiency. Okay, makes sense, all right now.
792
00:45:18.800 --> 00:45:23.280
Flat rate pricing reduces arguments about clock. Obviously, a customer
793
00:45:23.320 --> 00:45:26.119
does not need to question every trip to the truck,
794
00:45:26.320 --> 00:45:30.840
every telephone call, every minute that's spent testing something. When
795
00:45:30.840 --> 00:45:33.760
it comes to flat rate pricing. It's just flat rate price.
796
00:45:34.239 --> 00:45:37.559
The price will establish before the work has begun. And
797
00:45:37.639 --> 00:45:42.199
remember different from bidding and estimating, right because flat rate pricing,
798
00:45:42.239 --> 00:45:44.960
you're giving a flat rate. The only thing that would
799
00:45:45.039 --> 00:45:49.719
change it is unforeseen conditions that you did not know
800
00:45:49.800 --> 00:45:53.679
were there, or unsafe things or violations that you have
801
00:45:53.719 --> 00:45:57.440
to correct. You got no choice because you all know
802
00:45:57.480 --> 00:45:59.639
that when it comes to working on somebody's home, if
803
00:45:59.639 --> 00:46:01.920
you're the last one that touched something and something goes
804
00:46:01.960 --> 00:46:03.840
bad the next day or two, they're gonna blame you.
805
00:46:04.400 --> 00:46:06.039
It may not have had anything to do with you,
806
00:46:06.599 --> 00:46:08.920
it may be a totally different circuit something, but you're
807
00:46:08.960 --> 00:46:14.199
gonna get blamed. Okay, just understand that's how it works. Okay,
808
00:46:14.719 --> 00:46:18.599
So just you know, the discussion becomes whether the proposed
809
00:46:18.599 --> 00:46:21.760
work was completed properly. That's the only discussion. It's not
810
00:46:21.880 --> 00:46:24.159
about price anymore. When you do flat rate, it's done.
811
00:46:25.559 --> 00:46:29.440
It makes repair options easier to present, so flat rate
812
00:46:29.480 --> 00:46:33.639
pricing works well when presenting choices. For example, we have
813
00:46:33.679 --> 00:46:38.440
option one repair a failed component, it's just take that out,
814
00:46:38.840 --> 00:46:42.800
put it back in flat price, easy psy like for
815
00:46:42.920 --> 00:46:45.199
like just a swamp, put in a receptacle take out
816
00:46:45.199 --> 00:46:47.119
a receptacle, put in a receptacle, take out a breaker,
817
00:46:47.159 --> 00:46:49.800
or put in a breaker. Whatever. Flat rate, this is
818
00:46:49.840 --> 00:46:51.320
what's gonna cost me. I'm not giving you an hour
819
00:46:51.360 --> 00:46:52.719
for that. I'm gonna give you a flat rate price
820
00:46:52.719 --> 00:46:56.320
for that. Number two option would be repair the component
821
00:46:56.440 --> 00:47:01.840
and correct related deficiencies. Right. Option three would be upgrade
822
00:47:01.840 --> 00:47:05.760
the system and add additional protection. So in your flat
823
00:47:05.840 --> 00:47:09.280
rate pricing, you have multiple options. It's either just repair
824
00:47:09.360 --> 00:47:11.960
the failed component. You can write it in so that
825
00:47:12.039 --> 00:47:15.320
you repair the component and correct related deficiencies that may
826
00:47:15.360 --> 00:47:18.679
have caused the problem with that component. Or the third
827
00:47:18.719 --> 00:47:22.719
option is to upgrade the system and add additional protection
828
00:47:22.880 --> 00:47:27.079
to avoid having that problem again. So there's three different
829
00:47:27.079 --> 00:47:30.039
tiers you could do this in mind, that was the
830
00:47:30.079 --> 00:47:33.199
difference in the pricing structure. And each one of these
831
00:47:33.360 --> 00:47:36.719
had something on it for unseen things that I might
832
00:47:36.760 --> 00:47:39.320
have encountered. That was a little box that we would check.
833
00:47:39.400 --> 00:47:41.440
They would have to check it. When they signed the
834
00:47:41.480 --> 00:47:44.719
agreement for the flat rate pricing. They understood that up
835
00:47:44.760 --> 00:47:48.679
front that if there's something pops up that is unforeseen
836
00:47:49.679 --> 00:47:53.280
and we can articulate it, then that's an extra charge.
837
00:47:53.360 --> 00:47:57.800
But it's a reasonable extra charge. Okay, so the customer
838
00:47:57.920 --> 00:48:01.599
compares outcomes and total price is instead of trying to
839
00:48:01.760 --> 00:48:03.800
estimate labor and hours, they just pick it from an
840
00:48:03.800 --> 00:48:07.199
alat cart and they understand the expectation. Just fix it,
841
00:48:07.920 --> 00:48:10.960
fix it and fix any other related things that might
842
00:48:11.000 --> 00:48:13.920
have caused it. Or third option is upgrade the system
843
00:48:13.960 --> 00:48:16.960
itself an add additional protection so that doesn't maybe happen again.
844
00:48:17.440 --> 00:48:19.719
You get what I'm saying. However, you want to structure it.
845
00:48:20.559 --> 00:48:22.719
You have different options for the customer and they can
846
00:48:22.800 --> 00:48:27.320
choose what they pay, so it may produce a stronger margin.
847
00:48:27.519 --> 00:48:32.320
So a properly developed flat rate price can include cost
848
00:48:33.039 --> 00:48:36.840
can include costs. Contractors frequently overlook to be honest with you,
849
00:48:37.360 --> 00:48:43.119
so flat rate pricing can basically produce stronger for direct labor.
850
00:48:44.280 --> 00:48:48.039
Make sure that you're meeting labor burdens, easily handle material
851
00:48:48.039 --> 00:48:52.119
because that's factored in your flat rate vehicle expenses, overhead,
852
00:48:52.159 --> 00:48:56.280
administrative time, warranty exposure, call back risks, and profit. Because
853
00:48:57.119 --> 00:49:00.280
flat rate pricing improves that profitability, it makes all of
854
00:49:00.280 --> 00:49:06.239
those things easier to pay, easier to accommodate. Because essentially,
855
00:49:06.639 --> 00:49:10.559
if it's all about efficiency, I'm getting essentially paid time
856
00:49:10.599 --> 00:49:13.119
and material for a project that they might take me
857
00:49:14.199 --> 00:49:17.639
four hours normally, but I'm able because I'm efficient, I
858
00:49:17.639 --> 00:49:20.159
can do it in two hours. I've made more money.
859
00:49:20.559 --> 00:49:23.679
But upfront, the customer knows everything. They know the time,
860
00:49:23.760 --> 00:49:26.679
I mean, they know the flat rate pricing and everything
861
00:49:26.719 --> 00:49:29.800
that's included and all that kind of stuff. Then at
862
00:49:29.800 --> 00:49:32.599
the end of the day, you're making more money to
863
00:49:32.800 --> 00:49:35.960
cover all of these expenses, and it can increase your
864
00:49:36.360 --> 00:49:42.679
labor profits that you make that the employees can get. Okay,
865
00:49:42.800 --> 00:49:44.119
I don't know if I said that right, but you
866
00:49:44.119 --> 00:49:48.199
get what I'm saying, all right now, the flat rate
867
00:49:48.239 --> 00:49:51.280
pricing can't improve profitability, but only when the prices are
868
00:49:51.320 --> 00:49:55.559
based on accurate business information and you understand what your
869
00:49:55.559 --> 00:49:58.079
burdens are. So you need to actually go back and
870
00:49:58.559 --> 00:50:01.880
create a list of what are your burdens, and of
871
00:50:01.880 --> 00:50:06.119
course that's what establishes an hourly rate. Understanding burdens your
872
00:50:06.639 --> 00:50:09.599
company rate which you need, and then you can start
873
00:50:09.639 --> 00:50:12.280
flat rate pricing by understanding what your burdens are based
874
00:50:12.320 --> 00:50:14.880
on an hourly rate, and then start looking at projects
875
00:50:15.239 --> 00:50:17.800
and how long a project should take, and then you
876
00:50:17.840 --> 00:50:21.039
start structuring your pricing based on those. But remember we're
877
00:50:21.079 --> 00:50:24.880
talking about potentially a hybrid of both flat rate pricing
878
00:50:24.920 --> 00:50:27.559
as well as time and material depending on the scope
879
00:50:27.559 --> 00:50:31.400
of the project. Okay, now, what are some disadvantages of
880
00:50:31.440 --> 00:50:35.679
flat rate pricing? Because there are disadvantages, So again, the
881
00:50:35.719 --> 00:50:40.639
contractor may underestimate the work. This is the most serious risks.
882
00:50:40.719 --> 00:50:44.360
So suppose a contractor quotes gives a flat rate price
883
00:50:44.400 --> 00:50:47.199
of fifteen hundred dollars install a new circuit based on
884
00:50:47.920 --> 00:50:50.480
eight hours of work of labor because in a material
885
00:50:50.519 --> 00:50:53.320
so he understands that, He's like, Okay, I'm looking at it.
886
00:50:53.519 --> 00:50:55.400
I'm going to give you that price of direct prices
887
00:50:55.400 --> 00:50:56.920
because I think, yeah, I can get up here, I
888
00:50:56.960 --> 00:50:59.800
can get there. I've looked it over. Okay, here's my
889
00:51:00.159 --> 00:51:04.639
fifteen hundred. After beginning the work, the contractor discovers that
890
00:51:04.719 --> 00:51:10.360
there's limited attic access, unexpected fire blocking can get the circuit,
891
00:51:10.480 --> 00:51:12.760
you know, fished up through the wall like they thought.
892
00:51:13.559 --> 00:51:16.400
An inaccurate panel directory, which when you just looked at
893
00:51:16.400 --> 00:51:19.480
it to do your pricing, was inaccurate. Wasn't proper. You
894
00:51:19.519 --> 00:51:21.519
thought you could use a circuit for something and extend
895
00:51:21.519 --> 00:51:25.400
it when you can't because it was labeled wrong, difficult
896
00:51:25.440 --> 00:51:27.920
cable routing, things didn't just go as easy as you
897
00:51:28.119 --> 00:51:32.960
thought it would. Additional equipment requirements and a second trip
898
00:51:33.639 --> 00:51:37.400
for unavailable material that you didn't have. All those things
899
00:51:37.559 --> 00:51:41.199
can eat into that flat rate pricing. Now, that's not
900
00:51:41.280 --> 00:51:43.280
the same as what I said earlier, where I'm like, oh,
901
00:51:43.320 --> 00:51:45.519
well there's a code violation, so I have that that's
902
00:51:45.559 --> 00:51:51.440
not included. Let's not get this confused here. You can't
903
00:51:51.519 --> 00:51:53.360
turn around and give a flat rate and get in
904
00:51:53.440 --> 00:51:55.440
and find out the job is a little more difficult
905
00:51:55.440 --> 00:51:59.760
than what you priced. That is not how that works. Okay,
906
00:52:00.000 --> 00:52:02.599
that would be time and material. So you have to
907
00:52:02.639 --> 00:52:04.639
look at it. And there's certain things that you're gonna
908
00:52:04.719 --> 00:52:07.480
use flat rate pricing for that you are not going
909
00:52:07.559 --> 00:52:10.519
to use time and material for, and vice versa. If
910
00:52:10.519 --> 00:52:13.840
it's a simple replacement of something that's very obvious, then
911
00:52:13.920 --> 00:52:16.320
that is something that we're gonna do flat rate pricing on,
912
00:52:17.360 --> 00:52:21.639
you know, changing an illuminator, changing a ceiling fan, and
913
00:52:21.920 --> 00:52:24.320
in the caveat is, if I find something that is
914
00:52:24.360 --> 00:52:26.440
not compliant, then I have to make it compliant. Then
915
00:52:26.440 --> 00:52:29.639
I've charged for that. That's extra, but not because you
916
00:52:29.679 --> 00:52:31.280
give a price on a flat rate, and then all
917
00:52:31.280 --> 00:52:32.679
of a sudden you get in there and the job
918
00:52:32.760 --> 00:52:34.920
is just more difficult than you thought it would be.
919
00:52:35.000 --> 00:52:40.559
That's on you, okay. If the scope and execution were
920
00:52:40.599 --> 00:52:44.320
poorly written, the contractor may spend two days completing a
921
00:52:44.519 --> 00:52:48.679
job priced for one day. So a small contractor cannot
922
00:52:48.719 --> 00:52:52.760
afford many mistakes like that, right, So what you have
923
00:52:52.800 --> 00:52:55.440
to do is you need to build a price book.
924
00:52:55.760 --> 00:52:59.159
And this requires real work, okay, and there's a lot
925
00:52:59.199 --> 00:53:01.800
of them online. You can get flat rate pricing guides
926
00:53:01.840 --> 00:53:05.239
online to help you establish your pricing. Again, it's all
927
00:53:05.280 --> 00:53:07.800
dependent in the area, and you have to also know
928
00:53:08.239 --> 00:53:10.599
what your things to be able to create this book
929
00:53:10.679 --> 00:53:12.559
or edit this book. You can make your own if
930
00:53:12.599 --> 00:53:16.440
you want. I had one. Mine was online. I purchased
931
00:53:16.480 --> 00:53:18.719
it and it was designed for flat rate pricing and
932
00:53:18.760 --> 00:53:20.679
it helped me establish it. It helped me create the
933
00:53:20.719 --> 00:53:23.639
different tiers of work that the customer could choose from.
934
00:53:23.639 --> 00:53:25.800
Like an ali cart, I basically showed them a menu
935
00:53:25.880 --> 00:53:27.519
and they picked from it. They just pointed to the
936
00:53:27.559 --> 00:53:29.519
one they wanted. Do you just want me to fix it,
937
00:53:29.519 --> 00:53:30.840
do you want me to upgrade it, or do you
938
00:53:30.880 --> 00:53:35.639
want me to install something totally new they had different choices. Right,
939
00:53:36.360 --> 00:53:39.119
So the contractor must understand you have to know what
940
00:53:39.159 --> 00:53:43.480
your average labor time is to complete a project. You
941
00:53:43.519 --> 00:53:46.239
need to know what your labor burdens are. You need
942
00:53:46.239 --> 00:53:49.519
to know what your material calls are for any specific task,
943
00:53:50.280 --> 00:53:56.039
material handling, any overhead, insurances, things like that workers comp
944
00:53:56.159 --> 00:54:04.480
whatever warranty costs, and desired markin. People forget about that one, right,
945
00:54:05.159 --> 00:54:07.599
how much are you really making? I've seen a lot
946
00:54:07.639 --> 00:54:09.679
of contractors who think they charge one hundred and twenty
947
00:54:09.679 --> 00:54:11.400
five one hundred and fifty dollars an hour, only to
948
00:54:11.440 --> 00:54:14.159
come to find out that they're what they actually margins
949
00:54:14.159 --> 00:54:16.400
that they make. I mean, we're in business to make money, right,
950
00:54:16.880 --> 00:54:19.679
Even after you pay yourself, the company needs to grow
951
00:54:20.039 --> 00:54:23.000
and make money. I don't think anybody just gets into
952
00:54:23.039 --> 00:54:25.199
business for the damn thing to break even. I mean,
953
00:54:25.320 --> 00:54:28.039
I want to grow the business, to make money, to
954
00:54:28.119 --> 00:54:30.880
expand the business. Right, So they forget to put in
955
00:54:30.920 --> 00:54:32.840
their a desired margin of how much they want to
956
00:54:32.880 --> 00:54:35.559
make fifteen to twenty percent profit margin on all projects
957
00:54:35.559 --> 00:54:39.760
after everything else is done. So you could go out
958
00:54:39.760 --> 00:54:43.400
and copy somebody else's price book and you can buy
959
00:54:43.480 --> 00:54:49.199
pre made ones out there, But that's dangerous because they're wages,
960
00:54:49.360 --> 00:54:53.360
they're overhead, their service areas, their employee productivity, how well
961
00:54:53.400 --> 00:54:56.000
their employees work, their time and efficiency, whether or not
962
00:54:56.039 --> 00:54:58.000
they're one year in the business. So you've got guys
963
00:54:58.039 --> 00:54:59.760
that work for you that are ten years in the business.
964
00:55:00.760 --> 00:55:03.519
The insurance costs and customer base is going to be
965
00:55:03.639 --> 00:55:06.239
entirely different. Now, it may give you a starting point,
966
00:55:06.280 --> 00:55:08.239
and you can go on any search engine and type
967
00:55:08.239 --> 00:55:14.320
in flat rate pricing templates or things like that. Okay,
968
00:55:14.320 --> 00:55:16.360
In fact, today you can even ask Chad GTP to
969
00:55:16.480 --> 00:55:18.280
create you a flat rate pricing but you're going to
970
00:55:18.320 --> 00:55:20.159
have to feed it with the information to be accurate
971
00:55:21.239 --> 00:55:23.960
because the prices of a one that you would buy
972
00:55:24.000 --> 00:55:27.599
that's turnkey, their prices may not work for your company.
973
00:55:28.559 --> 00:55:32.119
So customers may focus on how quickly the work is completed.
974
00:55:32.840 --> 00:55:36.639
For example, your customer may say, you were here for
975
00:55:36.639 --> 00:55:40.960
forty five minutes. Why does this cost four hundred dollars?
976
00:55:42.920 --> 00:55:45.679
The question must be handled on flat rate. The question
977
00:55:45.760 --> 00:55:48.920
must be handled professionally, and it's pretty easy if you
978
00:55:48.960 --> 00:55:51.480
think about it. You don't get defensive. You say, the
979
00:55:51.559 --> 00:55:54.960
answer is that the customer did not purchase forty five
980
00:55:55.039 --> 00:55:59.440
minutes of the employee's wage. The customer purchased, a licensed
981
00:55:59.440 --> 00:56:04.000
and insured contractor, a trained technician travel to the property,
982
00:56:04.400 --> 00:56:07.920
the specialized tools that we use, the test equipment we use,
983
00:56:08.000 --> 00:56:12.559
the correct materials for the project, professional installation, the testing
984
00:56:12.559 --> 00:56:15.320
that's been involved, the warranty that I'm going to have
985
00:56:15.360 --> 00:56:17.199
to warranty my work that I've done for you for
986
00:56:17.280 --> 00:56:19.880
a year in most states, and also at the end
987
00:56:19.880 --> 00:56:21.840
of the day, that peace of mind of a safe,
988
00:56:21.920 --> 00:56:26.320
completed result, that is compliant and safe. That is what
989
00:56:26.360 --> 00:56:29.800
you paid for. It is not just a number. Okay,
990
00:56:29.960 --> 00:56:32.199
You're paying for all these things, and that's part of
991
00:56:32.239 --> 00:56:36.920
how you set your pricing. However, contractors must still explain
992
00:56:36.960 --> 00:56:43.159
their prices honestly and avoid becoming defensive. Do not get defensive.
993
00:56:43.639 --> 00:56:47.880
So poorly defined tasks are always going to create conflicts.
994
00:56:48.360 --> 00:56:52.679
So consider a flat price to install a customer's let's
995
00:56:52.719 --> 00:56:54.119
just use the one we've been using. Let's do a
996
00:56:54.159 --> 00:56:58.440
ceiling fan. Okay, So does this price to me to
997
00:56:58.480 --> 00:57:01.440
do this ceiling fan? Does it cover the assembly of
998
00:57:01.440 --> 00:57:05.559
the fan, removal of that existing fan. I gotta get
999
00:57:05.639 --> 00:57:08.559
rid of that fan unless they're gonna keep it. So
1000
00:57:08.679 --> 00:57:14.679
I gotta dump it somewhere. Replacement of the unsuitable outlet box.
1001
00:57:14.840 --> 00:57:16.719
If it happens to not be rated for a fan,
1002
00:57:16.760 --> 00:57:18.960
I gotta figure that in. I don't know if that's
1003
00:57:19.000 --> 00:57:22.480
there or not, because I can't see it. New structural support.
1004
00:57:22.760 --> 00:57:24.519
Maybe I have to put a piece of wood in there,
1005
00:57:24.559 --> 00:57:25.960
two by four. Maybe I got to buy one of
1006
00:57:25.960 --> 00:57:29.280
those crank out outlet box type of things for ceiling fans.
1007
00:57:29.320 --> 00:57:33.199
That's a cost? Am I adding a new switch? Am
1008
00:57:33.199 --> 00:57:36.119
I programming a remote for this ceiling fan? Is it
1009
00:57:36.159 --> 00:57:38.320
a very high ceiling which normally can't get to with
1010
00:57:38.360 --> 00:57:40.559
a normal step ladder? So I gotta have something else
1011
00:57:40.599 --> 00:57:46.159
a little more? Do I need scaffolding? What about troubleshooting
1012
00:57:46.199 --> 00:57:49.039
existing wiring? If if they want a fan replace but
1013
00:57:49.159 --> 00:57:51.519
something doesn't work, and now you have to get into troubleshooting. Now,
1014
00:57:51.559 --> 00:57:55.280
heaven forbid, Heaven forbid, you have to cut the drywall.
1015
00:57:55.320 --> 00:57:57.000
And now you have to ask yourself, are you into
1016
00:57:57.079 --> 00:57:59.480
drywall repair? Are you gonna fix the drywall? Are you
1017
00:57:59.519 --> 00:58:01.400
making it very clear up front that look, if I
1018
00:58:01.440 --> 00:58:03.679
have to cut the drywall, I'm not a drywall guy,
1019
00:58:04.800 --> 00:58:06.480
and I'm be honest with you. That's what I told
1020
00:58:06.480 --> 00:58:08.079
my customers. I'm like, dude, if I got to cut
1021
00:58:08.119 --> 00:58:12.480
your drywall, it's easy to fix, you know, a little mud,
1022
00:58:12.599 --> 00:58:15.159
a little paint, a little sanding. But I'm not your guy.
1023
00:58:16.119 --> 00:58:18.039
You may do that, but you need to make sure
1024
00:58:18.079 --> 00:58:20.880
that's in your price because that takes time, certain layers
1025
00:58:20.880 --> 00:58:26.000
of mud, sanding, painting, it takes time. Okay, So if
1026
00:58:26.039 --> 00:58:29.679
those conditions are not addressed, well, clearly the contractor in
1027
00:58:29.719 --> 00:58:33.119
the customer may have completely different expectations on what's to
1028
00:58:33.159 --> 00:58:37.719
be completed. So I'll give you a great example of expectation.
1029
00:58:38.360 --> 00:58:41.679
We just had a storm here in Louisa County and
1030
00:58:41.719 --> 00:58:44.239
we had a bunch of trees that fell over. Again,
1031
00:58:44.320 --> 00:58:46.760
this is not electric related, but again you get the understanding.
1032
00:58:47.159 --> 00:58:50.199
So the guy came, and again you can imagine how
1033
00:58:50.239 --> 00:58:53.800
I am. A guy came and drove by and he
1034
00:58:53.880 --> 00:58:56.320
just was a dry by. I didn't need some fancy
1035
00:58:56.360 --> 00:58:59.559
insured because the trees aren't They're not causing any potential
1036
00:58:59.639 --> 00:59:03.280
risk to dwelling or anything. No, they were just trees
1037
00:59:03.320 --> 00:59:06.519
I want to cut up and removed. So they stopped
1038
00:59:06.559 --> 00:59:08.280
by and they said, hey, we'll do these and we'll
1039
00:59:08.280 --> 00:59:10.639
give you a good price. I normally get fourteen hundred
1040
00:59:10.639 --> 00:59:13.000
and fifty to remove these two trees, and they were
1041
00:59:13.039 --> 00:59:14.840
almost one was almost all the way down and the
1042
00:59:14.840 --> 00:59:16.119
other one that had already falled down. So they were
1043
00:59:16.159 --> 00:59:19.480
gonna cut it up. And I said, okay, so twelve
1044
00:59:19.519 --> 00:59:22.280
hundred and fifty. Yeah, normally it's fourteen fifty, but we'll
1045
00:59:22.280 --> 00:59:24.119
do it for twelve fifty. Like it's great. He's got
1046
00:59:24.159 --> 00:59:26.119
five guys with him. They can get it done quickly.
1047
00:59:26.159 --> 00:59:29.639
I said, fine. I said, so that twelve hundred and fifty,
1048
00:59:30.039 --> 00:59:33.159
is that a fixed price or is that going to
1049
00:59:33.280 --> 00:59:35.480
change based on what you see? Because it's right here,
1050
00:59:35.519 --> 00:59:37.760
it's in the open. He goes, oh, no, it'll be
1051
00:59:37.760 --> 00:59:39.400
twelve hundred and fifty. That's all you'll have to pay.
1052
00:59:39.440 --> 00:59:42.679
I said, okay, is that gonna include stacking it? Keep
1053
00:59:42.679 --> 00:59:46.559
in mind it's ninety five degrees outside, and I asked him.
1054
00:59:46.559 --> 00:59:48.320
He says, oh yeah, we'll stack it up nice and
1055
00:59:48.320 --> 00:59:52.159
neatly at all these locations. Okay. I said, okay, so
1056
00:59:52.320 --> 00:59:54.760
that's a fixed price. That's what we're gonna do. It's
1057
00:59:54.760 --> 00:59:56.920
twelve fifty. That's it, not a dime more right, that's it.
1058
00:59:56.960 --> 01:00:00.400
We agree. He goes, absolutely, that's it. I said, utiful,
1059
01:00:00.760 --> 01:00:02.760
let's do it, because I'd already gotten some prises. It's
1060
01:00:02.760 --> 01:00:05.719
a decent price, it's not too low, wasn't too high.
1061
01:00:05.800 --> 01:00:09.880
So he went and did everything. Now his employer employees
1062
01:00:09.920 --> 01:00:11.920
that were working with him, that probably were paid under
1063
01:00:11.920 --> 01:00:14.760
the table, I will venture to say, but they were working.
1064
01:00:14.920 --> 01:00:16.679
And at the at the end he comes to me
1065
01:00:16.719 --> 01:00:19.000
and knocks on the door and I come out and
1066
01:00:19.039 --> 01:00:22.159
I have a check ready, and he goes, uh. The
1067
01:00:22.199 --> 01:00:25.280
guys said that they they would they would appreciate tips
1068
01:00:25.320 --> 01:00:26.920
because it was hot out here and this was a
1069
01:00:26.960 --> 01:00:31.440
hard job. And my response was, that's not my problem.
1070
01:00:32.960 --> 01:00:36.840
You gave me a price, and this price is to
1071
01:00:36.880 --> 01:00:39.760
cover the work that was discussed. And I said, how
1072
01:00:39.760 --> 01:00:43.400
come this wood is not stacked? Well, you said you
1073
01:00:43.400 --> 01:00:45.000
were going to give away the woods, so it's kind
1074
01:00:45.000 --> 01:00:47.239
of pointless to stack it, right, I mean, you're you're
1075
01:00:47.239 --> 01:00:49.079
gonna have somebody come and take it away. I'm like, no,
1076
01:00:49.159 --> 01:00:54.880
but we agreed that it was to be stacked. Well, yeah,
1077
01:00:54.920 --> 01:00:56.480
but you said you were going to give it away,
1078
01:00:56.519 --> 01:00:58.360
so we just didn't do it. So he was giving
1079
01:00:58.400 --> 01:01:00.159
me a bunch of crap about it, and I'm like,
1080
01:01:00.280 --> 01:01:02.280
and so this is where you have to make a decision.
1081
01:01:03.280 --> 01:01:05.679
I decided to pay him anyway without him stacking it.
1082
01:01:06.280 --> 01:01:10.039
That's a choice I made. But that's a great example
1083
01:01:10.159 --> 01:01:12.760
of how things can change. When something starting and then
1084
01:01:12.760 --> 01:01:14.880
nothing puts a bad taste in your mouth to a
1085
01:01:14.880 --> 01:01:18.159
customer is when things change. Now, as far as tipping,
1086
01:01:19.519 --> 01:01:22.079
you know, there's nothing wrong with tipping, but again, don't
1087
01:01:22.119 --> 01:01:24.920
ask for a tip. When I go to a restaurant
1088
01:01:24.960 --> 01:01:27.760
and I tip, that's my choice because I know that
1089
01:01:27.800 --> 01:01:30.000
they don't make you know the full amount of hourly
1090
01:01:30.119 --> 01:01:33.360
rage that they a lot of them rely on their tips. Well,
1091
01:01:33.519 --> 01:01:37.199
that's not my problem. How he spent that money. It
1092
01:01:37.199 --> 01:01:39.119
took them less than an hour and forty five minutes
1093
01:01:39.159 --> 01:01:41.320
to do it. They got twelve hundred and fifty bucks
1094
01:01:41.440 --> 01:01:44.079
a monthst five of them. And he probably didn't even
1095
01:01:44.159 --> 01:01:46.559
tell his guys how much actually he was getting done
1096
01:01:46.559 --> 01:01:49.000
because he probably paid them twenty five bucks to do it.
1097
01:01:49.320 --> 01:01:52.760
I don't know. It's not my problem. I am under
1098
01:01:52.760 --> 01:01:56.159
no obligation to tip because we agreed to a price.
1099
01:01:57.760 --> 01:01:59.800
It's no different than when I go wire and I
1100
01:02:00.119 --> 01:02:02.800
to do large homes that were you know, my electrical
1101
01:02:02.960 --> 01:02:06.320
estimate and pricing ultimately that we would come to an agreement.
1102
01:02:06.519 --> 01:02:12.000
Was you know, fifty thousand dollars. Did I expect a tip? No,
1103
01:02:12.079 --> 01:02:14.800
because I figured that into my work. I was making
1104
01:02:14.840 --> 01:02:16.880
my money, I was making my profit. I don't need
1105
01:02:16.920 --> 01:02:20.159
a tip. I think it's very unprofessional to even ask
1106
01:02:20.239 --> 01:02:21.719
for a tip. But that was the first thing out
1107
01:02:21.719 --> 01:02:24.159
of his mouth when I walked out the door. That's
1108
01:02:24.199 --> 01:02:26.400
the first thing for somebody like me. You don't want
1109
01:02:26.400 --> 01:02:27.480
to do work for me if you're going to be
1110
01:02:27.480 --> 01:02:29.559
asking for that right out the door. So that already
1111
01:02:29.599 --> 01:02:32.840
set the tone. The point is, when it comes to
1112
01:02:32.880 --> 01:02:35.000
this type of thing, he knew what the work was.
1113
01:02:35.159 --> 01:02:39.039
He gave a price. When I made it firm and
1114
01:02:39.159 --> 01:02:42.719
accepted his price, and I physically asked, this is it.
1115
01:02:42.719 --> 01:02:44.960
It's not going to be a dying more. This is it? Yes,
1116
01:02:45.079 --> 01:02:46.760
based on what we see, this is a price, and
1117
01:02:46.800 --> 01:02:48.840
it's not going to be a diye more. Then that
1118
01:02:49.000 --> 01:02:52.679
was it. There wasn't going to be any tips. Oh, Paul,
1119
01:02:52.760 --> 01:02:54.519
you could have at least down something for the guys.
1120
01:02:54.760 --> 01:02:57.239
That's his job. He can tip it and take it
1121
01:02:57.280 --> 01:03:00.440
out of his profit if he wants. That's his response ability,
1122
01:03:01.480 --> 01:03:04.360
not mine. Okay, So That's just a kind of a
1123
01:03:04.360 --> 01:03:09.000
classic example, whereas if you say you're going to do something,
1124
01:03:09.079 --> 01:03:11.360
also being professional in this trade, if you say you're
1125
01:03:11.400 --> 01:03:15.000
going to do something, do it. Don't change, don't move
1126
01:03:15.079 --> 01:03:17.760
the goalpost at the end of the project, do what
1127
01:03:17.840 --> 01:03:20.960
you say, being professional. You know, Yeah, I get it
1128
01:03:21.079 --> 01:03:23.280
was ninety five degrees as guys, because all of them
1129
01:03:23.320 --> 01:03:25.079
walking back through the truck, I can hear them whining
1130
01:03:25.119 --> 01:03:26.840
and moaning and groaning because I didn't give them a
1131
01:03:26.840 --> 01:03:31.239
tip for me, somebody like me, I just chuckle, I laugh.
1132
01:03:32.039 --> 01:03:33.880
You can call me whatever you want. Out there is listening,
1133
01:03:33.880 --> 01:03:35.559
because I get called all kinds of stuff on my
1134
01:03:35.760 --> 01:03:38.000
you know, for what I do. But dude, I'm a
1135
01:03:38.039 --> 01:03:43.920
business guy. I'm a contractor. That's my price and that's it,
1136
01:03:44.159 --> 01:03:46.679
and you agree to it. That's it. And there was
1137
01:03:46.760 --> 01:03:49.039
no hidden fees, there was no something you could find
1138
01:03:49.079 --> 01:03:51.239
in the wall, there was no violations. It was right
1139
01:03:51.239 --> 01:03:52.880
there laying in the ground. All you had to do
1140
01:03:53.039 --> 01:03:54.679
was cut it up. And you were supposed to stack
1141
01:03:54.719 --> 01:03:56.320
it and you didn't. But I let you off the
1142
01:03:56.320 --> 01:03:59.559
hook my choice. You may have said, nope, you ain't
1143
01:03:59.559 --> 01:04:03.119
getting this check, and they you stack it. But we
1144
01:04:03.159 --> 01:04:06.119
all make Ultimately, we have to make those choices. Okay,
1145
01:04:07.000 --> 01:04:11.760
all right, Okay, So flat rate can encourage rushing. So
1146
01:04:11.880 --> 01:04:15.880
if flat rate pricing should reward efficiency not unsafe speed.
1147
01:04:15.920 --> 01:04:18.079
I see so many videos online of guys working so
1148
01:04:18.199 --> 01:04:21.719
fast or blurring speed, and they think that means quality. No,
1149
01:04:22.320 --> 01:04:26.639
in many cases they work so fast that it becomes
1150
01:04:26.880 --> 01:04:31.320
inefficient and potentially unsafe because they miss things. So a
1151
01:04:31.480 --> 01:04:36.039
poorly managed company and may pressure technicians to finish quickly.
1152
01:04:36.639 --> 01:04:41.199
What does that result in? Missed safety issues, in complete testing,
1153
01:04:41.440 --> 01:04:46.559
poor workmanship, property damage, potential violations that they overlook and
1154
01:04:46.639 --> 01:04:48.440
hide in the wall that they think others won't see
1155
01:04:48.519 --> 01:04:51.880
until sometime it does rear its little head and they
1156
01:04:51.880 --> 01:04:56.000
get held accountable and callbacks because you did something poorly.
1157
01:04:56.760 --> 01:05:00.800
The company must measure quality and safety and match it
1158
01:05:00.880 --> 01:05:04.039
along the lines of productivity. Okay, Now, let's do a
1159
01:05:04.039 --> 01:05:07.519
practical comparison because I wanted this you know podcast to
1160
01:05:07.559 --> 01:05:09.320
get too off the long here, But let's do some
1161
01:05:09.320 --> 01:05:13.079
comparisons now to see where you may fall. So let's
1162
01:05:13.119 --> 01:05:17.480
consider a customer who's kitchen circuit repeatedly trips. It just
1163
01:05:17.559 --> 01:05:20.239
keeps tripping. One of their small appliance brand circuits keeps tripping,
1164
01:05:21.119 --> 01:05:22.679
so let's do it as a time of material. So
1165
01:05:22.719 --> 01:05:24.920
the contractor gets called says, hey, I can't tell you
1166
01:05:24.920 --> 01:05:28.840
why it's tripping. It's just tripping. So the contractor charges
1167
01:05:28.840 --> 01:05:30.760
one hundred and seventy five dollars an hour. I'm charging
1168
01:05:30.760 --> 01:05:33.400
a seventy nine dollars service charge, which you should charge
1169
01:05:33.440 --> 01:05:36.360
service charges. I don't believe people give free estimates anymore.
1170
01:05:36.880 --> 01:05:39.639
I wouldn't if they. If you're going to go out
1171
01:05:39.679 --> 01:05:41.239
there and you can do the work, then you can
1172
01:05:41.360 --> 01:05:44.800
roll that seventy nine dollars service fee into a discount
1173
01:05:44.840 --> 01:05:48.360
over their overall bill. But no, it's still your time.
1174
01:05:48.599 --> 01:05:50.440
There was a day when you could hustle for work
1175
01:05:50.480 --> 01:05:52.800
and you just give free estimates. I'm just I'm not
1176
01:05:52.840 --> 01:05:56.320
a believer of that anymore, okay, because I don't want
1177
01:05:56.320 --> 01:05:58.599
fifty people running out here, you know, doing that thing.
1178
01:05:58.639 --> 01:06:00.800
If you're going to have something that les editimately needs fix,
1179
01:06:00.920 --> 01:06:02.320
not just to give me a price on something that's
1180
01:06:02.360 --> 01:06:06.920
not necessary. That's different free estimates. I get it. But
1181
01:06:07.000 --> 01:06:09.960
if I'm calling you because I legitimately have an issue
1182
01:06:10.440 --> 01:06:12.000
and you want me to come out there, then you're
1183
01:06:12.039 --> 01:06:15.679
going to pay a service fee, and I get out there,
1184
01:06:16.000 --> 01:06:18.320
and of course then the material at the company's normal
1185
01:06:18.400 --> 01:06:21.039
selling price, whatever your margins may be. So the electrician
1186
01:06:21.079 --> 01:06:24.760
spends two hours diagnosing the issue, and then it repairs
1187
01:06:24.800 --> 01:06:28.280
the damage receptacle and the loose connection. So the labor
1188
01:06:28.719 --> 01:06:31.360
again was one seventy five an hour. The laborer is
1189
01:06:31.360 --> 01:06:34.800
three hundred and fifty. The service charge is seventy nine dollars.
1190
01:06:34.800 --> 01:06:37.360
Whether they want to choose to discount that off of
1191
01:06:37.400 --> 01:06:40.079
their labor fee, that's totally up to them. At this point,
1192
01:06:40.159 --> 01:06:42.239
I probably wouldn't I charge the service fee because I
1193
01:06:42.280 --> 01:06:45.039
had to come out. The materials to do this were
1194
01:06:45.079 --> 01:06:47.360
forty five bucks. Assuming I made my margins that I
1195
01:06:47.400 --> 01:06:49.960
need to make on that material, the total cost is
1196
01:06:49.960 --> 01:06:52.159
four hundred and seventy four hours. My technician was out
1197
01:06:52.199 --> 01:06:54.920
there for two hours, replace the receptacle and fix the
1198
01:06:54.920 --> 01:06:58.920
loose connection. Now let's do this based on flat rate method.
1199
01:06:59.159 --> 01:07:01.960
The contractor charges a one hundred and twenty nine dollars
1200
01:07:02.039 --> 01:07:08.239
diagnostic fee. Okay. After identifying the problem, the contractor offers
1201
01:07:08.280 --> 01:07:11.199
a flat repair price of three hundred and ninety five.
1202
01:07:11.920 --> 01:07:15.480
So that's a total of five hundred and twenty four dollars. Now,
1203
01:07:15.519 --> 01:07:18.199
in this example, the flat rate pricing costs the customer
1204
01:07:18.320 --> 01:07:22.960
fifty dollars more. Right, But suppose the problem takes four
1205
01:07:23.079 --> 01:07:26.920
hours to locate. Under the time and material, the labor
1206
01:07:26.960 --> 01:07:30.760
alone becomes seven hundred dollars before adding the service charge
1207
01:07:30.800 --> 01:07:35.159
and the material. Depending on the flat rate company's pricing structure,
1208
01:07:35.280 --> 01:07:39.920
the flat rate customer may pay less. Okay. The point
1209
01:07:40.039 --> 01:07:43.599
is that neither system is always cheaper on every job.
1210
01:07:44.519 --> 01:07:48.559
They allot and allow risk and handle allotment of risk
1211
01:07:49.239 --> 01:07:53.599
totally different. Now, this is what I did. So here's
1212
01:07:53.639 --> 01:07:57.000
a hybrid approach. And this is a hybrid between flat
1213
01:07:57.039 --> 01:08:00.760
rate pricing and time material. So for me, any small
1214
01:08:00.840 --> 01:08:05.519
electrical contractors, the strongest system is combining the two diagnostic
1215
01:08:05.599 --> 01:08:09.679
fees followed by a flat rate repair. So the contractor
1216
01:08:09.719 --> 01:08:13.280
charges a fee to investigate the problem as determined the calls.
1217
01:08:13.320 --> 01:08:16.800
The contractor presents a flat rate for this repair. So,
1218
01:08:17.000 --> 01:08:20.680
for example, I might say, our diagnostic fee, because you
1219
01:08:20.720 --> 01:08:22.279
told me you got a problem. We don't know what
1220
01:08:22.359 --> 01:08:25.319
the problem is, we're gonna charge you one hundred and
1221
01:08:25.359 --> 01:08:28.000
twenty nine dollars. Well, once we identify the problem, we
1222
01:08:28.079 --> 01:08:32.760
will explain the repair options. And provide the total price
1223
01:08:32.840 --> 01:08:37.800
before performing the additional work. So total transparency. But the
1224
01:08:37.840 --> 01:08:42.199
contractor must clearly explain whether the diagnostic fee is separate
1225
01:08:42.319 --> 01:08:47.560
from the repair price credited towards the repair waived under
1226
01:08:47.600 --> 01:08:52.560
certain conditions, or is also non refundable. Do not leave
1227
01:08:52.640 --> 01:08:55.479
that question unanswered, folks, if you're gonna do flat rate pricing,
1228
01:08:55.560 --> 01:08:58.000
these are very critical. And in all of my documents
1229
01:08:58.000 --> 01:09:00.000
that I did flat rate pricing, I made it very
1230
01:09:00.359 --> 01:09:06.039
clear what was distinguishable, whether my diagnostic fee was different,
1231
01:09:06.079 --> 01:09:08.560
and when I did do a flat rate, I did
1232
01:09:08.560 --> 01:09:10.680
have a diagnostic fee. If it was a service call
1233
01:09:10.800 --> 01:09:15.760
like that, Okay, I had a diagnostic fee. Okay. Now
1234
01:09:17.479 --> 01:09:23.640
time and material with a not to exceed amount option. Okay,
1235
01:09:23.760 --> 01:09:26.359
that's an option. So it says we will troubleshoot the problem,
1236
01:09:26.479 --> 01:09:30.199
same problem, by the way, same problem. We will troubleshoot
1237
01:09:30.199 --> 01:09:33.800
the problem at our standard rate, but we will not
1238
01:09:33.880 --> 01:09:39.479
exceed six hundred and fifty without stopping and receiving additional authorization. Okay.
1239
01:09:39.560 --> 01:09:43.880
So this gives the contractor flexibility while limiting the customer's
1240
01:09:44.039 --> 01:09:48.079
initial exposure. So the contractor must stop before exceeding the
1241
01:09:48.159 --> 01:09:52.720
authorized amount. Now, do not complete the work and then
1242
01:09:52.840 --> 01:09:56.479
ask the customer to approve charges that were never authorized.
1243
01:09:56.680 --> 01:09:59.960
That's not how this is going to work. So flat
1244
01:10:00.119 --> 01:10:04.359
rate for predictable work, that's the difference. So the time
1245
01:10:04.399 --> 01:10:07.439
and material with a do not exceed amount. That is
1246
01:10:07.479 --> 01:10:09.600
one method to do it. Where you set a cap
1247
01:10:09.640 --> 01:10:12.119
on the amount and you get prior authorization to do
1248
01:10:12.199 --> 01:10:14.600
more than that cap and then they agree to it.
1249
01:10:15.399 --> 01:10:17.760
That's one way to do it. There's no diagnostic fee,
1250
01:10:17.800 --> 01:10:19.720
that's just this is what we can spend. This is
1251
01:10:19.760 --> 01:10:24.000
what's troubleshooting at our standard rate, and we'll we'll do
1252
01:10:24.079 --> 01:10:26.399
what we need to do. But this is a stop amount.
1253
01:10:26.439 --> 01:10:27.720
This is where we're going to stop, and we will
1254
01:10:27.760 --> 01:10:30.640
get authorization from you to do any more than this. Okay,
1255
01:10:30.840 --> 01:10:35.199
if we complete it within this, that's great. That's another method. Okay,
1256
01:10:35.279 --> 01:10:40.119
So you have the diagnostic fee followed by the flat rate.
1257
01:10:41.039 --> 01:10:43.119
You have the time and material with a not to
1258
01:10:43.199 --> 01:10:47.840
exceed amount, which can gain be ongoing with authorization for
1259
01:10:47.880 --> 01:10:50.720
additional charges, which could be your hourly rate or another
1260
01:10:50.800 --> 01:10:55.920
flat rate. But when you have work that is predictable
1261
01:10:55.960 --> 01:11:03.000
work like changing a receptacle, changing a breaker, changing a
1262
01:11:03.039 --> 01:11:07.000
ceiling fan, changing aluminaire. Okay, so let's look at it
1263
01:11:07.079 --> 01:11:10.560
this for flat rate pricing. That may work well for
1264
01:11:10.720 --> 01:11:14.720
tasks like, let's say, replacing a standard device, installing a
1265
01:11:14.760 --> 01:11:20.479
search protector underdefined conditions in a panel, replace a standard
1266
01:11:20.520 --> 01:11:25.560
circuit breaker, installing fixtures on existing suitable boxes, luminaires performing
1267
01:11:25.600 --> 01:11:32.279
defined electrical inspections. It is defined installing common dedicated circuits
1268
01:11:32.279 --> 01:11:35.199
where the conditions are known, the routing is known. You
1269
01:11:35.239 --> 01:11:37.079
can see point A to point B. You know it's
1270
01:11:37.119 --> 01:11:42.279
not complex. That's where flat rate pricing works great. Time
1271
01:11:42.319 --> 01:11:44.319
and material is where you want to shift in the
1272
01:11:44.399 --> 01:11:46.960
hybrid method. You want to shift to that if the
1273
01:11:47.000 --> 01:11:50.439
work is uncertain. So time and material works better for
1274
01:11:50.760 --> 01:11:56.960
intermittent troubleshooting, underground failures, fire and water damage conditions, work
1275
01:11:57.000 --> 01:12:00.880
installed by others, older buildings with the unknown modifications. You
1276
01:12:00.880 --> 01:12:04.960
don't know what you're gonna walk into, exploratory remodel work.
1277
01:12:04.960 --> 01:12:07.039
You get called in and somebody's been doing a little
1278
01:12:07.079 --> 01:12:09.159
due di wire and now you're asked to kind of
1279
01:12:09.159 --> 01:12:12.039
troubleshoot things and get things working. Dude, I'm gonna I'm
1280
01:12:12.119 --> 01:12:13.800
timing material of that because I don't know what I'm
1281
01:12:13.800 --> 01:12:17.800
gonna run into or even emergency pairs, repairs with an
1282
01:12:17.920 --> 01:12:20.760
uncertain scope. I mean, you just don't know. You know
1283
01:12:20.760 --> 01:12:23.239
what's an emergency, but you just don't know what you're
1284
01:12:23.239 --> 01:12:25.680
gonna get your hands into. It's very hard to do
1285
01:12:25.720 --> 01:12:29.279
flat rate pricing on that. Okay, So a customer does
1286
01:12:29.319 --> 01:12:34.640
not have to be loyal to one pricing a contractor
1287
01:12:34.640 --> 01:12:36.840
excuse me, does not have to be loyal to one
1288
01:12:36.920 --> 01:12:40.880
pricing method. Use the method that best addresses the risk.
1289
01:12:40.920 --> 01:12:44.000
And that's what I used to do. Mine would change.
1290
01:12:44.359 --> 01:12:46.800
There were some projects, some things that were so cut
1291
01:12:46.800 --> 01:12:49.560
and dry that it was like, dude, I'm not gonna
1292
01:12:49.560 --> 01:12:51.760
do an hour to rate when I can just give
1293
01:12:51.800 --> 01:12:53.800
a flat rate on this and I'll you know, I
1294
01:12:53.800 --> 01:12:55.800
can do this in an hour. You know I can
1295
01:12:55.840 --> 01:12:59.439
make more, but I'm not gouging. I'm just this is
1296
01:12:59.439 --> 01:13:01.399
what my flat rate based on my burdens and all
1297
01:13:01.439 --> 01:13:03.199
my overheads and expending. This is what it is. So
1298
01:13:03.720 --> 01:13:05.960
you'll develop these things. I'm not here to tell you
1299
01:13:06.000 --> 01:13:07.359
how to do that because I don't know your prices,
1300
01:13:07.399 --> 01:13:09.039
I don't know your burdens, I don't know your structure,
1301
01:13:09.039 --> 01:13:12.960
I don't know where you are. You'll develop it, so
1302
01:13:13.159 --> 01:13:15.640
do not forget material markup. Though at the end of
1303
01:13:15.680 --> 01:13:19.800
the day, material market is often misunderstood. Some customers believe
1304
01:13:19.800 --> 01:13:22.600
that contractors should sell material at the same amount they
1305
01:13:22.640 --> 01:13:24.479
paid for it at the supply house. Are you out
1306
01:13:24.520 --> 01:13:29.720
of your mind? That ignores the costs of providing those materials.
1307
01:13:29.720 --> 01:13:33.840
The contractor may be responsible for selecting the right product
1308
01:13:34.319 --> 01:13:36.840
that takes expertise, knowing what to get what not to get.
1309
01:13:36.920 --> 01:13:41.039
That takes your knowledge, ordering it, picking it up, receiving it,
1310
01:13:41.079 --> 01:13:44.159
storing it, transporting it, returning it unused material if you
1311
01:13:44.199 --> 01:13:48.399
need to replacing defective material, administering a warranty on the
1312
01:13:48.479 --> 01:13:53.119
stuff that you installed. So material markup is not automatically
1313
01:13:53.199 --> 01:13:58.079
just pure profit, and people think that markup is just profit.
1314
01:13:58.159 --> 01:14:00.920
That does not. Markup is not pure That goes into
1315
01:14:01.039 --> 01:14:05.479
all of those those responsibilities that you have with that product.
1316
01:14:06.760 --> 01:14:09.159
It helps recover the cost and risk of furnishing the
1317
01:14:09.199 --> 01:14:13.760
material itself. Contractors must also understand the difference between markup
1318
01:14:13.800 --> 01:14:17.199
and margin. That's important. If an item costs one hundred
1319
01:14:17.199 --> 01:14:20.960
dollars and you add fifty percent markup, the selling price
1320
01:14:21.000 --> 01:14:24.479
is one hundred and fifty, the gross profit is fifty
1321
01:14:25.600 --> 01:14:28.800
but if fifty divided by one hundred and fifty selling
1322
01:14:28.840 --> 01:14:32.640
price produces a gross marginal approximately thirty three percent. So
1323
01:14:32.760 --> 01:14:37.359
a fifty percent markup does not create a fifty percent margin.
1324
01:14:39.159 --> 01:14:43.319
This misunderstanding causes many contractors to underprice their work. And
1325
01:14:43.399 --> 01:14:46.239
let me say it again. Let me say it again.
1326
01:14:46.720 --> 01:14:48.880
If an item costs one hundred dollars and you add
1327
01:14:48.880 --> 01:14:52.840
a fifty percent markup, the selling price is one fifty,
1328
01:14:53.720 --> 01:15:00.039
the gross profit is fifty. But fifty dollars divide I
1329
01:15:00.039 --> 01:15:04.279
did by the one hundred and fifty selling price produces
1330
01:15:04.319 --> 01:15:08.680
a gross margin of approximately thirty three percent. So a
1331
01:15:08.760 --> 01:15:13.760
fifty percent markup does not create a fifty percent margin.
1332
01:15:14.479 --> 01:15:18.159
Just because it's a fifty percent markup, that doesn't mean
1333
01:15:18.159 --> 01:15:21.119
that it matches a fifty percent margin. That was only
1334
01:15:21.199 --> 01:15:26.039
a thirty three percent gross margin. So immediately people just
1335
01:15:26.079 --> 01:15:28.159
think that I'll just throw fifty percent on it and
1336
01:15:28.199 --> 01:15:32.840
that's going to be fifty percent profit margin. That's not
1337
01:15:33.039 --> 01:15:36.399
how it works. That just that's that that fifty percent
1338
01:15:36.439 --> 01:15:42.079
markup does not always equate to a fifty percent profit margin. Okay,
1339
01:15:42.760 --> 01:15:45.000
one other thing I'll leave you with, folks, is you
1340
01:15:45.159 --> 01:15:47.640
really do as a contractor. You really need to know
1341
01:15:47.680 --> 01:15:50.920
your labor costs. You need to know your efficiency of
1342
01:15:50.960 --> 01:15:53.760
the people you work with, your technicians, what projects you
1343
01:15:53.760 --> 01:15:56.760
can assign to certain technicians because of their experience and training.
1344
01:15:57.239 --> 01:15:59.760
You need to understand your own limitations. So a technician
1345
01:15:59.840 --> 01:16:03.079
or thirty five dollars an hour does not cost the
1346
01:16:03.119 --> 01:16:06.560
company only thirty five dollars an hour. Okay, just because
1347
01:16:06.600 --> 01:16:09.520
you pay somebody thirty five dollars an hour, the company
1348
01:16:09.520 --> 01:16:14.560
may also pay payroll taxes, workers compensation, insurance, pay leave,
1349
01:16:14.720 --> 01:16:19.600
retirement contributions, training, licensing, uniforms, even safety equipment. You have
1350
01:16:19.800 --> 01:16:22.800
much more invested in that employee than you think just
1351
01:16:22.880 --> 01:16:24.880
paying thirty five thousan an hour. This is why you
1352
01:16:24.920 --> 01:16:30.520
have burdens that you have to account for. Right their
1353
01:16:30.560 --> 01:16:34.159
company must also account for the non billable time. So
1354
01:16:34.199 --> 01:16:37.079
an employee may be paid for let's say two thousand
1355
01:16:37.199 --> 01:16:40.640
and eighty hours in a year, but the company cannot
1356
01:16:40.720 --> 01:16:45.840
bill all two thousand and eighty hours, so time is
1357
01:16:45.880 --> 01:16:52.199
lost to what holidays, vacation, training meetings, travel, vehicle maintenance,
1358
01:16:52.520 --> 01:16:58.239
material loading, estimating, callbacks, site cleanup, administrative duties, Gaps in
1359
01:16:58.279 --> 01:17:01.079
your schedule where you're not making anything because you have downtime.
1360
01:17:01.960 --> 01:17:05.479
So whether you use flat rate or time and material,
1361
01:17:05.560 --> 01:17:09.560
your price must recover the full cost of productive and
1362
01:17:09.720 --> 01:17:15.399
non productive time. So job costing is not optional. No
1363
01:17:15.600 --> 01:17:22.199
pricing system works without job costing. After the job is done,
1364
01:17:22.520 --> 01:17:24.800
you need to compare things. You need to take that
1365
01:17:24.960 --> 01:17:27.560
time to understand your flat rate versus time and material.
1366
01:17:27.720 --> 01:17:30.039
And you really need to take a job that you've
1367
01:17:30.079 --> 01:17:32.000
done and compare what you would have made on this
1368
01:17:32.119 --> 01:17:36.039
job and really learn from that data. Okay, what does
1369
01:17:36.079 --> 01:17:40.119
the estimated labor to actual labor? What is the difference?
1370
01:17:41.479 --> 01:17:45.279
Meaning did if I estimated it would take two hours,
1371
01:17:45.319 --> 01:17:48.640
did that task take two hours or did take three hours?
1372
01:17:48.800 --> 01:17:51.159
And if it took you three hours, then you estimated
1373
01:17:51.199 --> 01:17:53.640
wrong and that's can really kill you in flat rate pricing.
1374
01:17:54.119 --> 01:17:55.840
So you need to start. If you want to start
1375
01:17:55.960 --> 01:17:58.680
establishing flat rate pricing versus time and material, you need
1376
01:17:58.680 --> 01:18:03.000
to start tracking jobs and really see what time it started,
1377
01:18:03.039 --> 01:18:05.000
what time you in the project. And you can do
1378
01:18:05.039 --> 01:18:07.319
this by getting your employees to clock in and clock out,
1379
01:18:07.399 --> 01:18:09.279
not because you're being big brother to them, but in
1380
01:18:09.359 --> 01:18:12.439
order to start understanding the time on the project. So
1381
01:18:12.640 --> 01:18:17.359
the estimated labor to the actual labor comparative. Estimating materials
1382
01:18:17.399 --> 01:18:20.119
to what you actually spent on the project. Sometimes we
1383
01:18:20.239 --> 01:18:22.600
estimated cost fifty bucks in material and ends up being
1384
01:18:22.640 --> 01:18:25.119
one hundred bucks in material because you had unforeseen things.
1385
01:18:25.880 --> 01:18:30.199
You need to know that estimating equipment costs to the
1386
01:18:30.279 --> 01:18:33.159
actual cost of the equipment. You may have allotted one
1387
01:18:33.199 --> 01:18:35.239
hundred dollars for a piece of equipment that ultimately cost
1388
01:18:35.319 --> 01:18:38.039
you one hundred and twenty five because you didn't account
1389
01:18:38.039 --> 01:18:39.960
for the fact that you needed a grounding bus or
1390
01:18:40.000 --> 01:18:42.199
something else in it that you didn't take into account.
1391
01:18:42.520 --> 01:18:44.359
These things are going to help you come better as
1392
01:18:44.399 --> 01:18:46.000
you do this. And this is your job. This is
1393
01:18:46.000 --> 01:18:47.680
what you're a contracted for. It seems like a lot
1394
01:18:47.680 --> 01:18:50.359
of work, but it is really what you're supposed to
1395
01:18:50.399 --> 01:18:54.439
be doing. Also, what is your original price to the
1396
01:18:54.560 --> 01:18:58.800
final price? Did you change anything? Did you have add ons?
1397
01:18:59.319 --> 01:19:04.960
Did you have let's see change orders, whatever? Compare the
1398
01:19:05.000 --> 01:19:10.399
pricing discounts, callbacks. How'd you factor your callbacks on a
1399
01:19:10.479 --> 01:19:13.439
job that you did for a certain price. How many
1400
01:19:13.439 --> 01:19:15.119
times did you have to go back to that job?
1401
01:19:15.239 --> 01:19:17.119
And you compare it to the price with that labor
1402
01:19:17.199 --> 01:19:20.000
rate to send somebody back. You might have had a price,
1403
01:19:20.079 --> 01:19:22.119
and then you had to go back a number of times.
1404
01:19:22.239 --> 01:19:25.119
That margins that you were making or starting to dwindle
1405
01:19:25.159 --> 01:19:28.199
away because you have to pay somebody to go back
1406
01:19:28.199 --> 01:19:31.479
for the warranty work, and so you may ultimately not
1407
01:19:31.640 --> 01:19:34.760
make near what you thought you made. So you need
1408
01:19:34.760 --> 01:19:37.560
to identify projects like that, the amount that you invoiced,
1409
01:19:37.680 --> 01:19:39.319
the amount that you in collected, and at the end
1410
01:19:39.359 --> 01:19:42.279
of the day, keeping a keen eye on your gross profits,
1411
01:19:42.720 --> 01:19:44.640
because if you're not making a profit, you're not going
1412
01:19:44.720 --> 01:19:50.159
to be in business. Loan. If the flat rate task
1413
01:19:50.319 --> 01:19:54.520
is based on two labor hours but repeatedly require four
1414
01:19:54.560 --> 01:19:58.319
hours to do it, then the price is wrong, or
1415
01:19:58.359 --> 01:20:03.279
the production process needs proving, or the technician needs additional training.
1416
01:20:04.479 --> 01:20:07.800
If time and material contractor bills eight hours but the
1417
01:20:07.920 --> 01:20:11.960
rate does not recover overhead in non billable time, then
1418
01:20:12.000 --> 01:20:16.159
your rate is wrong. If you're just doing time in
1419
01:20:16.359 --> 01:20:20.199
material but you're not factoring in the other burdens by
1420
01:20:20.239 --> 01:20:23.840
picking up the markup in the material, then something's wrong
1421
01:20:23.880 --> 01:20:28.840
with your pricing structure. Your checking account balance does not
1422
01:20:29.119 --> 01:20:33.119
tell you whether an individual job was profitable because it
1423
01:20:33.159 --> 01:20:36.479
may come in but it doesn't come in the same
1424
01:20:36.520 --> 01:20:39.920
time as bills as expenses go out. So you just
1425
01:20:39.960 --> 01:20:41.840
can't look at your check account and say, ooh, look,
1426
01:20:41.840 --> 01:20:43.640
I've got money in there. I must be making money.
1427
01:20:44.039 --> 01:20:46.439
That doesn't work because you're always one expense away from
1428
01:20:46.479 --> 01:20:52.079
being below that line. Okay, say a large balance may
1429
01:20:52.079 --> 01:20:59.199
include customer deposits, payroll taxes, supply obligations, supplier obligations, or
1430
01:20:59.359 --> 01:21:04.600
money receive or required to be complete other projects. It
1431
01:21:04.680 --> 01:21:07.199
may be in there. Maybe you took money in advance
1432
01:21:07.239 --> 01:21:09.119
and you still have a project that's not due three
1433
01:21:09.159 --> 01:21:12.720
months down the road, but you got paid early for it. Well,
1434
01:21:12.760 --> 01:21:15.600
you might already spend that money, but that project still
1435
01:21:15.640 --> 01:21:17.920
got to get done. Do you have enough money in
1436
01:21:17.920 --> 01:21:21.279
the account to handle it? Those are all the things
1437
01:21:21.439 --> 01:21:26.640
you must review, the actual numbers. So last, let's talk
1438
01:21:26.640 --> 01:21:30.520
about communicating with the customer under time and material. This
1439
01:21:30.600 --> 01:21:32.520
is what you need to explain always, and if you
1440
01:21:32.560 --> 01:21:34.800
have a sheet that does this, I encourage you. It
1441
01:21:34.840 --> 01:21:36.479
makes things so much nicer. If you have a one
1442
01:21:36.520 --> 01:21:39.359
page sheet that explains your pricing and people think that's corny,
1443
01:21:39.640 --> 01:21:41.359
but I don't. If I go out on a service call,
1444
01:21:41.439 --> 01:21:43.840
I give this person this sheet. If I'm going to
1445
01:21:43.920 --> 01:21:46.720
do time and material. It explains the hourly rate, the
1446
01:21:46.800 --> 01:21:52.039
minimum charge, the billing increments, the travel policy, the material
1447
01:21:52.079 --> 01:21:57.560
policy with markup, number of technicians needed, diagnostic charges after
1448
01:21:57.680 --> 01:22:01.079
our rates if necessary, and author is limits if they're
1449
01:22:01.079 --> 01:22:03.600
worked into your time and material, which means that what
1450
01:22:03.680 --> 01:22:05.960
I'll do up to a certain amount and then I'll
1451
01:22:06.000 --> 01:22:10.399
get your authority above that amount. Okay, So a clear explanation,
1452
01:22:10.479 --> 01:22:13.520
a pretty simple one till customer might be Look, our
1453
01:22:13.600 --> 01:22:15.840
service rate is one hundred and seventy five dollars per
1454
01:22:15.920 --> 01:22:20.640
technician hour with a one hour minimum. After the first hour,
1455
01:22:20.880 --> 01:22:26.239
time is built for thirty minute increments. Materials are additional,
1456
01:22:26.760 --> 01:22:30.600
and we will contact you before exceeding this certain specific
1457
01:22:30.680 --> 01:22:34.840
authorized amount. That's all you have to tell them, very
1458
01:22:34.840 --> 01:22:38.399
concise in a sentence. Not all of those issues we
1459
01:22:38.520 --> 01:22:40.960
just talked about may apply to this situation. But that's
1460
01:22:40.960 --> 01:22:43.119
just an example of a clear explanation to the customer.
1461
01:22:43.159 --> 01:22:45.399
They know how much you are an hour, how it's
1462
01:22:45.439 --> 01:22:50.319
being built, that the materials are in addition, right, and
1463
01:22:50.359 --> 01:22:52.359
that you'll work up to a certain amount, and if
1464
01:22:52.359 --> 01:22:55.279
it approaches that amount and you're not done, you will
1465
01:22:55.399 --> 01:22:58.039
let them know, because they could say nope, stop it.
1466
01:22:58.640 --> 01:23:01.000
You're still getting paid for what you've to that point,
1467
01:23:01.279 --> 01:23:04.840
but it's very clear and transparent. Now under flat rate
1468
01:23:05.000 --> 01:23:08.039
you need to explain the exact work you're doing, very detailed,
1469
01:23:08.800 --> 01:23:12.920
not stuff that you find exact work, the total price,
1470
01:23:13.439 --> 01:23:20.439
what is included, what is excluded, assumptions, payment terms, change
1471
01:23:20.520 --> 01:23:24.760
order procedures and warranty, and make it very clear that
1472
01:23:24.840 --> 01:23:27.720
if something comes up during this that is that is
1473
01:23:27.760 --> 01:23:30.640
not that can be under what's excluded? Things that you
1474
01:23:30.680 --> 01:23:33.760
can't see, or code violations that you encounter or whatnot,
1475
01:23:33.920 --> 01:23:37.399
all that can be under that. There's nothing wrong with
1476
01:23:37.560 --> 01:23:40.439
letting the customer know up front. I think so many
1477
01:23:40.439 --> 01:23:43.000
people are scared to let their customers know these things.
1478
01:23:43.319 --> 01:23:46.359
Why would you be scared? So maybe the example of
1479
01:23:46.359 --> 01:23:49.439
what I tell the customers this the total price in
1480
01:23:49.479 --> 01:23:52.479
install this circuit as ascribed as eighteen hundred and fifty bucks.
1481
01:23:52.880 --> 01:23:58.119
That includes the listed labor, the standard materials, the testing,
1482
01:23:58.239 --> 01:24:02.640
and the cleanup. It does not include drywall repair, painting,
1483
01:24:02.800 --> 01:24:08.239
hazardous material remediation or correcting of concealed conditions not visible
1484
01:24:08.319 --> 01:24:13.199
during our estimate or pricing. That is an easy statement
1485
01:24:13.279 --> 01:24:18.319
to put on every flat rate price. They will understand
1486
01:24:18.359 --> 01:24:22.520
that it's clear communication and it protects both parties. Okay,
1487
01:24:23.279 --> 01:24:26.760
So protecting the small electrical contractor. Regardless of the pricing
1488
01:24:26.800 --> 01:24:29.800
method you want to use, a small contractor should follow
1489
01:24:29.920 --> 01:24:34.680
several basic rules. First, establish a minimum service charge. You
1490
01:24:34.720 --> 01:24:38.800
cannot drive to a property. Supply a licensed electrician, diagnose
1491
01:24:38.840 --> 01:24:42.560
a problem, and prepare an invoice for an amount that
1492
01:24:42.640 --> 01:24:45.319
does not cover the cost of that visit. You're just
1493
01:24:45.399 --> 01:24:48.800
gonna lose money. So you have to have a minimum
1494
01:24:48.800 --> 01:24:53.640
service charge that's gonna cover at least those expenses. Obtain
1495
01:24:53.800 --> 01:24:57.720
written authorization. Do not rely on somebody says, well, just
1496
01:24:57.760 --> 01:25:00.279
do whatever it takes. That is not gonna work. Don't
1497
01:25:00.359 --> 01:25:02.039
let your customers say just do it, because they will
1498
01:25:02.079 --> 01:25:04.760
change their mind. You need to make sure that you
1499
01:25:04.920 --> 01:25:08.039
document the rate, the price, the scope, and the spending limit.
1500
01:25:08.079 --> 01:25:09.600
If that's what you're going to do now, I will
1501
01:25:09.640 --> 01:25:13.479
tell you. In many states and people forget this, work
1502
01:25:13.560 --> 01:25:17.880
requires a written agreement. In Virginia it needs to be.
1503
01:25:18.000 --> 01:25:20.279
There's certain criteria. If you're going to do a project.
1504
01:25:20.319 --> 01:25:24.039
You have to meet this now, whether or not you're
1505
01:25:24.039 --> 01:25:26.720
doing verbal word of mouth. I did not. Every time
1506
01:25:26.760 --> 01:25:29.359
I did it, I had a simple one page agreement
1507
01:25:29.399 --> 01:25:31.800
that protected me because if I never knew whether I
1508
01:25:31.840 --> 01:25:33.479
was going to have to take somebody to small claims
1509
01:25:33.479 --> 01:25:35.680
court or what. I wanted to make sure that everything
1510
01:25:35.720 --> 01:25:39.279
I did, even if I did a service call, it
1511
01:25:39.319 --> 01:25:42.800
was a simple one page making sure they understand the price,
1512
01:25:42.840 --> 01:25:45.159
the rate, the scope, spending limit, or what I'm going
1513
01:25:45.239 --> 01:25:47.479
to do and what I'm not gonna do, and already
1514
01:25:47.520 --> 01:25:49.560
had them printed up. I had already had these forms.
1515
01:25:49.600 --> 01:25:52.560
They were already printed up, you know, back in the
1516
01:25:52.600 --> 01:25:54.840
day Kinko's or whatnot. I mean, I already had these
1517
01:25:54.880 --> 01:26:00.359
forms and it protected me and they signed it. Also,
1518
01:26:00.920 --> 01:26:04.319
use change orders. When the scope changes, the price may
1519
01:26:04.359 --> 01:26:08.159
need to change, document the change for performing additional work
1520
01:26:08.359 --> 01:26:12.840
that is outside the scope of what you agree to. Okay,
1521
01:26:13.439 --> 01:26:15.479
definitely make sure you use change orders. Now. I have
1522
01:26:15.520 --> 01:26:16.880
a lot of people that will do a little extra
1523
01:26:16.920 --> 01:26:19.640
something just because they're good customers, and that's fine, but
1524
01:26:19.680 --> 01:26:22.239
it may be not the same for everybody. So again,
1525
01:26:22.279 --> 01:26:24.199
if you're going to change the price in something, make
1526
01:26:24.239 --> 01:26:25.760
sure that you make them aware of it and you
1527
01:26:25.840 --> 01:26:32.439
document it also collect promptly. There's nothing more that's going
1528
01:26:32.479 --> 01:26:34.680
to kill your business is leave money floating out there.
1529
01:26:34.720 --> 01:26:38.439
And say that I will bill you okay for residential work.
1530
01:26:38.920 --> 01:26:42.439
Payment is commonly do when the job is complete. Do
1531
01:26:42.520 --> 01:26:48.560
not come, do not become the customer's bank. Okay. Review
1532
01:26:48.680 --> 01:26:54.680
prices regularly, okay. So what we're saying is labor, insurance, vehicles,
1533
01:26:54.720 --> 01:26:59.720
fuel tools, software, materials increase over time. Constantly review your prices.
1534
01:26:59.760 --> 01:27:01.680
Don't be at the same price you were today as
1535
01:27:01.720 --> 01:27:06.159
you were two years ago. The price established several years
1536
01:27:06.159 --> 01:27:10.840
ago may not make it profitable today based on costs
1537
01:27:10.880 --> 01:27:13.560
and the rise in pricing. Equipment has gone through the roof,
1538
01:27:14.880 --> 01:27:17.560
and so that means that your pricing needs to change
1539
01:27:17.600 --> 01:27:20.600
to reflect that. The customer does not need any surprises
1540
01:27:20.680 --> 01:27:24.680
because you increase the costs because after you already give
1541
01:27:24.720 --> 01:27:26.800
them a price because you realize that a piece of
1542
01:27:26.840 --> 01:27:34.520
equipment costs more. It's not cool callbacks. Callbacks are inevitable,
1543
01:27:35.239 --> 01:27:37.439
but you need to track these callbacks so that you
1544
01:27:37.479 --> 01:27:40.399
can attribute them to a project to ultimately find out
1545
01:27:40.399 --> 01:27:44.239
whether or not the callbacks resulted in your project losing money,
1546
01:27:44.880 --> 01:27:47.920
and where these callbacks as a result of an employee
1547
01:27:47.960 --> 01:27:55.479
that was prioritizing speed over efficiency and skill. They just
1548
01:27:55.520 --> 01:27:57.840
were trying to do it fast and got sloppy, and
1549
01:27:57.920 --> 01:28:01.199
that was the reason for the callback. Right if you
1550
01:28:01.319 --> 01:28:03.279
example to that. I had guys that I would send
1551
01:28:03.319 --> 01:28:05.199
out to put in some luminair somewhere and I'd have
1552
01:28:05.199 --> 01:28:07.600
to call back because they had fingerprints all over the wall.
1553
01:28:07.640 --> 01:28:10.920
The luminaires were crooked, the sconces were crooked. I gotta
1554
01:28:10.960 --> 01:28:15.319
go back and fix that. Well, it costs me money,
1555
01:28:15.439 --> 01:28:17.840
but the customer has every right to the expectation. And
1556
01:28:17.920 --> 01:28:19.439
one of my employees said to me, well, I can't
1557
01:28:19.439 --> 01:28:22.760
see it from my house. Well, I fired them because
1558
01:28:22.800 --> 01:28:25.960
they cost me money to go back. And I'm in
1559
01:28:26.000 --> 01:28:29.119
business to make money. Okay, I'm not in the business
1560
01:28:29.119 --> 01:28:31.319
out of the goodness of my heart. Okay, you're not
1561
01:28:31.319 --> 01:28:32.960
gonna make it a business long doing that. Okay if
1562
01:28:32.960 --> 01:28:34.479
you're already a millionaire and you want to give away
1563
01:28:34.520 --> 01:28:37.359
the whole ball of axe at your business. But I'm not.
1564
01:28:37.479 --> 01:28:41.600
I'm a contractor. I'm in business. Uh charge for your
1565
01:28:41.600 --> 01:28:45.159
professional diagnosis. Determine what's wrong has value. Do not assume
1566
01:28:45.199 --> 01:28:48.439
troubleshootings must always be free. A lot of people make
1567
01:28:48.479 --> 01:28:50.920
this mistake. If I'm going to go out and troubleshoot
1568
01:28:50.960 --> 01:28:53.079
something because a customer calls me and it's not working.
1569
01:28:53.960 --> 01:28:56.920
That is treated separately than fixing the problem, and you
1570
01:28:57.079 --> 01:28:59.760
need to define that out and make it clear. I
1571
01:28:59.760 --> 01:29:01.640
will come and try to find out what the problem is,
1572
01:29:01.680 --> 01:29:05.640
because you know what they could say, Nay, I'll call
1573
01:29:05.720 --> 01:29:10.840
somebody else. Well that's bullshit. Okay, that's why I charge
1574
01:29:10.840 --> 01:29:15.279
a fee to come out diagnos diagnosis fee, one fee,
1575
01:29:15.479 --> 01:29:20.920
and I'm getting that money regardless. Okay, my time is valuable.
1576
01:29:22.600 --> 01:29:27.239
And the lastly I'll talk about you know two things
1577
01:29:27.279 --> 01:29:28.760
I want to talk and this is a longer pocket.
1578
01:29:28.760 --> 01:29:30.119
This is longer than I wanted it to be. So
1579
01:29:30.159 --> 01:29:33.600
some will listen to it. Some will not know when
1580
01:29:33.600 --> 01:29:37.600
to decline a job. Warning signs include customers who refuse
1581
01:29:37.640 --> 01:29:43.640
written authorization, demand guaranteed pricing without allowing an inspection, expect
1582
01:29:43.760 --> 01:29:48.840
free troubleshooting, ask you to avoid permits, refuse reasonable payment terms,
1583
01:29:49.960 --> 01:29:53.239
constantly change the scope. In other words, you get a scope,
1584
01:29:53.239 --> 01:29:54.439
you agree to it, and then they want to come
1585
01:29:54.479 --> 01:29:58.960
back and change it constantly moving target. Claim every previous
1586
01:29:59.000 --> 01:30:02.359
contractor was dis honest. God if I had a dollar
1587
01:30:02.399 --> 01:30:04.600
for every time I see that somebody puts on social
1588
01:30:04.600 --> 01:30:06.359
media and they say, hey, I need some work done,
1589
01:30:06.439 --> 01:30:08.039
but I don't want to get screwed or I want
1590
01:30:08.079 --> 01:30:09.840
to be out. It's like, dude, is everybody out there
1591
01:30:09.880 --> 01:30:13.439
screwing people? I don't think so. I don't want to
1592
01:30:13.439 --> 01:30:15.520
think that that's the case. But the customer has it
1593
01:30:15.560 --> 01:30:18.279
in their mind that they're being screwed, and they don't
1594
01:30:18.359 --> 01:30:21.079
understand the cost of business that the contractor. They may
1595
01:30:21.119 --> 01:30:23.920
have hired a contractor that has to charge more because
1596
01:30:23.920 --> 01:30:27.600
of their expenses. They're burdens, they're overheads, but they translate
1597
01:30:27.640 --> 01:30:29.800
that into being screwed, and then they end up bad
1598
01:30:29.840 --> 01:30:34.520
mouthing you everywhere. Okay, so sometimes the most profitable projects
1599
01:30:34.600 --> 01:30:37.600
are the ones you decline to be honest with you.
1600
01:30:37.600 --> 01:30:39.920
You ever heard that saying where somebody keeps bugging you
1601
01:30:39.960 --> 01:30:41.840
and bugging you and bugging you for fifty dollars and
1602
01:30:41.880 --> 01:30:43.720
you give them fifty dollars and then you get upset
1603
01:30:43.720 --> 01:30:45.680
because you never get paid back. And somebody comes up
1604
01:30:45.720 --> 01:30:49.039
and says, did they bother you all the time? Yeah?
1605
01:30:49.199 --> 01:30:52.399
Did they get on your nerves? Yeah? Have you heard
1606
01:30:52.399 --> 01:30:54.199
anything from them when you gave them the fifty bucks?
1607
01:30:54.239 --> 01:30:54.399
No?
1608
01:30:54.439 --> 01:30:56.800
I haven't heard anything, and I want my fifty bucks. Dude,
1609
01:30:57.279 --> 01:31:00.000
right off. The fifty bucks as a loss, the best
1610
01:31:00.119 --> 01:31:02.359
investments you ever made. Because that piece of crap is
1611
01:31:02.359 --> 01:31:05.520
not bugging you every day. That's the best fifty dollars
1612
01:31:05.600 --> 01:31:09.119
you could have invested. Peace of mind. Think about that.
1613
01:31:09.520 --> 01:31:12.800
A customer that's griping, moaning, groaning, refuses to do different things.
1614
01:31:12.800 --> 01:31:13.880
Do you really want to do the word? Do you
1615
01:31:13.960 --> 01:31:19.199
really want to work that bad? Just red flags, folks,
1616
01:31:19.239 --> 01:31:24.199
red flags. Okay, So this is lastly here. I'm gonna
1617
01:31:24.199 --> 01:31:26.239
close it out here in a second. But lastly is
1618
01:31:26.279 --> 01:31:30.039
which system should you use as a new contractor? Okay,
1619
01:31:30.319 --> 01:31:35.520
here we go. So a contractor starting out should divide
1620
01:31:35.600 --> 01:31:41.880
work into categories predictable service tasks and if they're predictable,
1621
01:31:41.960 --> 01:31:47.399
easy replacement of receptacle switch, YadA, YadA, YadA, things like that, predictable.
1622
01:31:47.439 --> 01:31:50.079
You can see point A to point b. It's not difficult.
1623
01:31:50.119 --> 01:31:53.119
These are predictable tasks. Then in the mind, when you're
1624
01:31:53.119 --> 01:31:54.640
getting ready to give a price, you need to be
1625
01:31:54.680 --> 01:31:57.600
able to mentally shift over to what's called considered flat
1626
01:31:57.680 --> 01:32:01.680
rate pricing after you have enough information to price the
1627
01:32:01.720 --> 01:32:08.159
task properly. Okay, that's predictable service tasks. Flat rate pricing
1628
01:32:08.199 --> 01:32:15.079
works great. Next, troubleshooting and unknown conditions. You're being you're
1629
01:32:15.119 --> 01:32:17.640
coming into something where you just don't know what you're
1630
01:32:17.640 --> 01:32:20.520
gonna find. That's immediate trigger. That is not a flat rate.
1631
01:32:21.520 --> 01:32:25.439
That is, you use a diagnostic fee because you want
1632
01:32:25.439 --> 01:32:29.079
a troubleshoot. Do not let that eat your time and material.
1633
01:32:30.359 --> 01:32:33.760
Have a diagnostic fee, and then you can charge time
1634
01:32:33.800 --> 01:32:37.800
and material pricing. Or you can have time and material
1635
01:32:37.880 --> 01:32:40.479
which includes a diagnostic fee, but you can have an
1636
01:32:40.560 --> 01:32:45.600
authorization disclosure in there to not exceed a certain value
1637
01:32:46.800 --> 01:32:55.119
without their authorization. Okay, small projects, if they're really small,
1638
01:32:55.319 --> 01:32:58.119
then I would use a written Like I said, get
1639
01:32:58.159 --> 01:33:03.000
a written fixed pricing posal with detailed scope and make
1640
01:33:03.039 --> 01:33:05.880
sure you have exclusions. Like to me, putting in a
1641
01:33:05.880 --> 01:33:09.600
ceiling fan is a fairly simple project. I can give
1642
01:33:09.640 --> 01:33:13.039
you a fixed price. I also have it in the
1643
01:33:13.039 --> 01:33:14.800
scope that this is what I'm gonna do. I'm put
1644
01:33:14.840 --> 01:33:16.720
in the ceiling fan. I'm gonna install your new put
1645
01:33:16.720 --> 01:33:20.000
it together. I'm gonna install it on an existing box.
1646
01:33:21.039 --> 01:33:25.079
And the exclusion is assuming that the box is code compliant,
1647
01:33:25.079 --> 01:33:26.920
that it is designed to support the weight of this
1648
01:33:27.000 --> 01:33:30.600
ceiling fan. If it is not, it will incur an
1649
01:33:30.600 --> 01:33:34.079
additional charge for a code compliant seating, the box, and
1650
01:33:34.079 --> 01:33:38.279
the labor associated with the installation. That's fair, right. But
1651
01:33:38.359 --> 01:33:40.319
if it's just a ceiling fan and it's already one
1652
01:33:40.359 --> 01:33:41.840
there and I'm pulling it down and put another one up,
1653
01:33:41.920 --> 01:33:44.439
chances are there's a box up there that's adequate hope,
1654
01:33:44.880 --> 01:33:47.039
then boom boom, it's easy, fixed price, get it and
1655
01:33:47.039 --> 01:33:52.960
get out. For larger projects, use detailed estimating, payment schedules,
1656
01:33:53.000 --> 01:33:57.079
allowance unit pricing, and written change orders. Again, that is
1657
01:33:57.159 --> 01:33:59.119
not one you're going to do time im material on.
1658
01:33:59.279 --> 01:34:01.600
For the most part, you're going to give a estimated
1659
01:34:01.640 --> 01:34:03.800
price assuming you sat down and you looked at all
1660
01:34:03.800 --> 01:34:06.960
the variables and you know what your expenses are at
1661
01:34:06.960 --> 01:34:12.640
anytime something changes, something's added that was unexpected, then you
1662
01:34:12.680 --> 01:34:20.039
do change orders. Okay. Emergency work, use a clearly disclosed
1663
01:34:20.159 --> 01:34:26.359
emergency rate after our fees or a premium pricing schedule. Okay.
1664
01:34:27.199 --> 01:34:31.560
As your company gathers actual job information, your pricing system
1665
01:34:31.720 --> 01:34:34.039
can become more accurate. But if you're going to do
1666
01:34:34.079 --> 01:34:36.439
emergency work, you don't know what you're gonna find that
1667
01:34:36.560 --> 01:34:38.640
is going to be a time in material Based on
1668
01:34:38.680 --> 01:34:43.439
your emergency rate and that is typically encompass after our
1669
01:34:43.479 --> 01:34:46.840
pricing emergency rate, and you're going to price it there,
1670
01:34:46.880 --> 01:34:48.560
and that's more often going to be time in material
1671
01:34:48.560 --> 01:34:50.600
because you just don't know what you're going to run into.
1672
01:34:51.640 --> 01:34:54.239
So in closing, let's bring this thing together. Time and
1673
01:34:54.359 --> 01:34:59.279
material pricing works well for a scope is uncertain, troubleshooting
1674
01:34:59.319 --> 01:35:03.279
is required, existing conditions are unknown, the customer understands the
1675
01:35:03.319 --> 01:35:07.840
building system, and the contractor keeps accurate records. Flat rate
1676
01:35:07.920 --> 01:35:11.439
pricing works well when the task is predictable, the scope
1677
01:35:11.479 --> 01:35:16.079
is clearly defined, the contractor understands the true cost and
1678
01:35:16.199 --> 01:35:20.600
what it includes. The customer values price certainty. They don't
1679
01:35:20.640 --> 01:35:23.720
want the thought of an open ended price with time immterial.
1680
01:35:23.800 --> 01:35:25.960
They like the fact that you're giving them a price
1681
01:35:26.520 --> 01:35:31.279
and the company tracks actual results. Okay, so many small
1682
01:35:31.319 --> 01:35:34.640
electrical contractors. The best answer is not any one system.
1683
01:35:34.720 --> 01:35:37.520
It's basically a hybrid. So the best answer may be
1684
01:35:37.680 --> 01:35:41.199
a hybrid system that consists of a service or diagnostic fee,
1685
01:35:42.000 --> 01:35:45.680
a flat rate price for defined repairs, time im material
1686
01:35:45.760 --> 01:35:50.520
rates for the unknown conditions, not to exceed authorization for
1687
01:35:50.560 --> 01:35:53.640
a lot of those time im material projects, fixed pricing
1688
01:35:53.680 --> 01:35:56.880
proposals for large projects. That's like bidding and estimating means
1689
01:35:56.880 --> 01:35:59.439
you've done a little extra work on that and then
1690
01:35:59.520 --> 01:36:02.399
written change orders. When the scope changes, whether it's a
1691
01:36:02.439 --> 01:36:06.119
flat rate, you'll have that figured in for the unexpected
1692
01:36:06.520 --> 01:36:09.479
or the time and material. Where something changes because of
1693
01:36:09.640 --> 01:36:12.279
unforeseen things, then you would get a change order and
1694
01:36:12.319 --> 01:36:14.720
it's a simple one page document that says I'm doing
1695
01:36:14.720 --> 01:36:16.640
this change order and this is how it's changing the price.
1696
01:36:17.840 --> 01:36:21.600
The most important lesson is your price method does not
1697
01:36:21.840 --> 01:36:26.159
automatically create profitability. You need to be fluid. You don't
1698
01:36:26.199 --> 01:36:28.760
have to be one hundred percent flat rate. You can
1699
01:36:28.800 --> 01:36:32.000
be a little mixture of both. And remember you can
1700
01:36:32.039 --> 01:36:35.079
lose money using time and material, you can lose money
1701
01:36:35.159 --> 01:36:39.399
using flat rate. You can build an ethical, successful company
1702
01:36:39.600 --> 01:36:43.920
using either of those methods. But profitability comes from understanding
1703
01:36:43.920 --> 01:36:47.640
your cost, pricing of the work, correctly documenting the scope
1704
01:36:47.640 --> 01:36:51.600
and being detailed and descriptive of what you're doing, communicating
1705
01:36:51.680 --> 01:36:56.159
everything clearly to your customer to avoid miscommunication and callbacks,
1706
01:36:56.800 --> 01:36:59.760
and actually reviewing the prices once it's all done and
1707
01:36:59.760 --> 01:37:01.680
see how you would have ended up whether you did
1708
01:37:01.720 --> 01:37:05.800
flat rate versus time and material. Do not simply copy
1709
01:37:05.880 --> 01:37:09.119
somebody else's contractor's rates. Do not try to match other
1710
01:37:09.159 --> 01:37:13.359
people because their burdens are different. Okay, your labor costs
1711
01:37:13.359 --> 01:37:16.720
are different, your overhead's different, your productivity is different, your
1712
01:37:16.760 --> 01:37:20.119
service area is different, your financial goals are totally different.
1713
01:37:20.960 --> 01:37:24.479
So your prices must be based on your business. Okay,
1714
01:37:25.560 --> 01:37:30.479
all right, folks. The contractor must protect the value of
1715
01:37:30.520 --> 01:37:33.399
their service while also treating the customer honestly and fairly.
1716
01:37:33.479 --> 01:37:35.439
This is how you protect your customer. This is how
1717
01:37:35.479 --> 01:37:38.199
you protect your contractor. This is how you grow your business,
1718
01:37:38.319 --> 01:37:42.960
establish profitability, and build a good name for yourself. Folks,
1719
01:37:42.960 --> 01:37:45.479
hopefully you got something out of today's episode. It was
1720
01:37:45.520 --> 01:37:48.199
a long one, but again, these are things that you
1721
01:37:48.279 --> 01:37:50.520
need to look at and think about in order to
1722
01:37:50.520 --> 01:37:54.000
be successful. Okay, til next time, Stay safe, God blessed.
1723
01:37:54.039 --> 01:37:57.239
We'll catch you on another episode of Master the NEC podcast.
1724
01:37:58.199 --> 01:38:01.520
Thanks for tuning into another electionifying episode of the Master
1725
01:38:01.560 --> 01:38:05.600
of the ANEC podcast. We hope you're feeling more powered
1726
01:38:05.640 --> 01:38:07.920
up and ready to tackle the electrical world with the
1727
01:38:08.000 --> 01:38:12.159
knowledge and confidence you need to succeed. Remember, in the
1728
01:38:12.239 --> 01:38:15.760
electrical trade, knowledge is power, and we're here to make
1729
01:38:15.800 --> 01:38:18.800
sure you stay plugged into the latest insights.
1730
01:38:18.399 --> 01:38:20.119
Tips and code updates.
1731
01:38:21.199 --> 01:38:25.039
If you enjoy today's episode, don't forget to subscribe, leave
1732
01:38:25.119 --> 01:38:27.680
us a review, and share the podcast with your.
1733
01:38:27.520 --> 01:38:29.560
Fellow electricians and industry pros.
1734
01:38:30.960 --> 01:38:34.800
Until next time, keep your tools sharp, your circuits clear,
1735
01:38:35.079 --> 01:38:37.640
and you're my focused, because here at the Master of
1736
01:38:37.640 --> 01:38:43.199
the ANEC podcast, we're all about sparking your success. Stay safe,
1737
01:38:43.399 --> 01:38:47.720
stay smarked, and keep mastering the trade. From all of
1738
01:38:47.800 --> 01:38:50.479
us here at Electrical Code Academy, thank you for all
1739
01:38:50.600 --> 01:38:52.479
your support, and we will see you on the next
1740
01:38:52.520 --> 01:38:58.279
amazing Master of the NEC podcast episode.