Flat Rate: Are You Doing It Wrong?

Posted on August 28, 2018 by TheNumbersCruncher

You're Doing It WrongThese days it seems like there are dozens of companies that want to integrate your flat rate prices into their systems. There is one glaring flaw in almost all of these systems, they don’t know how Flat Rate Pricing actually works. They don’t know how to generate profitable pricing, and they don’t understand the value of having a flat rate system that can be updated properly.

The most flexible of these new systems allow you to update you prices by some fixed percentage. This is quick and easy, but updating prices that are probably incorrect already with an arbitrary percentage is a sure way to lose money and customers.

One of the problems with many popular integrated systems that include flat rate modules don’t really work the way they should because many systems ignore the fundamental information needed to create profitable pricing. This may seem to be a pretty strong statement considering the wide adoption of these new flat rate systems throughout our industries. So let’s look at just one small part of service pricing to illustrate how most of the menu pricing systems ignore the basic price calculations used in setting Flat Rate prices.

Flat Rate is made up of averaged values for time, materials, and profit for the standard jobs that you do. The easiest part of this to quantify and control is materials. You know with certainty what parts you will use on a job, and what they cost. And yet, we see questions about material pricing, specifically Markup, on a regular basis. Here’s our answer to questions about how to markup your materials.

If you want to have a consistently profitable price system, you do not want to use material markup. It only complicates the entire process, and can often lead to over and under charging.

These questions about material markup stem from a basic misunderstanding of Flat Rate that is spread by many modern business system providers.

Flat Rate was developed to make business pricing simpler, easier to use, and better at closing the sale. The simpler part means that your pricing is directly related to what your business brings to the table – time and expertise. In Flat Rate, you make your money for your time sold. Material markup is an obsolete tool left over from the T&M days when it was used to hide how much you charged per hour. If your material costs appeared high enough, you could lower the hourly amount you charged for your time on the job.

Flat Rate ComponentsProviding service is expensive. The overhead and labor costs included in the job time has always been more than consumers could be comfortable with. Flat rate removes the cost breakout information from the transaction, so you can charge for your services based on your actual costs and skill. This means that marking up materials is a waste of time and effort.

Let’s look at a simple example.  Many systems recommend that you mark up parts that cost less than $10 by as much as 300% or more. Before modern flat rate, this amount was chosen to help inflate the underlying cost for small jobs. The inflated material cost helped to lower the hourly labor rate you had to charge in the T&M system. But, what happens if you have a job that will use 10, 20 or even 50 of a part that you have marked up by 300%? Your pricing will be too high, and you risk losing the job.

The solution is to not mark up any of your materials unless there is a specific need for a specific part. This makes setting your flat rate prices much, much simpler, and more reliably profitable.  This means that your selling prices are dependent just on your cost for doing the work, and the profit you want to earn. Small jobs won’t be overpriced by ridiculous markups, and large jobs won’t be under-priced by too low hourly rates.

The added bonus is that this makes setting up and maintaining your flat rate prices much simpler. Material costs are just your material costs –no extra calculations, no  extra decisions, no extra adjustments.

We often get asked the question, “Why shouldn’t we earn profit on materials”?

The answer is very simple, “Of course you are earning profit on materials”. With Flat Rate, the same profit target you earn on labor, overhead, and everything that is a cost to your company is automatically included in the task. Your earn a profit on every part you sell.

When your cost for overhead or labor changes, you can adjust all of your prices by entering just a couple of numbers. This is how Flat Rate Pricing was originally designed to work, and this is how it works best now. Keep it simple for the office, for the tech, for the customer. That’s how Flat Rate is supposed to work.

Successful service business set their Profit target first, and know their Breakeven cost including target Key Performance Indicators (KPI) that can be measured and adjusted. This makes keeping your prices at a profitable level a simple, orderly process.

If you can import your flat rate pricing into your modern integrated business solution, you need to create your flat rate prices using software that actually uses your basic cost information. Then, send the properly configured pricing to your chosen integrated system. This will allow you to manage your prices properly while having all the bells and whistles your business may need.

The NSPG Flat Rate Price Guide supports dozens of integrated systems and accounting packages. Give us a call if you need some guidance on setting and maintaining your own profitable prices.

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Putting It All Together: Your Profitable Selling Price

Posted on July 11, 2018 by TheNumbersCruncher

To set your profitable selling price, you need to know four numbers about your business: Labor Rate, Overhead Rate,  Productive Hours, and Target Profit %.

In our previous article, we explained how to calculate your profitable Field Labor Rate. In this article, we will take a look at your Overhead Rate, Productive Hours, Profit Percentage, and put it all together to establish a consistently profitable selling price.

This article is a bit technical, but it will only take a few minutes to read. Invest a few minutes so that you will have a better understanding of how to make your business run better.

Budget EntriesOverhead
Your Overhead Rate includes all of your expenses except your Field Labor. This includes things like vehicles, office rent, advertising, tools, office salaries, etc.

Your business’ Overhead can be easy to determine, but often it is harder than it should be. If you have a good accountant, he may be able to generate a report for you that lists everything you need. If you use an accounting program (if you have it set up right, and if you know how to use it) you can generate your own report that will list and total all of your costs. Otherwise, start with your business checkbook and credit card statements and using pencil and paper, a spreadsheet program , or a dedicated program like Numbers Cruncher, and add up all of your expenses. This total is your Overhead cost.

The time period you use for each entry should be selected so you are sure to capture all of your costs. Some costs, like insurance and membership dues, may only happen once a year, so don’t forget them.

Total Productive Hours
Productive hours were mentioned briefly in our previous article. In order to set your profitable Sell Price, you will need to total up all the hours for all your field employees that were billed during your selected time period. This is your Total Productive Hours. This number can be difficult to accurately establish and project into the future. It is critical that you get as close to the actual number as possible because your profitability depends on it.

If you use time cards, this could be an easy task. If your invoices include a billed time factor, review them, and add up the hours billed. If you are using a Flat Rate system, your Tasks should have a time factor built into them to show the amount of time allotted to each job.

Remember that Productive hours are the hours you actually bill to a customer. They are NOT the numbers of hours you pay your field employees. If you are doing service work, it’s just about impossible to bill 40 hours in a 40 hour week. Most well run companies bill between 20 and 25 hours in a 40 hour week. Installs can be higher, but Service is inherently less efficient.

For example, a single employee who is productive (Bills out) 20 hours/week.

20 Hrs/Wk X 52 Weeks/Year = 1,040 Hrs/Year

Breakeven
Your Breakeven is your Total Cost/Hr which is made up of your Field Labor/Hr plus your Overhead/Hr. This is what it costs to run your business for the specified time period.

Your Breakeven Cost per Hour is calculated by dividing your Total Business Costs by your Total Productive Hours.

Breakeven = Total Business Costs ÷ Total Productive Hours

If you charge this amount, you will not lose money, but you will also not make any profit. You need to add Profit to the calculation. Your business must consistently make a profit, or it will eventually fail.

Putting it all together

Profit Percentage
The final piece of information in establishing your Selling Price is your Target Profit Percentage. This is the percentage of each job that you sell that will be profit for your business. Some service businesses try to compete on price by keeping their profits low. This can work to keep your employees busy, but almost always leads to a failed business. Without a decent profit, your business will not survive.

You must choose a Profit Percentage that works for your business. Do not use a number that someone tells you is the “Right” number. For most service businesses there is an accepted range for Profit Percentage, but only you should set this number for your business.

Selling Price
To set your Selling Price (Total Sell/Hr), you need to add your profit to your Breakeven (Total Cost/Hour).

Selling Price = Breakeven ÷ (1 – Profit%)

For example, taket a company with a Breakeven of $200.00/hr and a profit target of 20%.

Selling Price = $200 ÷ (1 – 0.20) = $250.00

This would yield a 20% profit of $50 per productive hour.

You should check and adjust your Selling Price on a regular basis. Your costs and productivity change regularly, so you need to be sure that your Selling Price continues to yield the profit you expect. This is why you need to be able to quickly check and adjust the four numbers that make up your Selling Price.

Whatever tool you use for this process, you should recalculate your numbers and update your Sell Prices multiple times per year. A spreadsheet, or a dedicated program like Numbers Cruncher makes this easier and less time consuming. Once you have the new profitable numbers, you should update your price books (paper or app), and get them out to the field as quickly as possible.

Please use your own numbers and not these examples.
Whether you use a spreadsheet, pencil and paper, or Numbers Cruncher, you MUST accurately set your own selling price. Understanding how it works will allow you to make the right decisions on setting your prices at a level that covers your costs and earns you the profit you need to stay in business and serving your customers.

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How to Calculate your Labor Sell Price

Posted on June 21, 2018 by TheNumbersCruncher

Before you can run a profitable business, you need to know what to charge. Matching what a competitor charges, or just picking a number that feels right is a sure way to lose money and customers. Based on our years of experience helping companies calculate their own profitable prices, we know that it is critical that you actually review your own business’ numbers if you want to be successful.

This article is a bit technical, but it will only take about 5 minutes to read. Invest a few minutes so that you will have a better understanding of how to make your business run better.

Company Costs

In order to to set your profitable selling price, you need to know four numbers: Labor Rate, Overhead Rate, Productive Hours, and Target Profit %. In this article, we will take a look at how to calculate your actual Labor Rate for your field employees.

Your field Labor Rate includes three components:

  1. The actual field employee Labor Cost/Hour.
  2. Company paid taxes and benefits like worker’s comp and FICA taxes.
  3. The productive hours sold.

Collecting most of this information is relatively easy for most companies since these numbers tend to be spelled out on each field employee’s paycheck stub.

Organizing and calculating these numbers can be done using pencil and paper, a spreadsheet, or a dedicated program like Numbers Cruncher. Whatever tool you choose for this task, the process is basically the same. It just gets easier and potentially more accurate as you progress from pencil and paper to spreadsheet to dedicated software. Ease of use is important since you should be recalculating these numbers on a regular basis.

Employee Labor CostField Labor/Hr
The employee pay component is easy to understand and work with. For hourly employees, take the hourly pay amount, and multiply it by paid hours per week, and then multiply by 52 weeks to get the annual field employee pay. Repeat this for each hourly field employee.

For salaried field employees, this amount is even simpler. It’s just the total Annual Salary excluding company paid taxes/benefits. No multiplication is required.

Company Paid Taxes/Benefits
Taxes and Benefits that the company pays for also contribute to the cost of Field Labor. Items like Worker’s Comp, FICA and Unemployment Insurance, Health Insurance, and any other tax or benefit that the company pays for. This calculation does not include income tax, employee FICA, and other deductions that employees pay for out of their salary.

To complete this calculation for an employee, Vacation and Holidays should be converted to their dollar values both for lost productivity and dollar cost.

Productive Hours
Since your field employees are probably not working on a billed customer job for every hour that you are paying them, you need to account for their unproductive time. Unproductive time can include things like time spent stocking a truck, office meetings, lunch, etc.

The cost to the company for the unproductive time must be spread over the hours that you are actually billing out to customers, or you will lose money. This is done by creating a ratio of the field employee’s Sold Hours divided by their actual Paid Hours.

For example, let’s take a look at a field employee who is paid for 40 hours per week and bills out 30 hours per week. In this example, the Productive Hours are 30.  The actual values for the week will be adjusted using the ratio of 40 hours divided by 30 hours. This will increase the Labor Rate so that all of the employee’s labor costs are paid for in the 30 Productive Hours sold each week.

These calculations are simple but time consuming when done on paper, easier when done in a spreadsheet, and are usually done automatically in dedicated apps. Once you set them up, it is easy to update the numbers so that you can be more consistently profitable.

To protect their profitability, the most successful companies review these numbers on a monthly basis. The factors that make up your Field Labor Costs, especially Productive Hours, will change frequently. If you don’t stay on top of it, you could be losing money on every job.

Taking the time to properly set up these calculations so you know what your profitable Labor Sell Price is always accurate will more than pay for itself over time.

Our next article will go into your Overhead Rate, Profit Percentage, and putting it all together to establish a consistently profitable selling price.

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Yes, Your Prices Are Outdated

Posted on April 9, 2018 by TheNumbersCruncher

NSPG Numbers CruncherUnless you recently crunched your numbers, updated your price delivery system, and retrained your employees, the prices that you are offering to your customers are wrong. It’s an inescapable fact that without some real effort, your prices will not reflect your actual costs. Having that fancy new tablet app using outdated prices may seem like progress, but for many it is just a more modern way to sell at a loss.

Why should you update your price guides on a regular basis?

And, by a regular basis we mean more often that once every few years – when you get around to it – when you have the time.

Updating your Price Guides will:

  • Increase your profits by offering your services at a price that covers your costs, and earns you a profit every time.
  • Increase your customer satisfaction & loyalty. By offering a set of Value Option Solutions to better meet your customer’s needs and letting your customers choose the solution that they think will meet their needs. There will be less sales pressure that can often lead to buyer’s remorse. 

    Older Price Guides and many tablet based systems don’t take advantage of Value Option Pricing and balance task time based on average Time on Task. These allow you to avoid push back on those small tasks that are difficult to show value.
    Value options can easily increase your average call by as much as 30 to 40%.

  • Keep your techs happy. Easily offer Value Options that are custom designed to meet your customer’s needs and desires, and provide them with an outstanding customer service experience.  It’s easier and faster for your techs to offer Custom Value Options on every call. Value Options packages included in updated pricing systems can help to reduce or even eliminate commodity pricing of your services. All without the need for heavy sales training.


Why is maintaining profitable pricing always a problem?

Your overhead and labor costs change all the time, as do your sold hours. You need to constantly make adjustments in your selling price to maintain profit levels that will keep your company growing and put dollars in your bank account. Keeping the same prices when your business changes will negatively affect your business growth and profits. This is a mistake that consistently successful companies never make.

Updated Price GuideImplementing these new price delivery techniques has never been easier or faster with NSPG Price Guides, and is now available with the Price Guide mobile web app. The added advantage of built in inspection forms in the NSPG Web App makes add on sales easier for even the most reluctant field techs.

Even if you use another price delivery system, crunching your numbers now will pay off. A personalized review of your numbers can make updating any system easier, less stressful, and more accurate. We can help with that. Just give us a call at 800-841-8542.

Now is the time to get your prices, your tasks and your deliver system updated. The new NSPG Printed Price Guides or the new NSPG Price Guide Mobile can make it easy.

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Build to Last on a Solid Foundation

Posted on April 6, 2018 by TheNumbersCruncher

Your business’ success all starts with a solid foundation.

Solid FoundationOver the past 30 years, we have worked with all types of businesses from struggling companies to some of most profitable Plumbing, Heating, Air Conditioning, and Electrical Service companies ranging in size from one truck service companies to companies with over 100 service techs. Regardless of size, it is very clear how different a successful profitable service business operates vs companies that struggle year after year.

There is a formula a recipe for growth, profits, and success, and it’s not very complicated. It’s actually very basic. It’s fundamental. However, it only works if you focus on it and actually implement it in your business.

Over the years there have been many new sales training techniques, pricing ideas and approaches. Many of these so called “new” concepts are not new, but just repackaged systems in fancy sales clothes. Many of these flavors of the week training and pricing systems have come and gone many times over the past 30 years.

No training, software, consulting, or sales and marketing plan will help you grow a profitable service business without first having setup your accurate breakeven cost per hour and selling price in an easy to use delivery system.

It seems that the fundamentals and foundation of how to grow your profitable service business have been pushed to the aside in favor a simple guess-o-matic pricing system. Many “Field Service Management” software providers decided there was no need to determine a breakeven cost per hour or to set profitable selling prices. It almost seems that business fundamentals are no longer in style.

Nothing could be further from the truth.

Many early adopters of these new schemes have seen their sales drop along with their profits, and are now looking for answers. Getting back to basics is their plan of action to try to recover from the systems that rely on bad guesses by software companies with no experience in the business.

So, what’s the solution?

Build a Solid Foundation

  1. Determine your own profitable selling price.
  2. Implement your pricing with an organized pricing system.
  3. Train your people how to deliver your products.
    (Product knowledge, Pricing, and Customer Service).
  4. Measure performance.
  5. Adjust to market conditions.
  6. Update pricing & training regularly.

Let us help you build your solid foundation – it’s what we do.

We can help you fine tune your breakeven, set your sales forecast, roll out your delivery system, train your employees, and help you get the results you want. Give us a call at
800-841-8542 to see how we can help you build your own solid foundation.

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Is Your Computer a Threat to Your Business?

Posted on July 7, 2014 by TheNumbersCruncher

If you’re company is still using Windows XP months after Microsoft stopped issuing security updates, your data is more at risk than ever. If you run any part of your business on your XP computer, you risk that information by not addressing this security issue. Don’t think that this is strictly a computer problem.

Would losing your client list or accounting data cause you major headaches?

According to Net Applications, about 25% of computers in use are still running Windows XP. This makes it the second most popular desktop operating system in the world. If your company still uses Windows XP, you have two options to secure your company’s data and keep your operations working.

The first option is the one recommended by Microsoft. Upgrade to a new computer with Windows 7 or 8 installed.

If you want to upgrade to a computer that looks and acts very much like XP, only better, the choice is Windows 7. Most users won’t notice much of a difference. It’s faster, and more secure than XP, and most XP software will run on it with an upgrade to the Windows 7 security version. Finding a Windows 7 computer can be difficult. Dell, HP, and Toshiba all still sell them, but you may not find them at local stores.

Microsoft prefers that you go with Windows 8. It’s faster and more secure, and it has the tile menu system that most people seem to hate. Windows 8.1 has made improvements, but there is still no Start menu. This means that XP users may be confused about how to get some things done. You can easily find Windows 8 computers, and all will automatically upgrade to Windows 8.1.

Windows 9 is expected to be released in about a year. That’s a long time to wait while using a less and less secure XP computer. The upside of waiting is that Windows 9 is expected to look more like Windows 7 with the familiar desktop and some type of Start button/menu system.

What are my options if I don’t want to give up on XP yet?

If you won’t be changing software, the real issue is security. Over time, Windows XP will be much less secure than new versions. If your computer has any connection to the outside world through the Internet, a local network, or even removable drives like thumb drives, you must make changes to increase your security.

  • Make sure that all of your installed software is up to date. Security updates, especially Adobe Acrobat and Java, MUST be installed as soon as they become available.
  • Get a better antivirus. AVG and AVAST! offer good security for free. Paid packages offer superior protection, but can limit downloads and other activities on your computer. If something stops working after you install a new antivirus, read any error messages carefully to see if you have options to work around the problem.
  • Switch to Chrome or Firefox browsers. They are both more up to date and secure than Internet Explorer on Windows XP.
  • Disconnect from the Internet as much as possible. Do not use your XP computer to check Facebook or other non-essential business needs. Ideally, the only connection to the internet would be a brief check for software updates. If your computer is not on the Internet, it is much harder to attack.

By the way, all upgraded versions of NSPG software run on Windows 7 and 8, so when you do make the decision to upgrade, you can continue to run NSPG products.

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You Can’t Do Everything

Posted on January 22, 2013 by TheNumbersCruncher

Running a business can be overwhelming at times. It seems that there are never enough hours in the day for everything you want to do. Now that the rhythm of the new work year has been established, you should try to take a little time to establish your own priorities.

As a business owner or manager, you can do just about whatever you want, but the time you have for what you want to do is limited. You need to figure out what is most important to you, and what can wait. Spending the time to do this can mean the difference between getting things done, and getting burnt out.

“You can do anything, but not everything.” – David Allen

So, how do you decide what to do, and what to postpone?

First, write down everything you’d like to accomplish. Don’t worry about the details, just consider the goal itself. Once you have the list, read each item out loud to yourself. As you read each item, decide if it still seems important among all the other items you have listed. If not, cross it off. Depending on the length of the list, you may need to repeat this process until you winnow the tasks down to just the most important ones.

Remember that these don’t all need to be big items. Something as small as having the company logo repainted on the sign out front or reprinting your price books qualifies if you feel that it’s important.

Finally, write down the two lists that you’ve created. Include the date the item was added to the list next to each item. One list you will begin to implement right now. The other will be the basis for your future progress. Take a little time every week to review your progress, and add new items to the lists. You may want to write down the progress you have made on each item as a way to hold yourself accountable. As you accomplish your highest priorities, you can move items from your future goals onto the current list.

This process sounds simplistic, but the mere act of writing down your goals with their priority and recording your progress changes the process from simply planning to doing. Just as your encouragement of the people who work for and with you can improve their efforts, this process can become a way to encourage yourself to concentrate on the things that really matter.

Focusing on your real priorities will keep you from planning to do everything while accomplishing nothing. You will get more done, and feel less overwhelmed by the seemingly endless list of things you’d like to accomplish.

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QSC Power Meeting

Posted on January 22, 2013 by TheNumbersCruncher

QSC Power Meeting March 2013
Mark your calendars now for Power Meeting XXXVIII – San Diego, CA, March 14-16, 2013.

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Nexstar Super Meeting

Posted on January 22, 2013 by TheNumbersCruncher

Nexstar Super Meeting 2013
Super Meeting, the crown of Nexstar Network events, is where most members learn how to leverage the newest business trends and opportunities. Members can strengthen their business acumen by attending pre-conference workshops (held one day before the event) – a great way to jump start their learning and networking.

Many members say that Super Meeting is critically important to the health of their business. It’s their opportunity to meet experts that will help them lead successfully, stay on top of current industry trends, receive training that will streamline their processes, and network with the best independent contractors in the business. Contact Lisa Schardt or Bryan Martin to find out more (888.240.STAR).

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Important Notice!

Posted on January 22, 2013 by TheNumbersCruncher

We have received reports from some of our Flat Rate software users that their Category Books are printing a single blank page. This problem can be caused by another Windows update that was issued recently by Microsoft.

This Microsoft file fault can affect any software that relies on Microsoft programming tools, so you should be aware of this with all of the programs installed on your Windows computers.

We have posted an update that repairs the damage to the Price Guide software here: http://www.nspgweb.com/update/nspgupdate.htm

Please download and install this new Flat Rate update before printing your next set of price books.

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