by Evan Conklin © 2004
Plumbers charge by the hour (time + material) or they charge by the job (flat-rate). Both types of pricing have been around from the beginning of time. There is nothing new about either method. I have done both types of pricing most days for the thirty years I have been a plumber. All plumbing repairs represent some level of risk that the job will turn into a larger project than originally anticipated.
The two pricing methods determine who is taking that risk. When a plumber is charging by the hour the customer is taking the risk that the job could take longer or be more costly. When a “flat-rate” or contract amount has been agreed to in advance the plumber is taking that risk.
Time & Material PRICING method for charging is typical & normal. Historically, plumbing repair services are charged by the hour and new construction work is bid at a contract dollar amount. If the customer feels more comfortable with a firm price they will ask for and get a firm price – once the plumber knows enough detail about the job to intelligently estimate the costs. The customers seldom know, however, that in order for the plumber to give a firm quote he must feel secure that he will not be working for free and he will bid accordingly in the higher range of anticipated cost. This is reasonable and prudent in order to avoid any misunderstandings later. In most cases a skilled plumber working by the hour can effectively estimate the final cost and can convey that information to the customer upon request. So it seems that time & material payment basis can optionally be converted to a “flat-rate” basis at the customer’s discretion (before the work begins).
The question then is - what is fair? The fairest it can be is this – The consumer pays for what he gets and gets what he pays for, no more – no less. Consequently, the plumber gets paid for his time and his materials – again no more and no less. From a fairness point of view this is as good as it gets. Time & Material is the way to go with repair work, in my opinion, if you want a fair deal for both yourself and the plumber.
FLAT RATE PRICING used to be called “contract price” Somebody needs to take a close look at where this flat-rate pricing has come from as it relates to small repairs. The customer didn't dream this one up.
To the best of my knowledge, it originated some time ago, perhaps 25 years ago with a company called George Brazil in Southern California. The concept was this: Increase the labor rate significantly, increase the profit margin on all materials sold and make a lot more money. The problem with the concept was that if the customer was aware that the labor rate and the material cost was significantly higher than normal then they would not agree to pay for it. The solution was to mask the higher price of both labor and material until it was too late to find another option. This was done by simply not having an hourly rate. With no hourly rate the consumer can not price shop. Now the cost of the job could not possibly be known until the plumber had gotten into the house, racked up some kind of charges such as a “show up fee”, diagnostic fee” or “travel fee” - typically $100 to $125. Only then did the customer know the “flat rate” cost of the job. After the customer takes off work, waits for the guy to show up, and is already committed to the above minimum fee, he is hit with the whopper cost. The customer is now leveraged as he now must either accept the contract price, pay the $100 -$125 for nothing of real value - or go back to the phone book and call another unknown plumber. Neither option is very appealing to the customer in this position – damned if he do & damned if he don’t.
The bottom line is this: flat rate pricing for residential service and repair work is intentionally designed to dramatically increasing both the customers’ cost and the contractors profit.
Increasing profit is not a new business desire. What is new is the hiding of the cost from the customer until it is too late to do anything about it, and the total disregard for the traditional concept of truthfulness and fairness in customer relations.
As a business owner,I love the idea of increasing my profits and having more money to sock away for my retirement. I just cannot justify the method of getting there. The flat rate pricing method tends to alienate the customers as they typically feel that they have been taken advantage of (and they have in many cases).
As a contractor and a consumer, I see both sides of the fence. My company charges $96 per hour (in 2006). I am feeling great pressure to raise the rate as my costs have increased at least 20% since then. I am afraid however to raise my rates as my customers believe plumber rates are too high already (unreasonably I think, but I must consider them and how they feel about it). My customers do not know for example that our liability insurance has tripled in the last 3 years (with no increased risks I might add). Gas has gone up at least 65% as well. So I am vulnerable to the criticism I get from the flat rate marketers that I should be getting on their wagon as the business models they present insure my future business health, personal wealth etc. (and infamy?).
In 1976 we charged $45 an hour for plumbing service with a 1 hour minimum. In 2005 our base rate per hour was $88.00. (Since 2004 we charge a variable first 1/4 hr. based upon distance from the shop, then $24 per quarter hour in 2006.) The inflation rate since 1976 is 2.55 (http://inflationdata.com/inflation/Articles/CalculateInflation.asp) Our hourly rate of $88 per hour (2005) has not kept up with the rate of inflation based upon the consumer price index. If it had it would be $114.75 per hour. It is actually much worse because insurance, licenses and real property (rent) has gone up more than the CPI since 1976 (10x I think!) I can't say I blame contractors for seeking a way to raise there profits - I just object to the methods used that the customers find so offensive.
Flat Rate pricing means commission paid plumbers in most cases. Most flat-rate service companies pay their mechanics on a percentage basis (our own survey). Do you really want a commissioned sales guy diagnosing the nature of the problem and recommending a remedy? Wouldn't you rather have a mechanic with no obvious conflict of interest telling you what will be required to remedy the problem? Who is most likely to oversell - a mechanic working by the hour or a salesman getting paid a commission? As a consumer myself, I prefer hourly mechanics as the only way they can cheat me is by taking a nap when I’am not looking or outright lying about how long the job took to complete.
The obvious and not-so-apparent results of years of flat rate pricing:
- The general public is paranoid about calling a plumber out of the phone book. (For good reason).
The average cost of plumbing service to the consumer has gone up dramatically, way beyond the cost of inflation - primarily due to the flat-rate. (Those of us on hourly have seen a dramatic drop in profits - leading to the conclusion that maybe these flat-rate shops are on to something)
The mechanics are poorly trained, as the bulk of most training is sales oriented.
There is little evidence that the plumber’s perspective is anything other than profit. If they do not up sell, they will not make what they would make if paid an hourly wage.
The pride of being a professional plumber is very lacking today. (I see these guys all the time). Turn over is high within the flat-rate service shop due to burn-out from long hours and high stress. One guy I interviewed was fired from his last job for not making his $1500 a day minimum sales quota at a flat-rate shop.
Customers rarely call twice making larger ads necessary in the yellow pages
Full-page ads are common ($15,000 - $25,000 per month!) in the phone book. If you pay out this much to advertisers, there isn’t much left for payroll.
Small local shops are invisible, as they can’t compete with large advertisers for exposure. Small neighborhood shops mean lower overhead and best pricing to the consumer (use them if possible).
Liability insurance costs have skyrocketed for all due to poorly trained incompetent plumbers causing property damages.
Employers certify many plumbers with little regard for proper training or knowledge of the craft. ( In WA state the employer certifies that the apprentice was trained. They seem to be trained primarily to sell, as far as I can tell in job interviews). ANYBODY can get a plumbing contractor license in this State (Washington). I can get a contractors license for my cat in this state if I put up a surety bond for him.
In Conclusion, I would say that the flat-rate plumbing shops cost the consumer more for most repair jobs than an hourly plumber. I believe that the hijacking of the service & repair plumbing trade by the unscrupulous sales & marketing professionals has had a great negative impact on the quality of the mechanics and the integrity of the trade as a whole. Revised August 2006 (Labor rate increased in May)
Flat Rate vs. Time & Material Pricing
In The Plumbing Service Trade – Update 2011
In 2004 I wrote an article and published it on the subject of plumber pricing. The traditional hourly rate was fast disappearing and a new method of charging the customer was becoming the norm.
Here we are 7 years later and “flat rate” pricing is now being used virtually everywhere. Since the hourly rate has almost disappeared there isn’t really much more to add on the subject comparing the two ways a plumber may charge.
Since “flat Rate”, and “upfront pricing” is now the norm we need to look beyond the pricing method used and take a serious look at how the plumbing service industry has changed over the years as a result of the pricing no longer being transparent to the consumer. The flat rate method of plumbing pricing has contributed to significant changes in the quality, and nature of the plumbing services industry. These changes are not good for consumers or skilled workers.
The flat rate pricing method was designed to hamper competitive price shopping by the consumer prior to actually having the plumber in the house. The only prices typically quoted over the phone are the show-up fee, diagnostic fee, travel fee or some other “upfront” charge. The justification given is that the price of a job is unknown until the situation can be inspected and a “bid” presented to the homeowner. This method, which now dominates the industry, opens the door to sales and marketing techniques that have become institutionalized by large corporate interests.
The quality of the plumbing work performed has degenerated over the years due to sales and marketing interests having re-designed the nature of the plumber/homeowner relationship. What once was a simple service provider/consumer transaction has become an adversarial relationship with a “service technician” that has been trained by professionals to sell and close an expensive sale. The skill level of the plumber doing the work has significantly decreased; due mostly to the use of unlicensed “plumbing tech/salesmen” being substituted for licensed skilled plumbers. The cost to the consumer has increased over time - far in excess of the rate of inflation. Result: pay a lot more - get a lot less.
The Current State of the Residential Plumbing Service Industry
The residential plumbing service industry has been hijacked by sales and marketing oriented interests.
Years ago the residential plumbing industry was defined as plumbers doing plumbing work for consumers. Today “residential plumbing” appears to be a virtually unregulated “free-for-all” for anybody that wants to promote the unskilled as skilled and the unlicensed as licensed while charging hundreds of dollars an hour. This change has been spearheaded by large corporate interests. ( example: Chemed Corp. which owns Roto-Rooter had over 1.2 billion in sales last year).
The likelihood that a licensed plumber will show up when you call a rooter/plumbing company for service in 2011 is estimated to be about 20%. Unbelievable you say? Yes, it is – but it is so. New York City Seen Lax On Plumbers Up To 80% Of Jobs Illegal, Report Finds
This change in our industry did not happen overnight. It changed slowly over time.
Most states regulate who can perform plumbing services for very good reasons. Laws have been in place for years regulating both plumbing contractors, i.e. businesses, and the plumber that actually performs the work.
The reason plumbers are licensed has been forgotten. Plumbing systems provide our drinking water and carry away our wastes. The potable drinking water must be protected from contamination. People get sick and die from contaminated drinking water. Our water delivery systems operate under pressure and cause floods and major property damage when they fail. The average training required is four years of on the job training plus classroom study and certification tests in order to become a licensed plumber. Plumbers are certified skilled professionals. They are not cheap to hire.
Each state has their own laws. The laws vary from state to state. The enforcement of state laws regulating plumbers and contractors varies as well. Some states treat plumber license and contractor registrations violations as criminal offenses, other states consider violations as civil matters with fines.
Our state laws never anticipated the mass-scale pretending to legitimacy that is seen today in the residential plumbing services industry. Most plumbing services provided today to residential homeowners is being done by unlicensed “plumbers”, or as the rooter companies like to call them “plumbing technicians”. Both the consumer and the licensed plumbers are taking a beating from the bait and switch technique.
How did it get this way? Let’s look at some history:
The Camel In The Plumber’s Tent - Marketing Companies with Contractor Registrations
Roto-Rooter - 1980’s - The camel sticks his nose in the plumbers tent
In 1980 a drain cleaning company Roto-Rooter was purchased by Chemed Corp. Over the next few decades this drain cleaning company transformed its public persona, through advertising, into what has been described as the largest “plumbing” company in the world.
The average homeowner does not know the difference between a drain cleaner “technician” and a “plumber” thanks to Roto-Rooter marketing drain cleaning as plumbing (copycats are using the same business model).
This business model has become apparent and dominates the industry today:
Advertise and promote plumbing services utilizing less expensive drain cleaner personnel. This business model was actualized across the country. The profits from the homeowner could be maximized as the hourly rate was done away with. It was now possible to charge hundreds of dollars an hour for a “plumbing technician” whereas it used to cost tens of dollars per hour for a “drain cleaner”. What was not apparent (and still is not obvious to most of us) is that a “technician” is not a “plumber”. This clever marketing done today never mentions “rooter” without attaching the word “plumbing” or “plumber”. The intention is obvious: imply that a rooter guy is a plumber. To make profitabilty even better Roto-Rooter started moving a large portion of the business overhead onto the employees. The employees were forced to buy trucks and insurance in exchange for a commission-based pay structure. The commission pay was promised to be greater than wages with suggestions of “unlimited income potential”.
The net effects of these changes were:
- Consumers calling for plumbing services would get an unlicensed “pretend plumber” a large portion of the time.
- The cost of a service call increased dramatically as the flat-rate pricing structure masked a substantial higher rate than anybody would pay hourly.
- The “plumbing technician” was paid on a commission basis and he was leveraged with a portion of the business overhead. (More than one class action lawsuit is based upon this.) Instead of a plumber in your house you now had a hungry commissioned based salesman pretending to be a licensed plumber. The commissioned based pay structure created an incentive to over-sell on every job.
- The legitimate licensed plumbers had to deal with the unfair competition created by this large corporation representing unlicensed unskilled commissioned salesmen as legitimate licensed plumbers. The options for the legitimate plumber and plumbing contractor was work for less pay (which didn’t work) or get onto the same business model as Roto-Rooter. Most became flat-rate, commissioned based businesses. That is the situation today.
- The Roto-Rooter business model was so successful that it spawned many copycats. Virtually every drain cleaning company, large or small, nationwide, now advertises as a plumbing company. All have contractor registrations, most with “plumbers” and “plumbing” in the business names. The only problem is that they are not plumbers. They are sales and marketing companies masquerading as plumbers. They are drain cleaners at best. Some have hired licensed plumbers but the ratio of licensed plumbers to unlicensed “plumbing technicians” is very low overall.
The quality of the licensed plumber has degenerated over the years as sales and marketing companies that own plumbing contractor registrations are the wrong people to be training and certifying apprentice plumbers. The motives of sales and marketing owners are very different from owners that worked for years in the field as real trained plumbers. There are plumbers and there are salesmen/investors.
Roto-Rooter operates businesses in more than 100 company-owned branch and independent contractor territories and approximately 500 independent franchise operations, serving approximately 90% of the U.S. population and parts of Canada. Chemed Corp. Income is in excess of 1.2 billion dollars.Chemed 2008 annual report
The camel has moved in and now possesses the tent
Roto-Rooter - 2011 - The camel owns the plumber’s tent
But not without somebody starting to notice that something is very wrong…
The public is starting to notice some problems with the Roto-Rooter business model. Check out the nature of the lawsuits:
- Roto-Rooter Overtime & Illegal Wage Kickback Lawsuit Filed New York
- Middleboro plumber sues former employer Roto-Rooter over license violations Massachusetts
- Minneapolis police investigate fraud claims at Roto-Rooter Minnesota
- Roto-Rooter Faces Legal Action For Putting Unlicensed Plumbers to Work
- Lawsuit accuses Roto-Rooter of sending unlicensed apprentices to customers’ houses IAPMO
- Class Action Lawsuit against Roto-Rooter
- Worker's rights advocacy group challenges "Undercover Boss" Rick Arquilla to fix Roto-Rooter's jobs
- Morangelli vs Roto-Rooter copy of court filing (complaint)
- California’s class action lawsuit against Roto-Rooter
- Class Action lawsuit Ohio
- Federal prosecutors argue Roto-Rooter dumped grease into Mobile's sewer system
- State's lawsuit accuses Roto-Rooter of blowing up plumbing lines
- Roto Rooter Services Co. v. State of Connecticut, Department of Consumer Protection
The company that cleans our sewers takes care of our sick and dying. (??)
Chemed Corp. is involved in only two industries: Drain Cleaning and Healthcare
Chemed Corporation, through its subsidiaries, provides hospice care, and drain cleaning services in the United States. The company operates in two segments, Vitas and Roto-Rooter.
- The Vitas segment offers hospice services to terminally ill patients. This segment provides hospice services in the areas of routine home care, general inpatient care, continuous care, and Medicare cap. It also offers spiritual and emotional counseling to patients and their families through its team of doctors, nurses, home health aides, social workers, clergy, and volunteers.
- The Roto-Rooter segment provides repair and cleaning services, including sewer, drain, and pipe cleaning, as well as plumbing repair to residential and commercial customers through its network of company-owned branches, independent contractors, and franchisees. Chemed Corp. was founded in 1970 and is headquartered in Cincinnati, Ohio.
There are some problems with the hospice care as well:
- VITAS Healthcare owned by Chemed has liability problems in their heathcare business
- Massachusetts Whistleblower Lawsuits, Hospice Neglect, and Medicare Fraud
- Chemed settles VITAS class action lawsuit for $17.4 million in California
- California lawsuit VITAS claim of non-payment of wages
- Preparing Americans for Death Lets Hospices Neglect End of Life
What does drain cleaning and hospice care have in common?
Both industries rely upon hiring state licensed certified personnel to perform specialized skilled work.The apparent business model: Promote professional licensed services but substitute cheaper labor even if it violates the intention and letter of the licensing laws regulating that industry.
The impression one is left with after reading the lawsuits and the profit reports is that Chemed Corp. has a business model that is based upon cutting the costs, by any effective means, of licensed skilled labor. How do you cut costs when what you sell is licensed certified, professionals? There is a reason plumbers and heath care professionals are highly paid - they invest years in apprenticeship, traing and schooling to become competent and certified as skilled. How Chemed cuts those costs can be guessed at by looking at what they did with Roto-Rooter: substituting sub-standard non-certified (unlicensed) personnel whenever it can while promoting, marketing and advertising a licensed professional. It is a bait and switch scheme tailored around the weaknesses in professional labor licensing laws and enforcement capabilities.
Evan Conklin owns Evan Conklin Plumbing & Heating Inc.; a small shop plumbing contractor that specializes in repair, remodel and re-piping for residential clients in Seattle WA.