There are two schools of thought on pricing handyman projects and service work: time and material (T&M) pricing or upfront (flat rate) pricing. They both have advantages and disadvantages.
Time and material pricing means you charge the client for the actual hours and actual material costs incurred to do the work. Sometimes a rough estimate is given to the client, but whatever the costs are, that’s what the client is asked to pay. The final price of the project is known once the project is complete.
In time and material pricing, you’ll charge an hourly rate for labor. The hourly rate is established by considering the cost of labor plus the overhead and profit needs for the business. Materials are charged at either their cost or at their cost plus a markup. If there is a markup on the material cost, the labor rate can be lower because the markup on material helps recover some of the overhead and profit.
That means that just like every other construction-related business, the owner of a handyman business needs to know what their costs are so they can calculate the correct labor rate and the correct markup on materials. (Our Markup Calculator software helps calculate your labor rate with or without a markup on materials.)
When working with a client, time and material pricing is straightforward. Once you explain how you will price the project and give them a rough estimate of how long it will take and/or how much it will cost, you’re good to go. Complete the job and it’s time to get paid.
The downside of time and material pricing is that you need to keep a written record of the time spent on everything you and your employees do as it applies to that particular job. If there isn’t a clean paper trail, you or your employees will end up guessing at the amount of time and/or materials used, and they might charge the job wrong. Sometimes the person doing the work wants to be nice and throw in things for free. It’s a kind thought, but it also costs time and money.
I’ve advocated for years that T&M should only be used on jobs that are $2,500 or less. One reason is that your client knows they’ll be charged for every hour on the job. If the job is large enough, it’s worth their time to watch and question everything you or your employees are doing to make sure it’s productive. It’s called bird-dogging. “Why do you have to go out to the truck so much? Am I being charged for all the trips to the supply house? How can your employee spend so much time in the bathroom? He took a 44 minute lunch break, am I being charged for that? What’s with all the time on the phone, why am I paying for that?”
If you or your employees aren’t working efficiently enough in the eyes of the client, you might end up with an argument when it’s time to collect payment. You also stand to lose future business and referrals from this client.
To be fair, it’s understandable why clients do this. They know the meter is running, and they don’t want to spend more money than necessary. One way to alleviate their fuss over how you and your employees spend your time is with upfront pricing. When you use upfront pricing, you eliminate the client bird-dogging your tech to be sure that no time is being wasted. This is where upfront pricing has a decided advantage over T&M.
In upfront pricing, you estimate the cost involved in the project and quote a fixed price to the client to do the work. If you’re performing service work, the price might be determined by looking at a national average or a rate book. Or it might be estimated by the employee on the spot based on their experience. If the job takes longer time than estimated, you could lose money on the project. If it takes less time, or fewer materials than estimated, you’ll come out ahead. Either way, the client knows before the project begins exactly how much they’ll owe when the project is complete.
You or your employee, on the job site, are the salesperson. When you give a total price beforehand, clients have the security of knowing what their final bill will be. It’s similar to selling a lump-sum or fixed-price contract in that you discuss the job to be done and not how long it will take. Your focus is on solving the client’s problem. You can alleviate the client’s fear that the project will cost too much, making it that much easier to sell.
When presenting the upfront price to a home or building owner, the total price should be quoted, not parts and labor. This allows the home or building owner to put their attention on the overall value of the repair or new installation and not the price per hour.
With upfront pricing, it’s easy for you or your employee to provide an invoice to the client and take check or credit card payment at the end of the service call. This eliminates the delay while the office prepares an invoice, mails it to the client, and then waits for payment to arrive. Billing disputes are reduced because the client has the opportunity to discuss and clear up any questions about the invoice directly with you or your employee while you’re still on the job site.
There is a downside to upfront pricing. You can’t throw a new employee out into the field without getting some jobs priced incorrectly. It takes knowledge and experience to correctly estimate the time and materials required to complete a project. If you or your employee price jobs too low, you’ll end up losing money. If jobs are priced too high, you might lose sales and/or referrals.
In service work, occasionally, if the client can explain their problem over the phone clearly and the work is fairly routine, using upfront pricing will give you the opportunity to quote the job over the phone. This saves time and money. I don’t always recommend it, but if you’re getting a lot of routine service calls and you have limited resources, phone quotes may be the best answer. Anyone trained in calculating prices who knows the right questions to ask can provide the client a rough quote. The client needs to know it might change if you show up and things aren’t the way they were described over the phone, but it’s a starting point. If the client wants to shop around, they have your firm’s estimate and your contact time has been minimized. If the client wants to proceed, you can schedule the service call and maybe even ask for a credit card number to close the sale before you arrive.
Upfront pricing is no guarantee that you’ll make a profit on the job. It’s based on an assumption that overall, you’ll make a profit on the jobs you do. Creating an upfront pricing system is not a one-time thing. Your job costing must be accurate and you must continually update your pricing manual or software program to be sure that the prices you are quoting are accurate so you can realize a profit on every job. Your company must have policies, procedures, and reasonable pricing data in place before you can confidently begin using upfront pricing.
With T&M you get paid for everything you do, or at least that’s the plan. In upfront pricing, you’re taking a gamble. If the estimate isn’t accurate, you eat the difference.
If you’re doing handyman jobs or service work and running into clients who don’t want to pay because the bill is too high, change to upfront pricing. They can’t argue with the bill after the fact if they knew what it would be before you got started.
No matter what, always collect payment before you leave the jobsite. Make sure clients understand when you set the appointment that you or your employee expect to be paid as soon as the job is done. You can handwrite an invoice using duplicate forms, or there are many affordable apps available that allow you to create an invoice and take credit cards on the spot.
Your goal, however you choose to price your work, is to charge a fair price, make the sale, complete the project and get paid, and do it all in as few trips as possible.
(An earlier version of this article was originally published in Dakota Supply Group‘s Connections Magazine.)