The two models in one paragraph each
Flat rate. You build a price for each task from standard labor hours, your hourly cost, parts and a target margin. The customer hears one number and approves it before work starts. If the tech finishes early, the shop keeps the difference. If the job runs long, the shop eats it. See flat-rate pricing in the glossary.
Time and materials. You bill an hourly rate for the time actually spent, plus parts at a markup. The customer does not know the final number until the work is done. A fast tech produces a smaller bill; a slow one produces a bigger one. See time and materials.
Worked example: same job, three different techs
Say a faucet replacement takes 1.5 hours on a normal day. The shop's cost is $140 per labor hour (burdened labor plus overhead, see the burdened labor rate) and the faucet costs $60. All numbers are examples.
Flat-rate price: (1.5 hours x $140 + $60) / (1 - 0.30 target margin) = $270 / 0.70 = $385.71, rounded to $389.
Time-and-materials version: $165 per hour billed, plus the faucet at a 50% markup ($90).
| Tech time | Shop cost | Flat rate: price / profit | T&M: price / profit |
|---|---|---|---|
| 1.0 hour (fast) | $200 | $389 / $189 | $255 / $55 |
| 1.5 hours (normal) | $270 | $389 / $119 | $337.50 / $67.50 |
| 2.5 hours (slow) | $410 | $389 / -$21 | $502.50 / $92.50 |
Three things jump out:
- Under flat rate, the customer pays the same no matter who shows up. Under T&M, the customer with the slow tech pays almost twice what the customer with the fast tech pays.
- Under flat rate, speed and skill make the shop money. Under T&M, they cost the shop money. That is the opposite of what you want to reward.
- Flat rate can lose money on a bad job. That is the price of carrying the risk, and why the standard hours must be honest.
You can test your own numbers with the job pricing and markup calculator.
Who each model is right for
| Situation | Better fit | Why |
|---|---|---|
| Repeatable repairs (fill valve, disposal, breaker, capacitor) | Flat rate | You know the time; customers want a number first |
| Equipment replacements (water heater, condenser, panel) | Flat rate or a fixed bid | Scope is clear once someone looks at it |
| Open-ended troubleshooting (intermittent leak, nuisance trip) | T&M or a diagnostic fee | Nobody can scope it until the cause is found |
| Remodel work behind walls | Fixed bid with allowances, T&M for unknowns | Hidden conditions are the main risk |
| Commercial work with a GC or property manager | Whatever the contract requires | Many contracts set the billing method |
Why so many service shops move to flat rate
The customer question is almost always "How much?" Flat rate answers it before anyone picks up a tool, which makes it easier for the customer to say yes and harder to argue at the end. It also stops the awkward moment where a homeowner watches the clock while a tech works.
It also changes how techs work. When the price is fixed, a tech who carries the right parts and finishes cleanly is making the shop money. When the price is hourly, there is no reward for that, and some customers will suspect the opposite.
How to make flat rate safe
- Use real standard hours. Time your own crews on a handful of real jobs for each task. Do not copy a generic book's hours without checking.
- Write add-ons as separate lines. Seized shutoff valve, corroded fittings, a second trip for a part. Each one is its own price, decided before it is done.
- Re-check parts costs. A flat price built on last year's supplier cost quietly shrinks your margin.
- Watch job margins after the fact. If one task loses money on most jobs, its hours or price are wrong.
- Keep a diagnostic fee for calls where the cause is unknown, then quote the repair flat once you know it.
For the step-by-step build, read how to build a flat-rate price book.
How to make time-and-materials fair
- State the hourly rate, the minimum charge and how parts are priced before work starts.
- Give a not-to-exceed number where you can, and call before passing it.
- Log time from the job, not from memory, and show it on the invoice.
- Make sure your hourly rate covers burdened labor, overhead and margin, not just the wage. A rate of $165 when an hour costs you $140 leaves very little room.
Common mistakes
- Applying a markup to costs and calling it margin. A 30% markup is only a 23% margin. See markup vs margin.
- Switching to flat rate without telling techs how they are paid. If techs are paid hourly and the shop is paid flat, explain why speed now matters.
- Letting techs discount flat prices on the spot with no approval. That turns flat rate back into a negotiation.
How SWITCHBOARD handles this
SWITCHBOARD keeps flat-rate tasks in a Price Book with their hours, parts and rules, and shows the margin and markup of each estimate against your target while it is being built. Off-book prices can require an approval, and job margins after labor, parts and drive time show which tasks are priced wrong. Book a 30-minute walkthrough to see it on your own job list.
Questions people ask
Is flat-rate pricing more expensive for customers?
Not by definition. A flat price is built from standard hours, so a customer with a slow tech often pays less than under hourly billing, and every customer knows the price before work starts.
Can I use both flat rate and time-and-materials?
Yes, and many shops do. Flat rate for tasks you can scope, time-and-materials or a diagnostic fee for open-ended troubleshooting and hidden conditions.
What hourly rate should I use for time-and-materials?
Start from what one billable hour costs you, including burden and overhead, then add your target margin. Do not set it from the tech's wage.
What happens on flat rate when the job takes much longer?
The shop absorbs the extra time unless a new, separate problem is found and the customer approves an add-on. That is why standard hours must come from your own timed jobs.