Why Service Companies Need To Be Flat Rate

February 29th, 2016

Example of a Price Book | Software

Why Service Company Need To Be Flat Rate

If you are reading this and wondering, “Do companies still charge time and material?” The answer is surprisingly…YES! So, for those still charging time and material, this article is for you.

Flat rate for service companies implies predetermined rates for the service to be provided by a company. Customers will prefer this type of pricing as they will be able to budget for the service prior to its start. Most service companies have come to adopt this type of pricing as it bears numerous benefits.

However, before a company can set a flat rate, it has to carry out a thorough analysis of the activities of the service which will include all costs from the service activities, plus a markup. Remember that flat rate type of pricing for service companies is similar to time and material rate of pricing. The only difference between them is that for the latter, the rate is determined after the service is rendered. So why should a service company be flat rate? Here are the benefits that come as a result:

Improved customer satisfaction

With a flat rate, customers will have prior knowledge of what it will cost them for the entire service project to be completed. It means that the customer will not be worried about the price of the service project as it is known to them before the service begins. However, when the pricing is time and material, a customer will only know the cost of the service project after it is complete. This can bring worry and inconveniences due to price uncertainties.

Accurate invoicing

When quoting the service work before the service begins, it means that the invoice billing reports can be made accurately. However, if such a cost is determined at the end of the service work, this can delay billing, which is vulnerable to errors and omissions in the computation and an unhappy customer.

Faster estimates

The service company will be able to give a quick estimate when a customer demands to know the cost of particular service work. A flat rate provides the service company with flexibility and quick customer feedback when it comes to the quotation. It provides room for closing the deal early, negotiation and the immediate scheduling of the service work. No calls to the supply house for material costs.

Quick preparation of invoices

Your service personnel can prepare invoices faster in a company that has adopted flat rate model. As a result, it can reduce the number of debtors which only means increased cash flow for the service company. Also, your personnel will have more time to be productive as they will spend less time in the preparation of invoices.

Although the flat rate method of pricing will benefit both the customer and the service company, it has to be periodically reviewed to ensure its efficiency due to factors like inflation and other economic changes.