Do you know about - Got Flat Rate?
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You've probably seen them: six-wheel box vans with billboard-size ads on the sides, sometimes displaying a blown up picture of a white-toothed smiley-faced middle class woman on the phone, suggesting everything in life is great for her, now that she's found a disposable-booties-wearing plumbing & Hvac company. Or possibly you've called one of those colorful full-page ads in the Yellow Pages. You know the kind, they make you feel warm and fuzzy, and define everything you notion you wanted to hear. And what about their application of every prestige card logo under the sun? Did that reassure you that if your unplanned plumbing crisis caught you short on cash, then you should, without further thought, plainly use your plastic? Did the 800-number, blazing red as fire, subliminally suggest: "hotline straight though to the Maytag Man, who sits patiently awaiting to soothe your flustered mind"? Welcome to the world of Flat Rate plumbing and Hvac advertising!
I bet there's something you don't know, unless, of course, you did hire one of these companies - they fee between 5 and 0 an hour. If you didn't know they charged that rate, you are not to be ridiculed for your ignorance, as that rate is disguised in the sell price of every part that they say (wink) you need.
Well, I am going to shed some light on the dark magic behind the M.O. Of the Flat Rate model, then maybe you won't go into cardiac arrest from seal shock should you find yourself paying one of these companies after your next plumbing or Hvac emergency.
The Background
Among the self-employed in the Hvac and plumbing trades are those who have long struggled to eek out a decent living, myself among them. Traditionally, we've charged an hourly rate, plus a modest mark-up on materials. As a service technician for two 2nd generation fuel companies - Tenney Fuels, and Ferns power Centers - in the early '80s, I was paid .75 per hour to start, ten cents above minimum wage. Those companies charged per hour and made a profit on parts, furnaces, burners and boilers, and the sale of fuel oil, the latter bringing in the lion's share. Then, in 1983, Tenney sold out to a hot shot "petroleum marketer" and my pay was raised to .90 an hour. In parallel, the new fuel oil conglomerate raised Tenney's rates, and started charging the buyer for everything from pipe thread compound, and a few sprays of parts cleaner in a can, to rapid dry (kitty litter) to suck up oil we spilled on the floor. It didn't matter that I spit-cleaned the burner electrode porcelains, the buyer still was charged for noxious spray cleaner. The name of the game changed from, service and premise work of the utmost potential (at a fair price), to slap-it-in-as-fast-as-you-can, and maximize profit in every conceivable way, irrespective of quality. The new business even brought in technicians already trained on their new recipe at other branches, to show our service agency how it would now be done. It was a shock to me, a green horn, as every primary convention bestowed upon me over the former 2 years was clearly and painfully on its way out. The shock on the faces of the customers, some who had been with the business since its inception, was a poignant perceive for them and me. Steadily straight through the 1980s and '90s, the endangered Old School slid closer to greatest extinction, along with the family-run feel that we were all used to. The Big Boys made their entry with slick, grand, unimaginative signage, sporting corporate logos that left us - the employees and the customers - feeling like an invasion was underway.
In 1988, I'd nearly had it with the new model that I felt imprisoned by, and resorted to recanting inescapable affirmations I located on my service van console - anything to influence peace of mind so I could make it straight through another soul-wrenching day working for The Man. By this time I was employed by a plumbing undertaker of a package deal who seemed to embody the New School philosophy of taking the buyer for all they were worth. Though I had been in the trade for 8 years, a co-worker and junior technician - experience-wise - set out to "show me the ropes" my first day on the job. By noon he'd managed to bill for 8 hours, per man, charging each buyer for the time it would hypothetically take to travel to their home and back to the shop. It didn't matter if 3 of the customers lived on the same street, they still got charged the full hour round trip, as if they were the only service call out their way that day. While the policy of our rounds, the profit-motivated technician charged one buyer - my dentist - for a light bulb in the furnace room that he bumped his head on and broke. While there, he only wiped the dust from the furnace. The bill came to over 0. Next, he charged a buyer for an ignition transformer that was not defective. Then, he charged a 93 year-old woman in a mobile home 5 dollars for wiping the dust from her furnace, and a new oil burner nozzle, despite the woman's plea that she could barely conduct on her deceased husband's collective protection check. (A month later, when the woman called with a no-heat emergency, she got me, the on-call technician. I went to her house, after general business hours, and found that the burner master control had failed, so I supplanted it...free of charge, as reward for the bath the technician gave her months earlier. I'd lied on my report, stating that call was a non-chargeable callback due to improperly adjusted electrodes.)
I was paid piecework for the exact time I billed a customer. Otherwise, if I didn't fee them for, say, a trip to the furnish house for parts, or travel to their home and back, or for completing the day's paperwork, I didn't get paid for that time. I notion the business owner was a criminal for making his living the way he did, and nostalgically pined for the early days at Tenney and Ferns - honest and ethical companies. I felt the gift business not only ripped off (in many ways, not fully explainable in the context of this writing) the customer, but also ripped off me, the employee, by illegally docking my pay for not filling out the daily paperwork correctly.
The last straw for me was when the business charged Kay O'Brien, an elderly woman of 84, for several service calls by a plumber-employee who had no knowledge of oil burners. When I was finally sent to straighten out the primary problem, and the further ones he managed to generate with a bountiful helping of sheer ignorance, I recommend that she call the main office and account for (complain). The owner's daughter (the business bookkeeper) told her to "pay the f-ing bill, or we will take you to court!" This unbelievably disturbing and aggressive lack of gratitude upset me as much as it did Kay, and profoundly affected my attitude, unlike anything I'd felt working for any prior company. I withdrew from participation in business meetings and events and, ultimately, I was fired. The boss man said I "wasn't a team player", and I agreed, at least not on his team, which lead me down the solitary road of self-employment...and hard knocks.
5 excruciating years had passed and I realized I could have been making more money working for a New School employer While that forlorn duration of pure angst. My earnings peeked over the poverty level barely enough to see the other side, gazing at what the Joneses had that I couldn't muster from no matter how hard I'd worked. Soon, my wife left me for a lawyer. (Whatever happened to for richer or for poorer? I think she opted for richer.) Instead of giving in to working for The Man", I chose to risk everything on my luck as an inventor (see my essay, "Lessons In Invention Development"), which, by the way, is like jumping out of an airplane without first checking to see that the chute on your back is not admittedly a backpack full of bricks.
Just prior to falling like The Old Man of The Mountains, I was approached by a business wanting to sell me a Flat Rate franchise and poured on the sales pitch in equal parts to the, aforementioned, over-the-top, advertising on the sides of inescapable trucks. I rejected their solicitation because their business model and methods seemed like voodoo. Bankruptcy seemed a more challenging option. A local plumbing business owner did buy into the franchise, and soon he was focusing all his efforts on service, all the while his inordinate drinking showed his behind-the-scenes stresses that apparently forced him into his decision to turn his business model to the Holy Grail the Franchiser sold him on. He had a great many service vans with list levels I had not seen since the old days. He had a huge color ad in the phone book that must have cost upwards of a ,000 a month. (I paid 0 for my black & white quarter-page ad.) He had an 800-number, in bold red ink, and slogans that I knew he wasn't clever enough to dream up by himself. The ad, with prestige card logos all in a row at the bottom, convinced me he had gone Flat Rate. I visualized him with voodoo dolls that resembled his customers, squeezing them until their wallets spilled out of the pockets, cash flowing from them for him to seize - the how-to instructions printed on some secret page in his Flat Rate pricing book. I was skeptical of his ethics, as it seemed he had bought into something that recommend profit trumped quality, fairness, and full disclosure. I thought, "If it quacks like a duck..."
I pondered the methodology behind the new buzzword, Flat Rate. Being a creative thinker, and problem-solver, I notion the recipe was ingenious, juxtaposed to that of the Old School way of generating revenue. I examined the core problems in the trade, but also the lack of fulfillment linked with being self-employed, from my humbled and beaten down point of view. Competition was fierce, and there seemed no way to go up on rates without losing bids, customers, and sales. I felt I was on the precipice of defeat, the sanctified martyr for the cause of doing honest work at a fair price, which seemed passé. Also, there seemed no way to afford employees, and the principal benefits container they routinely demanded. I held back my spiteful tone with retained notion so as no interviewee would notice when he uttered demands like "vacation"; "insurance"; "holidays", like so much lava from a volcano, scorching my patience to cinders. He didn't know, nor would I reveal, out of inescapable embarrassment, that I had none of these bennies. Once upon a time, I enjoyed all that he asked for at the family-owned fuel companies. Nonetheless, it seemed ironic to furnish others with the very things I was missing by not working for The Man.
An established business with 15 technicians in the field can generate enough earnings by the Time & Materials model, but I was beginning to see the employee prospects that I interviewed demanded a full recompense package, and that I would never come to be the business that could afford to pay them. And with customers questioning, "What, you fee an hour? I can get so and so for and hour!" the pressure to suppress the urge to fee more was what I feared and loathed the most, but was ever present. The over arching problem in the trade, that desperately needed fixing, was the perception in the mind of the consumer that no matter the hourly rate, there was all the time person out there who should be sought for a "competitive" bid. That sounds like Free shop Competition at work. By not charging by the hour, rather charging for 'materials only', albeit, with a hefty price tag that obscures the true cost of the parts, the Flat Rate model appeared to have offered up a solution to the problems I experienced. I'll explain.
The Way it Works
When you call a Flat Rate Company, typically it's because you are desperate to have your no-heat, no-hot-water, or worse, "no water" problem remedied, quickly. The typical Flat Rate buyer gravitates to the "Yellow Pages" like steel to a magnet, and dials the number in the most eye and emotion-catching ad. The business behind the ad anticipates them coming, and, in a sense, is like the Maytag Man who sits waiting for the unsuspecting and desperate voice on the other end of the phone line. The troubled voice is a base one, and the prepackaged mantras of the Flat Rate business - "Honey, just call ________." (Fill in the blank with a name of Flat Rate Company.); "Repairs and maintenance on all systems"; "You get firm, up-front estimates and fair, contentious prices"; "Better potential guarantee"; "90 days no payments, no interest financing"; "At last, a serviceman who is all the time on time, or you don't pay a dime"; "Never an overtime charge"; "You know the price, before we start"; "Clean, expert technicians"; "Immediate response"; "Our prices are based on established standards"; "_______ solves over thousands of residential problems a year and we can solve yours now" - are like valium to ease the caller's anxiety. Those lines hook you fast in your most time of need. Hey, if you can get an experienced, neat, clean, and expert plumber who allows you to approve the price before he does the work, and he smells nice (yes, there is an ad for nice smelling plumbers), and you can slap the repair on plastic, then who wouldn't call? It's true, the Fat Raters are commonly there in short time, have the parts in their warehouses-on-wheels principal to solve your problem, and you do approve the price before they begin work. However, there's more to their formulae, and intent by some, than catches the eye.
The Catch
Many Flat Rate companies tell you over the phone when you call, not in the ad, that there will be a trip fee (leverage) if you don't "approve the price" for remedying the diagnosed problem when they arrive. By then you've already done all the hunting for a technician in the jungle of ads that you can stand. When they assure you they can swiftly solve your problem, you agree to pay the trip fee should you disagree with their price. Shortly, the technician arrives, and in time he tells you that your problem is such and such, and the cost to fix it is...well, on page 7 of his Flat Rate pricing book. The price seems like a lot, but you have no way of knowing if it is too much - it's not like comparing brand names to generics side by side on the shelf of the supermarket. Besides, you are in a hurry to get your kids off to school, and get to work, and everybody needs to brush their teeth first. You Want Water, Now! So you whip out your Visa card and he swipes it before you, and then busies himself in the basement for a while. Once the repair is made, your nice smelling plumber comes upstairs, utters niceties, and when he is admittedly out your door, removes his disposable booties, hoping you'll notice he didn't dirty your floor, which might be the most profound thing you remember about his visit.
On his way to his next service call, the technician whistles with glee, knowing he just made a 7% commission (an incentive to sell as many parts as possible) on the gross sale, on top of his ,000 salary. Some of these guys make over a hundred grand a year!
[As a salesman for the last business I worked for, in 2002, I made 2% commission on net profit, which was carefully by the owner of the company, though I wasn't privy to his calculations. I quit a year later and they refused to pay my commission check.]
The Math
So how do they arrive at their high prices? Hypothetically, the well pump pressure switch at the root of your no-water problem cost the Flat Rater , but you paid 9.25 (the fee that you 'approved before they did the work'). 9.25 - (their cost of the switch) = 7.25, the Company's mark-up. If you hired a time and materials guy, say, at for the hour in your home and one on the road, plus - an midpoint sell price for the switch, you'd pay 4. Now, subtract from the Flat Rate price of 9.25 and 5.25 is the labor number you've been charged. But wait, there's more. Divide their labor number by two (hours) and their equivalent hourly rate is 8 per hour - more than twice that of the time and materials guy! You think, "How can this be? He was only here for 45 minutes?" Then you suck it up and remember his booties and your clean floor, rationalizing away your concerns, especially about the new equilibrium on your prestige card, which you can make minimum payments on anyway. But don't forget to factor in the interest, bringing the total cost of the Flat Rate Company's repair to new heights never before seen in the Old School model. What is the Flat Rate technician's cut? 7% X 9.25 = .55, but that's in increasing to his salary, or high hourly pay.
These are midpoint numbers, of course, but you get the idea.
Some Flat Raters take price-setting to an extreme, raking in up to 0 and hour, then laugh straight through their admission of guilt to fellow tradesman at the furnish house. I've admittedly heard them there, at the counter.
It's all about their marketing, paired with the desperate consumer's emergency, otherwise, the entire business model wouldn't hold up. The consumer pays a prime for the company's means of letting you know he can have a technician there with the principal parts, within an hour. But that doesn't mean that a thoroughly qualified technician will show up at your door. anything can turn parts. Besides, the more parts they sell you, the more often you pay that premium...until finally he fixes your problem. It's approximately all the time a net gain for the company, but a loss for the consumer. If the unqualified technician sells you 3 parts, or more, depending on the true problem and how long it takes to replace parts until the right one is found, the equivalent hourly rate swiftly skyrockets to the aforementioned 0 an hour range. It's math 101.
There is an army of these companies now canvassing the populous neighborhoods all supported by their big ads, hoping to add new customers, as many are one-timers, given the unwanted economic bath they took the last time. Speaking of being taken to the cleaners, how does 0 for a plastic Zoeller sump pump suit you? Maybe ,900 for a 40-gallon galvanic water heater sounds attractive? I think not! Check Home Depot's prices for those items the next time you are there. Flat Rate pricing seems to save the consumer from data they shouldn't see. What they don't know won't hurt them?
More often these companies are franchises and they are popping up colse to the country, from California to New Hampshire. But a local business (though I reckon it is only a matter of time before they sell franchises) boasts of having 35 fully stocked trucks on the road, in New Hampshire! admittedly there must be as many dead moose on the road.
Two Schools Collide
With pricing like that the Flat Rate business can afford to pay their employees great than the non-Flat Rate competitors, thereby attracting the labor pool away from the Old School guys like me. However, guys with talent, skill, and ethical fortitude tend to work for themselves. The dilemma is omnipresent. I ask, why would anything work for me if all I paid them was K a year, and meager benefits? The Flat Rate recipe answers this question, as it addresses the quandary of how to make self-employed tradesmen profitable, so they, too, can have the same benefits that their employees demand.
The New School, and Flat Rate have convinced me of the direction the trade has been headed in for some time, and that it will never return to the days when I began as an oil burner technician for fuel companies that had been colse to since the beginning of oil burners themselves, and coal-fired systems before them. Still, I pick to work by the primary ethics that I was fortunate enough to be taught, at a time when the winds of turn were shifting. I've let go of the idea that I would employ many and reap the profits they generated for me. Now I work alone and hire another self-employed guy when I need a second pair of hands to complete a job that requires more than one, rather than go Flat Rate and take advantage of the customer. I do believe in business ethics (surely some of you are laughing at my naiveté). Maybe I'll never sway from the Old School approach, as I still have zero patience for the sub potential work done by the bottom of the labor pool barrel, and by some of these Flat Rate companies. Call it ego, or call it nostalgia, I call it freedom, leisure to pick to feel great about the work I did today, without having to scam anyone.
Presently, where once I charged only for the time on the job, I fee for the total time that I commit to my customer, along with travel time both ways. Also, I fee for diesel fuel to get there. After all, the time and expense of traveling to my customer's site is not for my benefit; it's to solve their Hvac problems - my primary business.
I know every task required to complete any Hvac job, and the order in which they should be performed. With 28 years experience, I feel unlike many of the Flat Raters who often only have a few. Really, many are easy parts changers in a neatly pressed uniform, behind the wheel of a challenging billboard / warehouse, carting colse to 25 grand of inventory...and a Flat Rate pricing book.
Despite my many complaints about them, I feel the Flat Rate innovators were very creative and insightful when they formulated their solution to the ills in the trade. However, I feel their recipe is fraught with deception, and opportunity for fraud. Not all are bad, but take the following as example:
The Fraud
A case in point is my buyer Cheri Whittaker's perceive with a Flat Rate company. Cheri called me for a "free estimate" to turn the boiler in her home, in Exeter, after looking my ¼-page black and white ad (that cost 0 per month), in the Portsmouth telephone book. Being a savvy and knowledgeable salesman, I knew enough to get a lot of data up front, before I agreed to give a free evaluation - something everybody calling ads in the phone book expects. Estimates take a lot of time, if done carefully and accurately. The answers Cheri gave to my queries - namely who the (Flat Rate) business was that condemned her old boiler two weeks earlier - caused me to reckon she just needed an honest and experienced technician to diagnose the problem correctly. I felt I was her man, and agreed to give the estimate.
Upon advent in her basement, I noticed that the air gate on the oil burner had been intentionally shut, causing the fire to burn incredibly dirty. Black smoke spewed from the chimney, and the boiler was plugged with soot. Before long, damage to the oil burner would result. Cheri showed me the invoice and recommendations the technician had left with her. There were many reasons listed on the invoice for condemnation of the boiler - every one false and designed to pressure Cheri into buying a new boiler from a "Comfort Advisor" they planned to send out to give an estimate. Had she gone along with their prognosis and prescription, the technician would have received a 0 commission in his paycheck that week. Imagine him doing this more than once a week, and you can see how he would admittedly coming a 0,000 annual salary.
The last time the boiler and burner had been serviced, prior to the Flat Rate Company's visit, was over a year, so I knew the business technician had sabotaged the boiler intentionally. Otherwise, an oil burner starved of air would have caused it to fail in a matter of weeks, and it was nearing that point. In a way, the technician's statement on the invoice was correct: "the boiler is due to imminently fail".
Cheri and her husband asked me to confront the Flat Rate Company, in their presence, so no surprise, I agreed. Soon, the technician and his service employer arrived at their home and we converged in the basement. Within 15 minutes, I proved false the Company's claims in their invoice and of no wrongdoing. The Whitakers were not impressed with the hollow answers and guilty looks from the two, and evicted them from their home, telling them they would never return. I proceeded to clean the very dirty boiler and bring it back to good, safe operating condition for a few hundred bucks - a far cry from the ,000 it would have cost to replace the boiler.
The Summation
Cliché's abound for situations like the aforementioned such as, caveat emptor - "buyer beware". And, "if it seems too good to be true, then it probably is." Think of all the claims, promises, and guarantees in the phone book ads, then recall what they charged you. Was it a steep price? Had you ever been charged that kind of money for a service call in your past? What about the so-called Trip Fee, did you opt for that and disapprove of their Flat Rate? Did the technician fix the problem correctly the first time, or did you have to call him back? Gimmicks like disposable booties, and surreptitious slogans - "you approve the price" - are devised to dupe the layperson from mental about the price for a repair. These companies are clever, and getting rich without doing much potential work for the money, but they do sell a lot of parts, which I suppose bolsters the economy.
My Mom and her husband in California were just hosed by a Flat Rate Company, paying twice the price for outmoded air conditioning equipment that is being phased out because its refrigerant destroys the Ozone layer. I wished I could have saved them from the wolf-in-sheep's-clothing relax Adviser that sold them on the idea of replacing their functioning furnace and condensing unit, before that business loosed their disposable booties in their home. I don't blame the one's who've been bitten; I hold the snake charmer responsible for allowing the snake to bite.
But, hey, at least the owner of that one-hour flat rate business is content with not having to work for The Man - something we do have in common
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