Every service owner faces this question. Do you quote one price for the job, or charge for the time it takes? Both can work. Both can lose money if they are set up badly.
What each method means
Flat rate is one fixed price for a defined job. The customer knows the total before you start.
Hourly means you charge for time worked, usually per person per hour, plus materials. You can give an estimate, but the final total is not known until the work is done.
Flat rate vs hourly at a glance
| Flat rate | Hourly | |
|---|---|---|
| Customer certainty | High. One number up front. | Low. The total can move. |
| Your risk if the job runs long | You absorb the extra time. | The customer pays for the extra time. |
| Reward for working fast | You keep the saved time as profit. | Faster work means a smaller bill for you. |
| Best for | Repeatable jobs with a clear scope. | Unknown scope, repairs, odd jobs. |
| Easy to compare with competitors | Yes. Customers compare totals. | Harder. Customers compare rates, not totals. |
| Admin effort | Needs good estimating up front. | Needs good time tracking. |
When flat rate fits
- You do the same type of job often and know how long it takes.
- The scope can be seen and described before you start.
- Customers want a firm number to approve.
- You want to be rewarded for being efficient.
When hourly fits
- You cannot see the full scope until you open things up.
- The customer keeps adding tasks as the day goes on.
- The job type is new and you have no history to price from.
- Conditions are unpredictable, such as damaged or hidden work.
The risks of each method
Flat rate risks
The big risk is under-scoping. You miss a stairway, a long carry, a bad access point, or a second visit. The price is fixed, so every extra hour comes out of your profit. Overruns also hide inside a flat price. You may not notice until you check the numbers after the job.
Hourly risks
Customers fear an open-ended bill. That fear can cost you the sale. Hourly also rewards slowness. The longer the crew takes, the more you earn, and customers know it. A fast, skilled crew earns less per job than a slow one.
Hybrid approaches that work
- Flat rate with a minimum. One price for the standard scope, with a minimum charge so tiny jobs still cover your drive time and setup.
- Hourly with a cap. Charge by the hour but promise not to exceed a stated amount without approval. The customer gets a ceiling.
- Tiers. Offer good, better and best packages, each with a fixed scope and price.
- Flat rate plus hourly for extras. Fix the price for the known scope. Charge a stated hourly rate for anything added.
How to build a flat price from your costs
A flat price is only safe if it starts from real costs. Follow these steps.
- Estimate crew hours. Include setup, loading, drive time and cleanup, not just the main task.
- Cost the labor (labor). Use a loaded hourly cost per person, not just the wage. Our labor burden calculator shows what sits on top of pay.
- Add materials, vehicle and fuel.
- Add a share of overhead. Insurance, software, office costs and similar items.
- Add your target profit. Divide cost by one minus your target margin. See margin vs markup for why this is not the same as adding a percentage.
Illustrative example only: two people for 4 hours at a loaded cost of $30 an hour each is $240. Add $40 of materials and $35 for the vehicle and fuel. The total cost is $315. For a 30% margin, divide $315 by 0.70. The flat price is $450.
The job price calculator does this maths for you. For the full process, read how to price a job.
Protect yourself with scope wording and change orders
Flat rate only works when everyone knows what the price covers. Write the scope in plain words.
- List what is included, in specific terms.
- List what is not included.
- State your assumptions, such as clear access, power and water available, and normal conditions.
- Say what happens if the assumptions are wrong.
Then use a change order for anything new. A change order is a short written note that states the added work, the added price and any added time. Get the customer to approve it before you do the work. Keep it simple, and keep it friendly. Most customers accept a fair added charge when it is explained clearly and early.
Check what happened after every job
The only way to improve a flat price is to compare it with the real result. Look at actual hours and costs after each job. If a job type keeps running over, raise the price or tighten the scope. If it keeps coming in under, you may be pricing too high. Our guide to job costing for service companies shows how.
How CrewBrain helps
CrewBrain tracks the real cost and profit of each job, so you can see whether your flat prices and hourly rates are doing their job.
Keep reading
- Trip charge: what it is, how much to charge, and when to waive it
- Hourly rate calculator
- How to Estimate Labor Hours for a Job
- How to Quote a Job Professionally, From First Call to Follow-Up
- All guides and free calculators
Questions owners ask
Is flat rate or hourly pricing better for a service business?
Neither is always better. Flat rate suits repeatable jobs with a clear scope. Hourly suits unclear or unpredictable work. Many companies use a hybrid, such as flat rate with a change-order rule.
How do I avoid losing money on a flat-rate job?
Build the price from real costs, write the scope in plain words, list what is excluded, and use written change orders for added work. Then compare actual hours with your estimate after each job.
Do customers prefer flat rate pricing?
Many customers like knowing the total before work starts, because it removes the fear of an open-ended bill. That is a good reason to offer flat rate when you can scope the job clearly.
Can I mix flat rate and hourly on the same job?
Yes. A common method is a flat price for the known scope and a stated hourly rate for anything added. Put both in writing before the work begins.