An Argument for Flat Service Rates

By Rich Lindblom, YSN

I believe far too many servicing dealers are selling themselves short when it comes to what they charge for appliance repairs.

The issue of service call pricing is especially pertinent to BrandSource members, of whom more than 80 percent perform their own appliance repairs. 

Over a decade ago, my company was charging for service the same way most dealers did.  We charged a $65 service call fee that included the first thirty minutes of time, and then $15 per quarter hour after the initial half hour.  And we were at that rate for quite a long time because like many of you, we were paralyzed by the fear of increasing our prices and losing customers.

I eventually dug deep into our numbers and calculated that our average service call generated (at that time) about $84 in service and labor costs.  After spending weeks (probably months, in reality) debating the merits of going to a flat-rate service charge, my brother and I finally pulled the trigger and switched over to a flat rate of $99 plus parts for a service call.  Additional appliance repairs were charged at a half rate of $50 plus parts.

We learned a great number of things pretty quickly after we made the change:

1. The funny thing is that as simple as a flat rate service call charge is, customers had a heck of a time understanding it.  They would constantly ask questions like, “OK, it’s $99 and how much for the labor?” or “So, it’s $99 for the labor but is there a trip charge?”  If you decide to make the change, just be prepared to explain to customers over and over again something that should be very easy to understand.
2. We didn’t lose nearly as many calls as we had been afraid of losing — maybe one or two calls a month at most.  When you take the time to explain the charges, people realize it’s actually a pretty good deal compared to the rest of the crooks out there.
3. We instantly saw an increase in our service revenue. That was to be expected, going from an average call of $84 in labor to an average of $99 in labor.
4. What we didn’t anticipate was a substantial reduction in the number of refused estimates for repairs. This meant more completed repairs, less condemns, and an increase in parts sales as well.  We came to the conclusion, albeit not scientifically, that customers were rationalizing that since they had already paid for the labor in full, what the heck, they may as well go ahead with the repair. 

So, while we saw the expected increase in labor charges, the additional increase in parts sales was an added bonus, and made us that much more certain we had made the correct decision.

After a few years at that $99 flat rate, we increased it to $149 on refrigerators, wall ovens and cooktops.  As we expected, we didn’t get a whole lot of resistance and were instantly netting out an extra $50 per call on each of those appliances.  After about two years at that rate schedule, we ended up just going to a straight $149 plus parts for every appliance. (We stayed with the $50 for each additional appliance.)

Keep in mind that we were in the Chicago market, which has some of the highest prices for labor and overhead in the nation, so you might not be able to charge that much in your market area. But it’s not about the exact amount you charge; it’s more about raising your rates in general and going to a flat rate specifically. 

We’ve seen the numbers several times in the past couple of weeks suggesting that the national average cost to run a service call is $104.  And I know for a fact that there are a large number of dealers out there who aren’t even charging that much for a service call today.

See: Stop Losing Money on Every Service Call 

So I’m going to keep saying it until everyone hears it and understands it: Your service department is not a cost of doing business.  Your service department should be making you a profit every month.

I would ask each of you to take a long, hard look at what you are charging today, because I think there are a whole lot of people out there who need to rethink what they are charging for their services. Start by figuring out how much your average service and labor revenues are per call right now, and I would suggest adding at least 20 percent to that number and make that your new flat call rate (always keeping in mind that $104 is the national average cost to run a call).

If you need help crunching the numbers, the BrandSource Service Playbook, available in the Backroom to members, includes a rate calculator, , and the United Appliance Servicers Association offers one for UASA members as well. The sooner you do it, the better it will be for you.

Independent dealers would also welcome the support of the vendor community in establishing fair flat rates — rates that would allow the dealer to cover the costs of running a service call along with related administrative costs, and perhaps make a small profit on top of that.  This will help ensure that customers continue receiving a high level of expert service that reflects well on the manufacturers’ brands.

And if you get pushback from customers, take the time to thoroughly explain exactly how your rates compare to your competitors. I’d be willing to bet that even at a new, higher flat rate, your service charge will still be lower than that guy doing repairs out of his trunk or those commission-based companies.

It’s always gratifying when someone responds to one of my articles because it struck a chord with them. So if you have a question or comment (good or bad) about something I wrote about, please contact me at egvrich@gmail.com. I’d love to hear from you.