Flat rate means one price for a defined job, agreed before anyone picks up a tool. Time and materials means the customer pays for the hours you spend plus the parts you install. The difference is not really about billing. It is about who carries the risk when the job takes longer than anyone thought.
On flat rate, that risk is yours. On time and materials, it is the customer’s. Everything else follows from that one sentence.
Which jobs suit which
The test is simple. Have you done this exact job enough times to know how long it takes on a bad day? If yes, flat rate. If no, time and materials until you do.
| Suits flat rate | Suits time and materials |
|---|---|
| Repairs you do most weeks | Work you have not done ten times |
| Scope you can see before you start | Anything behind a finished wall, ceiling or slab |
| Equipment swaps and standard installs | Demolition, water damage, rot and rodent work |
| Anything you can write on a quote in one line | Insurance work where someone else writes the scope as you go |
| Jobs where speed is worth money to you | Diagnostics and intermittent faults |
Most small shops run both. Flat rate for the everyday work, time and materials for the jobs nobody can see the end of. That split is not a compromise, it is the honest answer to two different kinds of work.
Either way the price and the scope belong in writing first. On residential work that is often the law. California requires a written home improvement contract covering the work, the payment schedule, the completion date and who pulls the permits.
Build a flat price from your own hours
A flat price is your hourly cost with the guessing done up front. If you have not worked out what an hour of your billable time costs, do that first, because every number below rests on it. The service call post has the long version, and the hourly rate calculator runs it with your own numbers. The short version for an owner with one truck: $70,000 of pay plus $30,000 of business costs divided by 1,250 billable hours is $80 an hour to break even, and $92 an hour with 15 percent profit on top.
Example: swapping a 40 gallon water heater
Count every minute the job takes out of your day, not just the minutes on site.
- On site: 3.5 hours
- Driving, round trip: 0.7 hours
- Picking up the tank, pulling the permit, writing the invoice: 0.4 hours
That is 4.6 hours. At $92, the labor is $423.20.
Now the material. The tank costs you $620. Flex connectors, a drain pan, discharge pipe, strapping and fittings come to $85. That is $705 at cost, and at a 40 percent markup it sells for $987. Check the margin so you know what you actually keep: $282 of profit on a $987 price is 28.6 percent. The markup and margin calculator shows both numbers at once, which matters because a 40 percent markup and a 40 percent margin are two different prices.
Add $65 to haul the old tank away, at cost.
$423.20 + $987 + $65 = $1,475.20. Round it to $1,495 and that is your flat price.
What ten of the same job actually look like
Here is where most flat prices go wrong. You priced 4.6 hours because that is how long it takes when everything goes right. Then you do ten of them and the times come in like this.
3.9, 4.1, 4.4, 4.5, 4.6, 4.7, 4.9, 5.2, 5.6, 6.1
That is 48 hours across ten jobs, so the average is 4.8. You priced 4.6. The 0.2 hour gap is $18.40 a job, or $184 across the ten, and it disappears quietly because no single job looks like a loser.
So price the seventh one. Sort your ten actual times and take the seventh from the bottom. Here that is 4.9 hours, which makes the labor $450.80 and the job $1,502.80. Round up to $1,525.
Over ten jobs you now bill 49 hours of labor and spend 48. That extra hour and the rounding pay for the 6.1 hour job, where the old shutoff broke off in your hand.
Compare the two prices: $1,495 and $1,525. Thirty dollars, two percent. Nobody turns down a water heater over $30, and that $30 is the difference between the job paying for itself and not.
Bill that same job by the hour and you will almost certainly bill less. Nobody logs the 20 minutes at the supply house, the $8 of fittings off the truck, or the phone call from the driveway. On a flat price all of that sits inside the number, because you put it there while you were thinking clearly instead of at 6 pm with a clipboard on your knee.
When the flat rate job goes wrong
It will. Know in advance what you eat and what you stop for.
Write what the price includes, and what it does not. On the water heater quote: replace the tank, new flex connectors, new drain pan, haul away the old one. Not included: gas line changes, venting changes, an expansion tank if the inspector calls for one, or drywall repair. Two lines of “not included” prevent most arguments. Customers are taught to expect that detail anyway. Washington’s Department of Labor and Industries tells homeowners to get three written bids and a written contract before anyone starts.
Set a stop rule and use it every time. Something like: anything that adds more than 30 minutes or more than $50 of material stops the job and gets a new price in writing before the work continues. The number is yours. Having one is what matters. In several places it is also the rule. Ontario tells renovation businesses they cannot charge more than 10 percent above an estimate unless the customer signs a change to the contract, and that any job over $50 needs a written agreement in the first place.
Never keep working quietly and hope to make it up. That is how a $1,525 job turns into eight hours and a bad invoice conversation. Stop, photograph what you found, send the price, get a yes.
Eat the small ones on purpose. A 20 minute overrun is not a conversation, it is what the cushion is for. If the same 20 minutes shows up on every job, that is not an overrun, that is your price being wrong.
What to say when they ask why it is not hourly
They are asking honestly. An hourly quote sounds cheaper until the invoice shows up. Answer in two sentences and move on.
“It is one price for the whole job, $1,525, and that does not change if it takes me longer than I planned. You know what you are paying before I start, and if something unexpected turns up behind the wall I stop and get your OK on the price before I touch it.”
If they push and say the neighbour’s guy charges $90 an hour:
“I could bill you $92 an hour plus parts and it would probably land near the same number, but then you are watching the clock and I am writing down every trip to the truck. This way you know the price and I can just do the work.”
Say it the same way every time and it stops feeling like a negotiation.
Running time and materials without a blank cheque
Time and materials is the right call more often than flat rate fans admit. It just has to stop feeling open ended to the person paying.
- Publish the rate before you start. Your hourly rate, your material markup, and how you bill partial hours. Quarter hour increments after the first hour is a common way to do it.
- Give a not to exceed number. “We stop at $2,400 and call you.” It costs you nothing and it is the single thing that makes a nervous customer say yes.
- Send a short update each day. Hours used, what got done, what is next. Three lines in a text.
- Show the receipts on the invoice. On a job where the customer is watching every dollar, attaching the supply house receipt ends the conversation before it starts. You need those receipts anyway: the IRS expects supporting documents that show the payee, the amount, the date and what you bought.
- Log as you go, not at the end of the week. The hours you reconstruct from memory are always lower than the hours you worked. In Canada the CRA says the same thing about money: keep a record of your daily income and expenses, with receipts, and hold them six years.
Insurance jobs deserve a note. The adjuster’s scope changes, and you do not want a fixed price tied to a scope someone else keeps rewriting. Bill those by the hour against the approved scope.
Moving one job type at a time
Do not convert your whole business to flat rate on a Sunday night. Take one job type, the one you do most and know best, and do this.
- Pull your last 10 to 20 invoices for that job. No hours logged? Use the calendar: when the visit started, when the next one did.
- Write the hours in a column and sort them. Small to large.
- Take the seventh of ten, or the 14th of twenty. That is your labor time. Not the best day, not the worst.
- Add material at your markup, plus any pass through like disposal or permit fees. Round up to something clean.
- Use that price for 30 days and write down the real hours on every one.
- Review at 30 days. Beat the time on seven of ten, keep it. Lose on five of ten, raise the price or cut what is included.
Then take the next job type. One flat price a month is twelve in a year, and twelve will cover most of what comes through the phone.
Keep the list where your crew can see it, with the price, the hours it assumes and what is not included. A price nobody can find is a price nobody uses.
The short version
Flat rate for the work you know, priced from the seventh job out of ten instead of the best one. Time and materials for the work nobody can see yet, with a published rate and a not to exceed number. Write down what is included either way, and set your stop rule before you need it.
