For decades, I used the ‘tried & true’ Time & Materials billing method, even until it forced me into bankruptcy in 1998. Yes, “Flat Rate” existed then, but the horror stories from customers who were economically abused by this method convinced me that I am more honest than those who opt for that method. What else is there?
Yes. There is fixed price, as in a quote to do specific work for a specific number, which is what a Proposal instrument relies on for formal bids.
As a rule, I don’t use any of those methods to come to a final price for specific work. I used to, but all of that is a terrible way to do business and expect a win-win relationship between building trades contractors and building owners.
For a synopsis of how I charge and have since 2021, see my other website: https://rite-forms.com.
With Time & Materials, all costs to do a job fall under two categories, basically. With Flat Rate, there is only one category: Here’s the price, now pay up! That is ludicrous! There is a better method and I call it the Rite-Forms Method, which I invented.
The Rite Forms Method of building trades billing involves 4 categories and 4 subcategories. Like this:
- Time
- Materials
- Vehicle
- Other
- Non-Integral Supplies
- Tools
- Subcontractors
- Miscellaneous
Now I’ll tell you why that is.
Let’s imagine I gave a price the T&M way for, say, $6,685 to replace a heating and air conditioning air handler, and I estimated that it would take me four 8-hour days to do the work (at $100/hour – to use a round number) and the rest ($3,485) was for the new air handler, mark-up and all other costs to do the job were included. Then, suppose that it took me 5 days to do the work and all other costs to do the job were higher than I had estimated, say, $4,485. $1,000 more than I expected.
These fictitious numbers are not the point, the method is. Let’s do the basic math: the actual cost for me to do the work ended up being ($3,200 + 800) + (3,485 + 1,000) = $8,485. The increase in my costs grew by $1,800. Now let’s subtract that amount from my original fixed price quote: 6,685 – 1,800 = $4,885. Also, let’s subtract the actual “all other costs” of 4,485 from the balance of my total actual costs and we get: (4,885 – 4,485) = $400.
So, I just did a 5-day job for a measly $400 in labor! What?
Yes, I should have been a better estimator, and I am in real life. I’ve been doing sales since I was a kid doing odd jobs for neighbors and selling Hallmark Greeting Cards in a 5-mile radius from home, and I walked there and back. More recently, I’ve been doing HVAC sales since I formed my first business in 1988, and I’ve been a sales engineer for a couple of years for 2 other companies – not a long time, since the first company sold and the new owner started chopping, and the second company closed the doors in 2008 when nobody was buying anything from them, no matter the price. I returned to self-employment under my previous company name, Protech HVAC, LLC.
I would be surprised if anyone would conclude that I got a good deal in the hypothetical scenario where I worked five 8-hour days for $400. That is not a win-win outcome. That’s basically what happened to me leading up to bankruptcy and anyone can understand why. It helps to have lots of experience in the field before becoming a good estimator/sales engineer, for sure. At the time of this writing, I have nearly 45 years of experience since HVAC Tech School, in 1980. This qualifies me as knowing a thing or two about HVAC, estimating the cost to do HVAC jobs, and knowing when I am getting a good deal and when I am not.
But what about my customers? Shouldn’t they also get a good deal? Afterall, without the customer I wouldn’t have any work at all! Good deal or no deal. Of course they should get equitable value: I do good work for them – at a reasonable price – and stand by my work/warranty and they get the best equipment/materials/supplies/workmanship/craftsmanship from a master-level HVAC guy whose motto is: Done Right. The First Time. Every Time. Guaranteed! In other words, if I mess anything up, I go back and fix it for free. All warranties on tangible materials is that of the manufacturers – unless what failed is my own product, though that is very unlikely. All my mechanical products are high-quality, made-in-America, specifically, in Maine, New Hampshire and Massachusetts.
So, to deal with that T&M recipe for disaster, I worked out a new, 100% honest, 100% transparent, 100% accurate, 100% guaranteed workmanship, 100% win-win method where nobody loses on any job, ever!
Here’s how the air handler replacement job scenario works using the Rite-Forms Method: I work up an estimate to do the work, and make it as realistic as possible. I also do the estimate with all numbers broken down into understandable math, including my estimated gross profit/margin. I calculate all 4 categories and 4 subcategories, as they apply to this job. That means I estimate all time on-site and off-site, by the minute. I estimate all miles to drive everywhere I need to go to get materials, get a permit, go to the transfer station, scrapyard, gas station, and all other costs associated with the project. I try not to leave anything out, but you know, nobody is perfect. And, an “estimate” is just that and only that, an ESTIMATE! I do not use a crystal ball to do my estimates – I haven’t invented one yet! I use the most accurate, real-world estimating system that I have ever used in 45 years, and it is straightforward WYSIWYG (What You See Is What You Get). There’s no guesswork with Rite-Forms!
Once my numbers are crunched, I do the unthinkable in business: I email PDFs of every single number, including projected profit, to my potential, or existing customer. 100% of my numbers are all there for my customer to see for him/herself.
I explain that I will do the job for 100% actual costs with no mark-ups, and I charge an off-site rate and an on-site rate. In 2025, that happens to be $100/hour off-site and $135 on-site. My experience and knowledge and decision-making comes into play on-site, while off-site, I’m thinking about driving, making my way to a supply house, or other location, and carry materials out to my vehicle. I will need to rely on experience and knowledge at times at the supply house when they don’t have what I need – I’ll have to know what my other options are and choose one, but other than that, I shouldn’t be making the same on-site rate when I am off-site. Rite-Forms identifies both and what they are estimated to cost.
What most in the building trades do not understand, that goes, too, for the customer, is that my vehicle that transports my tools, materials, myself and my knowledge to and from the job site is my most expensive tool. This tool and others on par with it – man lift, core drill, and other specialty tools – also have a direct cost associated with my work.
My current vehicle costs me $1.49 per mile. How do I know? I made a digital worksheet that breaks down all of the costs to operate my vehicle for a specific number of miles and all the maintenance to keep it on the road for those miles, and, of course, fuel. Whatever the number of miles I will travel in pursuit of doing my work, I must charge for that.
When I have a subcontractor working with me, I charge for him. When I incur freight costs to have materials shipped to me, or to the customer, I charge for those. And on it goes until all costs are calculated.
Then, again, I do what no others in the trades do: I tell my customer if my actual costs to do the job are less than what I estimated, then, I will give them back the difference. Conversely, if my costs to do the job are greater than what I estimated, then, they pay that price. All final numbers are calculated when I do the Job-Costing (I calculate all costs that were actually attributed to the job). Then, I turn those numbers into the final invoice numbers, and I send all numbers to my customer. If requested, I will even send my vendor invoices or pick tickets to back up my claims.
With the Rite-Forms Method, I do my best work at cost. My only revenue above tangible costs are my on-site and off-site labor charges, which cover my business and personal overhead.
My labor on a job is a slice of my life-time, which I can never get back. That is my only chance to make money for myself, honestly. I have nothing to hide, and you know why? Because most people are fair and they all want value for their hard-earned money, and I give it to them every time and they pay me fairly for it. Everybody wins! My labor is not free, unless I want to cut a customer some slack, based on realities involved with that job.
The most important reason why Rite-Forms has worked for me, is because it works for my customers. I have never been taken to court (in my whole career) and since using Rite-Forms, I have never had to take a customer to court (which I had to do more times that I want to say). The numbers are real to me and to them. I see the numbers when I do an estimate, and those are the numbers that show how my customer’s money is being spent/how I am spending it. They have every right to know where their money is going. Absolutely! I want them to know, because I want them to be happy with my workmanship, trusting with my business dealings and confident that I didn’t cut any corners – there is no reason to cut corners with my Rite-Forms Method. Which is why all of my work is Done Right. The First Time. Every Time. Guaranteed!
