Set Pricing on Services: Deceptive and Unethical

We Used to Complain about Hourly Services

For years, the service industry received complaints that they were taking advantage of consumers by being inefficient. After all, the longer they stayed on the job, the more they got paid. If they worked slower, it padded their income at the expense of the customer. Eventually, consumers wised up to this strategy and started asking for a set price or a maximum price to avoid dealing with unethical or low-efficiency behaviors.

As vendors adopted set pricing, they discovered it made setting expectations easier and provided a clear goal to maintain efficiency to avoid losing money on a job. Maintenance and service-oriented companies can track their net income per billable hour and have minimum thresholds to achieve profitability. Factoring in typical job durations and adding a margin for error was how set pricing originally evolved. In many cases, it was and sometimes still is a good thing.

Where and Why It's Gone Awry

Most repair calls for electricians, plumbers, appliance technicians, HVAC specialists, or handyman services are unique. Every house is different, and with those differences come challenges in forecasting time requirements. As companies embraced set pricing, those "set prices" were often based on the most challenging jobs rather than the average ones. This approach ensured preparedness for worst-case scenarios while generating higher profits on average jobs.

I personally own a handyman company, (which is unfortunately in a different state than where I live) but it gives me firsthand knowledge of how service companies operate. I should note, we offer both Set Pricing or Hourly, whichever our customers prefer.

Most companies charge a standard service fee to show up, which is reasonable since it covers the technician's travel time, vehicle costs, gas, insurance, uniforms, and backend costs like secretaries, offices, and supervisors. These unseen fixed and variable costs are part of the expense just to get to your house and move on to the next one.

Where Set Pricing has become Unethical and Deceptive

Once a company shows up, set pricing typically involves a "diagnostic" analysis. This isn’t a deep dive into the problem but rather a rough estimate of what it might take to resolve the issue. While this doesn’t sound bad in theory, in practice, the amounts bid/charged are often wildly disproportionate to what an hourly service would have cost and the service companies know that.

Personal Examples:

1. Electrician: Set Price: $382 to fix two items—one electrical and the other network wiring-based. The tech installed an RJ45 jack on a wire, which didn’t solve the problem, and admitted he didn’t know what else to do. For the electrical issue, he found a mislabeled tripped breaker. Total time: 45 minutes. Actual Cost: $509.33/hr, less one RJ45 jack in parts.
2. Appliance Repairman: Set Price: $285. The tech arrived, cleaned a filter on a washing machine in about 25 minutes. No parts. Actual Cost: $684/hr.
3. Plumber: Set Price: $425. I had a PEX supply line under my sink attached to a copper fitting. Nervous about doing it myself, I asked the plumber to install a shutoff valve for an unused ice-making machine. He quoted $425. Instead, I went to a plumbing supply store, got all the parts for $22.95, and completed the repair myself in five minutes. Actual Cost Would have Been: $650-850/hr (Estimate 25 minutes for parts run and repair) Would-Be Cost: $650-$850/hr (estimated 25 minutes for parts run and repair).
4. Outdoor Speaker Wiring: Set Price: $2,000. They estimated $2,000 to run wiring and connect it to the receiver, but I had to dig the trench myself. I did the job myself in three hours, spending $90 on materials. Would-Be Cost: $666-$750/hr, assuming they worked as slowly as I did.
5. Thatch Roofing Job: Hourly Price: $55/hr. I hired a handyman for $55/hour and a friend with construction experience for $50/hour to re-thatch my backyard cabana. It took the handyman 20 hours and my friend 8 hours. Labor cost: $1,500, excluding my own 20 hours of work. Actual Cost: $55/hr, which felt fair for the effort and expertise.

Set Pricing in Practice

I have yet to encounter a single situation as a consumer where set pricing worked to my benefit. In contrast, the hourly thatch roofing job felt fair to both me and the handymen because I paid them at their agreed rates.

Conclusion

I don’t have an issue with quality maintenance companies making a healthy margin, but that margin must be fair and earned honestly. Set pricing makes sense in cases where customer uncertainty needs to be appeased. However, an honest company should also offer an hourly rate option as evidence that they’re willing to do a solid day’s work for a fair price. For longer construction jobs (e.g., over ten hours) set pricing may be a better option for a homeowner needing to budget a certain amount and where knowing the upfront cost is beneficial for planning. However, in that scenario, it works to the consumer's benefit.

Most companies offering only set pricing claim it benefits consumers when, in reality, it’s often designed intentionally to grossly inflate margins. If they disclosed the actual hourly rate it costs consumers, most consumers wouldn’t choose their service. As such, the obvious conclusion is that companies that only offer set pricing are being intentionally dishonest and unethical.

Solution

Set pricing isn’t inherently bad but becomes unethical and deceptive when it’s the only option. Honest companies will let customers choose what works best for them between a set price or an hourly rate. If margins are a concern, companies should raise hourly rates transparently rather than using set pricing to conceal exorbitant hourly rates from their customers.