Unfortunately, the myth that there is the going rate for plumbers or recommended rate for plumbing services is one of those lovely urban myths that will never go away. Some consumers promote it as a method to avoid paying for plumbing services generally after the work has been completed.
Even more disturbing is the fact that it is also promoted by some plumbing contractors who are:
- lacking in necessary business skills and cannot do basic accounting equations to work out the cost of running their business and provide quality service at a fair profit
- engaged in payback against other plumbing contractors to undermine their competitors by claiming they are overcharging
Every plumbing business is not the same. Every plumbing business has different levels of cost structures, overhead costs and productivity levels that are required to set a selling price or a break-even price. It is illegal under the Competition and Consumer Act 2010 for business to collude in setting prices or for there to be any set or recommended rates by master plumbers associations.
For many one-person plumbing businesses when they start out, it is just far too complicated to put a budget together and calculate what the cost of doing business is. Reality is they need to do it so that they can ensure they are charging a rate for their services that covers the cost of running the business. Unfortunately what happens most of the time is these one-person plumbing businesses decide that they will charge the going rate for plumbers and be done with it.
So how do these one-person businesses find out what the going rate for plumbers is? Very simply, they ring around all their competitors, pretending to be a prospective customer and find out what they are charging for their services. As no professional plumber can give a price over the phone, they tend to only get prices from like-minded one-person businesses promoting a whole undercutting philosophy based on some mythical hourly rate which then becomes the mythical going rate.
To see how this whole myth of the going rate for plumbers becomes self-perpetuating, consider the following scenario, which is exactly what happens all the time. Consider the scenario where Trevor decided to buy a van, get a new mobile phone and using his tools supplied to him by his former employer and open up “Trevors Plumbing Service.” Trevor knew his old employer, “Gold Coast Plumbing”, was charging $130 per hour but he knew that his former boss had lots of equipment and paid his employees above the award wages, so he decided to charge only $80 an hour.
A couple of weeks later Jason who does not like Trevor, hears that Trevor has opened up his plumbing business, and he figures he’s much smarter than Trevor plus he’s sure he’s faster and quicker at doing plumbing work than Trevor, so he decides to buy a ute too and open up “Speedy Plumbing.” Jason gets his girlfriend to phone Trevor pretending to be a customer to find out his charges. As Jason does not like Trevor, he figured he could knock him out of business by charging $20 less and getting all his business. So “Speedy Plumbing” is now in business charging $60 per hour.
Meanwhile, Stephen had opened up “Super Coastwide Plumbing” a year earlier and had just had a builder who supplied him with 90% of his work tell him that he was going to be using another plumber to do his work in future. This is despite the fact that Stephen was providing excellent service but at $100 per hour was way above the going rate for plumbers. Stephen panicked on hearing this and decided to call around his competitors to see what the going rate for plumbers was. Stephen discovered that it was ranging from $40 to $160 per hour. Stephen decided that to keep his business going he need to match the going rate for plumbers and based on where most of his competitors were opted to drop his rate to $65 per hour to be under the rate charged by “Trevors Plumbing Service” who appeared to picking up lots of work.
Meanwhile, over at “Gold Coast Plumbing” the owners are having a meeting. “We aren’t making enough money to cover our costs!” They say. “Well, we can’t increase our rates because we’re already one of the highest in town — $70 higher than some after ringing around to find out the going rate for plumbers is.” The owners are frustrated because they’re gradually watching their business go down, a business that’s been in their family for three generations.
What happens next is textbook accurate and occurs over and over again in the plumbing industry causing unemployment, financial hardship and family breakups.
“Gold Coast Plumbing” starts cutting corners using cheaper materials, cancelling insurance cover, not replacing old equipment, not replacing old utes and vans, charging clients for hours that were not worked, using labourers and apprentices instead of qualified plumbers. Their plumbers become disillusioned and start looking for jobs elsewhere and this forces “Gold Coast Plumbing” to use more labourers and apprentices to undertake the work that requires licensed and experienced plumbers.
Over at “Speedy Plumbing” Jason is struggling to cope with all the work but cannot hire any licensed plumbers because he’s discovered he can’t afford to pay them plus buy more utes and equipment because his rates are too cheap and don’t cover the costs of running the business.
Trevor over at “Trevors Plumbing Service” is still working by himself, so does not need a lot of work to keep him busy plus the customers that hired him because he was the lowest price have left him and gone to “Speedy Plumbing”. Trevor is not concerned as he’s making more money than he did when he was an employee at ‘Gold Coast Plumbing” plus he’s his own boss and he doesn’t have to answer to anybody. Trevor has discovered that he’s got to cut corners to make sure he can pay the bills. He does not renew his QBCC licenses or take out public liability insurance. Trevor adopts a policy of never returning calls to customers that complain, guaranteed to keep him out of trouble from inferior quality materials and workmanship.
Meanwhile, Stephen at “Super Coastwide Plumbing” was struggling to pay bills since dropping his prices to the going rate for plumbers with the losers being his family. Stephen’s wife is forced to return to her old job, working to support “the business” until it gets back on its feet. Even worse cutting corners meant customers were not getting compliant plumbing work undertaken with failures being the norm. Finally, employees started getting reduced or no training with wages failing to be paid on time as there was never enough money.
Every successful plumbing business knows the starting point always is knowing what it costs to do business and setting rates that ensure they can make a profit for the long term which is specific to their circumstances and business model.
No one ever wins in setting up a business based on the going rate for plumbers or recommended rate because they are a myth. The only guarantee is that the business will close leaving employees, suppliers and customers all out of pocket and worse off for the experience in a myriad of ways.
Sadly I witness these scenarios repeating themselves over and over again on the Gold Coast. There are no winners when you don’t operate a business to make a profit after covering every single one of your costs.