Is there a going rate for plumbers to charge?
Unfortunately, the myth that there is a 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 to avoid paying for plumbing services after completing the work.
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 company has different costs
Every plumbing business is not the same. Every plumbing business has different cost structures, overhead, and productivity levels required to set a selling price or a break-even price.
It is illegal under the Competition and Consumer Act 2010 for businesses to collude in setting prices or for any set or recommended rates by master plumbers associations.
When many one-person plumbing businesses start, it is far too complicated to put a budget together and calculate the cost of doing business. However, they need to do it to ensure they charge a rate for their services that covers the business’s cost. Unfortunately, most of the time, these one-person plumbing businesses decide to set the going rate for plumbers and be done with it.
So how do these one-person businesses determine the going rate for plumbers?
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 fictitious going rate.
The myth of a going rate is self-perpetuating by plumbers
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 bought a van, got a new mobile phone, used the tools supplied by his former employer, and opened 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. He figures he’s much more intelligent than Trevor, plus he’s sure he’s faster and quicker at 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. Again, Jason does not like Trevor, so 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.
Plumbers start undercutting based on the mythical going rate
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 would be using another plumber to do his work in the future. This is despite Stephen 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 the going rate for plumbers. Stephen discovered that it ranged from $40 to $160 per hour. Stephen decided that to keep his business going, he needed 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 pick 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 company that’s been in their family for three generations.
The going rate for plumbers myth destroys businesses and families
What happens next is textbook accurate and repeatedly occurs in the plumbing industry causing unemployment, financial hardship and family breakups.
“Gold Coast Plumbing” started cutting corners by using cheaper materials, cancelling insurance cover, not replacing old equipment, not replacing old utes and vans, charging clients for hours that were not worked, and using labourers and apprentices instead of qualified plumbers. As a result, their plumbers become disillusioned and start looking for jobs elsewhere. 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 he 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 doesn’t have to answer to anybody. However, 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 who complain and starts using inferior quality materials.
Meanwhile, Stephen at “Super Coastwide Plumbing” struggled 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, supporting “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.
No one ever wins in setting up a business based on the going rate for plumbers
Every successful plumbing business knows the starting point always is learning what it costs to run their business and setting charge-out rates that ensure they can make a profit for the long term, which is specific to their circumstances and business model.