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We all agree knowing costs is essential to a successful business plan. However, there's a world of difference between knowing costs and using Flat Rate methods. In fact, there is no connection between the two. If you don't know your costs of doing business any method of financial planning is suspect. The ominous consequences of articles and seminars by the latest crop of "flat rate" advocates here in the United States are that the reader is intentionally mislead to believe that knowing costs and using FR are somehow inseparable. Nothing could be further from the truth. Knowing the costs of doing business is a function of basic accounting not pricing schemes. The fact that most of these authors have financial stakes in companies that cash in on flat rate pricing 'systems', books, web-sites, seminars and the lecture circuit leaves this intentional misleading of listeners and readers, as blatantly unethical behavior. In the States, the alleged guru of FR, suggests only 10% of his audience actually uses a flat rate system. This means 90% might use the obvious alternative namely, T&M (charging customers for the labor in Time and Materials at cost plus a profit percentage).
Any reader interested in FR methods, encounters other problems; one being the financial 'examples' used in these articles (particularly with regard to gross revenues and number of employees) and the simplistic notion that "one FR system fits all". This suggests FR methods are somehow "universally workable". To make FR as attractive as possible, the "models" typically have more than five employees [the U.S. census shows the largest contractor group is under 5 men not over], and
These distortions result in financial examples that are useless and meaningless to most readers.
This is not to say many small (under five man) shops can't or won't make 70K net a year, but it is absurd to expect most readers to relate to those kinds of numbers. The U.S. Census suggests income for all jobs is still roughly half of that!
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unlikely sales figures that tend to be around (or above) 1 million dollars. The promoters therefore, shun the majority of real world small businessmen by making the illustrations appear 'typical' when in fact, they are intentionally misleading. Tragically, FR practitioners endure staggering repeat business losses (apparently between 20 and 40% according to many). I would suggest anyone losing 20 to 40% repeat business has a problem - a big one!| Ken Secor - [Intro] | [Articles] | [Email] |
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