Flat rate

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A flat fee, also referred to as a flat rate or a linear rate refers to a pricing structure that charges a single fixed fee for a service, regardless of usage. [1] Less commonly, the term may refer to a rate that does not vary with usage or time of use.

Contents

Advantages

Disadvantages

Examples

Postage

There are flat rates in the postal service, regarding the delivery of items. Postage companies use different forms of post, boxes or envelopes, to avoid having to weigh items. The on-hand cost lets consumers identify the cost and removes the hassle of estimate the cost for items.

The United States Postal Service offers flat-rate pricing for packages selling different postage options varying in size and shape. [2] That provides consumers with an array of options upfront, creating a sense of ease. When shipped in higher volumes, it saves money but there are issues if both the flat rate and regular delivery systems are used simultaneously. [3]

Advertising

Flat rate also passes into advertising. Purchasing advertisements on websites such as Facebook, Twitter and YouTube is sold a flat rates on the size (with a surcharge for images and posts) and length of the advertisement (video costs extra). Advertising on YouTube pitches at a flat rate of $0.30 per view. [4] When a person runs by the YouTube home page, search page, or wherever the ad is running, the charge is $0.30.

Tradesmen

Tradesmen such as electricians, plumbers, and mechanics, also often charge flat rates to cover their labour for their services. In a survey in 2014 in Australia, the average labour rate for a painter was $39.92 per hour. [5]

Telephony

American telecommunications companies commonly offer a flat rate to residential customers for local telephone calls. However, a regular rate or Message Rate is advantageous for those who make only a few short calls per month. Flat rates were rare outside the US and Canada until about 2005, but they have since become widespread in Europe for both local and long-distance calls and are now also available for mobile phone services, both for traditional GSM/UMTS voice calls and for Mobile VoIP.

Most VoIP services are effectively flat-rate telephony services since only the broadband internet fees must be paid for PC-to-PC calls, and the calls themselves are free. Some PC-to-telephone services, such as SkypeOut offer flat rates for national calls to landlines.

Television

Premium television or Pay TV usually charges a flat monthly fee for a channel or a bundle or "tier" of channels, but some cable television companies also offer Pay per view pricing.

Internet

For Internet service providers, flat rate is access to the Internet at all hours and days of the year (linear rate) and for all customers of the telco operator (universal) at a fixed and cheap tariff.

Flat rate is common in broadband access to the Internet in the US and many other countries.

A charge tariff is a class of linear rate, different from the flat rate, where the user is charged by the uploads and downloads (data transfers). Some GPRS / data UMTS access to the Internet in some countries of Europe has no flat rate pricing, following the traditional "metered mentality". Because of this, users prefer using fixed lines (with narrow or broadband access) to connect to the Internet.

A wavy rate is not a linear rate, because the Internet surfer pays the monthly fixed price to use the connection only during a certain range of hours of the day (i.e. only in the morning or, more typically, only at night).

Street lighting

Cities and towns normally arrange a flat fee for the power used by street lights. This is because the lights come on and turn off at predictable times, generally off-peak, and the total draw for the entire town can be accurately calculated in advance. This allows the lamps to be placed on existing poles and wired directly into the electrical wiring without a separate meter. [6]

Electricity

A "flat rate" (more accurately known as fixed rate) for electricity is a fixed price per unit (kWh), not a fixed price per month, and thus different from that for other services. An electric utility that charges a flat rate for electricity does not charge different rates based upon the demand that the customer places on the system. A customer pays the same amount whether they use the electricity in bursts during mid-day, when demand and the utility's costs are highest, or if they spread it out over the entire day. [7] However, if the customer uses a different amount of electricity, they are charged a higher or lower amount. Residential customers and small businesses are usually charged a flat rate, though not the same rate per kilowatt-hour. A special type of electricity meter, a time of use meter, is required to charge a non-flat rate. Time of use meters can lower a customer's electricity bill, if they use electricity mostly during off-peak hours. Some utilities will allow a customer to change to a time of use meter, but they charge for the cost of the meter and installation.

Real estate

In real estate, "flat rate" is an alternative, nontraditional full service listing where compensation to the listing agent is not based on a percentage of the selling price but instead is a fixed dollar amount that is typically paid at closing. The rate is generally less than a gross 6% commission, resulting in a lowered cost of selling real estate. "Flat rate" is different from "flat fee" in several ways: i) it is generally substantially more than a "flat fee" rate; ii) it generally represents a full service listing as opposed to a "flat fee" limited service listing; and iii) it is usually paid at closing, as opposed to a "flat fee", which is usually paid when the listing agreement is executed.

Transport

In most parts of the world regular users of public transport, especially commuters, make use of weekly, monthly or yearly season tickets that allow unlimited travel for a fixed fee. In some countries year passes are available for the entire national railway network (e.g. the Bahncard100 in Germany for about €3000 and the Österreichcard offered by the Austrian Federal Railways). Some, such as the Eurail Pass, are intended for foreigners, in order to encourage tourism.

Road users are normally charged a combination of fixed and variable fees, in the form of vehicle duty and fuel duty. Motorway tolls in some countries (Switzerland, Austria, Czech Republic, Slovenia) are paid by purchasing weekly, monthly or annual stickers attached to the windscreen.

At some stage, the concept of the flat rate was even introduced into passenger air traffic in the form of American Airlines' AAirpass.

Parcel/document delivery

In dealing with the shipping of parcels and documents, a "flat rate for international deliveries of packet size #1" would mean that the same shipping charge (for example US$15.00) would be applicable to all packets of this size, regardless of their designated destination (country of recipient), and regardless of the quantity of their contents, i.e. whether they contained one sheet of paper or were filled to the maximum.

Labor

Flat rate is a pricing scheme whereby the customer pays a fixed price for a service regardless of how long the worker takes to carry out the service. Flat rate manuals are based on timed studies of the typical time taken for each type of service. Flat rate helps provide a uniform pricing menu for service work and helps establish the worth of performing a particular job. In recent times some automotive companies have begun using computer algorithms to calculate labor times with a high degree of accuracy.

The benefit to the customer is that if a worker takes longer than this, the cost does not rise. The downfall to the customer is that this can lead to overpaying in some cases.

The benefit to the worker is that it promotes incentive to learn how to do the work more efficiently. This system can also cost the worker if they do not perform a job within the allotted time such as in the case of an inexperienced worker or on a job where there is something preventing the service from being performed that the labor manual can't take into account. In automotive shops this is common due to rusted, seized, or stripped bolts or aftermarket installations. In some circumstances automotive technicians can get paid 0 hours for working a 12-hour day.

It can be difficult to compare prices between hourly-paid and flat-rate services, and this sometimes causes rejection of flat rate shops over hourly ones.

Medical

One of the newest areas where flat rate pricing is just beginning to make inroads is the medical industry. The concept has held a particular interest [8] because of the high and rising costs of health care delivery despite legislative attempts to address them, such the Affordable Care Act (Obamacare). [9] While there have been pilot programs launched by major insurance carriers such as UnitedHealthcare to control costs in the most costly medical conditions like cancer, [10] for now the primary application of flat-rate pricing has been in medical imaging, such as x-rays, MRIs, mammograms, and ultrasounds. Regional companies such as Med Health Services Inc. [11] in the Pittsburgh area and Northwest Radiology Network of Indianapolis [12] have been among the first in the nation to implement the practice on a trial basis.

See also

Related Research Articles

The subscription business model is a business model in which a customer must pay a recurring price at regular intervals for access to a product or service. The model was pioneered by publishers of books and periodicals in the 17th century, and is now used by many businesses, websites and even pharmaceutical companies in partnership with the government.

<span class="mw-page-title-main">Fee</span> Price to be paid for remuneration for services

A fee is the price one pays as remuneration for rights or services. Fees usually allow for overhead, wages, costs, and markup. Traditionally, professionals in the United Kingdom receive a fee in contradistinction to a payment, salary, or wage, and often use guineas rather than pounds as units of account. Under the feudal system, a Knight's fee was what was given to a knight for his service, usually the usage of land. A contingent fee is an attorney's fee which is reduced or not charged at all if the court case is lost by the attorney.

<span class="mw-page-title-main">Net metering</span> Type of billing of electricity generated from renewable sources

Net metering is an electricity billing mechanism that allows consumers who generate some or all of their own electricity to use that electricity anytime, instead of when it is generated. This is particularly important with renewable energy sources like wind and solar, which are non-dispatchable. Monthly net metering allows consumers to use solar power generated during the day at night, or wind from a windy day later in the month. Annual net metering rolls over a net kilowatt-hour (kWh) credit to the following month, allowing solar power that was generated in July to be used in December, or wind power from March in August.

<span class="mw-page-title-main">Annual percentage rate</span> Interest rate for a whole year

The term annual percentage rate of charge (APR), corresponding sometimes to a nominal APR and sometimes to an effective APR (EAPR), is the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate. Those terms have formal, legal definitions in some countries or legal jurisdictions, but in the United States:

<span class="mw-page-title-main">Electricity meter</span> Device used to measure electricity use

An electricity meter, electric meter, electrical meter, energy meter, or kilowatt-hour meter is a device that measures the amount of electric energy consumed by a residence, a business, or an electrically powered device.

A telecommunications tariff is an open contract between a telecommunications service provider and the public, filed with a regulating body such as state and municipal Public Utilities Commissions and federal entities such as the Federal Communications Commission (FCC). Such tariffs outline the terms and conditions of providing telecommunications service to the public including rates, fees, and charges.

Pay as you throw (PAYT) is a usage-pricing model for disposing of municipal solid waste. Users are charged a rate based on how much waste they present for collection to the municipality or local authority.

<span class="mw-page-title-main">Pricing strategies</span> Approach to selling a product or service

A business can use a variety of pricing strategies when selling a product or service. To determine the most effective pricing strategy for a company, senior executives need to first identify the company's pricing position, pricing segment, pricing capability and their competitive pricing reaction strategy. Pricing strategies and tactics vary from company to company, and also differ across countries, cultures, industries and over time, with the maturing of industries and markets and changes in wider economic conditions.

The termination rate is one of the three components in the cost of providing telephone service, and the one subject to the most variation.

<span class="mw-page-title-main">Load management</span> Process of balancing the supply of electricity on a network

Load management, also known as demand-side management (DSM), is the process of balancing the supply of electricity on the network with the electrical load by adjusting or controlling the load rather than the power station output. This can be achieved by direct intervention of the utility in real time, by the use of frequency sensitive relays triggering the circuit breakers, by time clocks, or by using special tariffs to influence consumer behavior. Load management allows utilities to reduce demand for electricity during peak usage times, which can, in turn, reduce costs by eliminating the need for peaking power plants. In addition, some peaking power plants can take more than an hour to bring on-line which makes load management even more critical should a plant go off-line unexpectedly for example. Load management can also help reduce harmful emissions, since peaking plants or backup generators are often dirtier and less efficient than base load power plants. New load-management technologies are constantly under development — both by private industry and public entities.

In the United Kingdom, an electricity supplier is a retailer of electricity. For each supply point the supplier has to pay the various costs of transmission, distribution, meter operation, data collection, tax etc. The supplier then adds in energy costs and the supplier's own charge. Regulation of the charging of customers is covered by the industry regulator Ofgem.

<span class="mw-page-title-main">Electricity pricing</span>

Electricity pricing can vary widely by country or by locality within a country. Electricity prices are dependent on many factors, such as the price of power generation, government taxes or subsidies, CO
2 taxes, local weather patterns, transmission and distribution infrastructure, and multi-tiered industry regulation. The pricing or tariffs can also differ depending on the customer-base, typically by residential, commercial, and industrial connections.

The Campaign for Unmetered Telecommunications (CUT) was a United Kingdom political pressure group that operated between 1998 and 2001. CUT campaigned for a fairer choice of telecommunications tariffs for consumers—in particular, unmetered local telephone calls that the organisation said would allow the "full potential" of the Internet to be realised. CUT pressured telecommunications operators, regulatory bodies and Government. The campaign was cited as "a major driving force" behind the introduction of unmetered Internet access in the United Kingdom.

A water tariff is a price assigned to water supplied by a public utility through a piped network to its customers. The term is also often applied to wastewater tariffs. Water and wastewater tariffs are not charged for water itself, but to recover the costs of water treatment, water storage, transporting it to customers, collecting and treating wastewater, as well as billing and collection. Prices paid for water itself are different from water tariffs. They exist in a few countries and are called water abstraction charges or fees. Abstraction charges are not covered in this article, but in the article on water pricing). Water tariffs vary widely in their structure and level between countries, cities and sometimes between user categories. The mechanisms to adjust tariffs also vary widely.

<span class="mw-page-title-main">Net metering in the United States</span>

Net metering is a policy by many states in the United States designed to help the adoption of renewable energy. Net metering was pioneered in the United States as a way to allow solar and wind to provide electricity whenever available and allow use of that electricity whenever it was needed, beginning with utilities in Idaho in 1980, and in Arizona in 1981. In 1983, Minnesota passed the first state net metering law. As of March 2015, 44 states and Washington, D.C. have developed mandatory net metering rules for at least some utilities. However, although the states' rules are clear, few utilities actually compensate at full retail rates.

Vermont electric power needs are served by over twenty utilities. The largest is Green Mountain Power, a subsidiary of Énergir which recently also took over Central Vermont Public Service. Together this single company represents 70% of the retail customers in Vermont. The state is a small electricity consumer compared with other states. Therefore, its electricity sector has the lowest carbon footprint in the country. As of 2010, the state had the lowest wholesale electricity costs in New England. Efficiency Vermont engages in aggressive initiatives to cut residential electricity waste, which often identifies other problems that it claims can save hundreds per household per year. Accordingly, Vermont's overall energy bills are also relatively lower than in the rest of the New England states.

Net bias is the counter-principle to net neutrality, which indicates differentiation or discrimination of price and the quality of content or applications on the Internet by ISPs. Similar terms include data discrimination, digital redlining, and network management.

Net metering in Arizona is a public policy and political issue regarding the rates that Arizona utility companies pay solar customers sell excess energy back to the electrical grid. The issue has two political sides: utility companies that to pay solar customers the "wholesale rate" for their excess electricity, and solar panel installers and solar customers who want utility companies to pay the "retail rate".

Net metering in New Mexico is a set of state public policies that govern the relationship between solar customers and electric utility companies.

References

  1. ↑ "Businessdictionary.com". Archived from the original on 2011-10-11. Retrieved 2010-10-22.
  2. ↑ "USPS Priority Mail".
  3. ↑ "Flat Rate Boxes Save Money". 31 August 2009.
  4. ↑ "Youtube Advertising Costs".
  5. ↑ "Are you paying your tradie too much? - Fraser Coast Chronicle". The Courier Mail. 14 August 2014.
  6. ↑ "Street Lighting Service Rates". BC Hydro.
  7. ↑ Bivins, Jessica (1 June 2018). "What is a Fixed-Rate Electricity Plan? | Direct Energy Blog". Direct Energy.
  8. ↑ "Flat-rate medicine: The future of health care? : Noteworthy -- A Family Practice Management blog". blogs.aafp.org. Archived from the original on 2014-01-12.
  9. ↑ "U.S. Health Care Costs Rise Faster Than Inflation". Forbes .
  10. ↑ "Can flat-rate pricing help control cancer costs?". CBS News .
  11. ↑ Kris B. Mamula (13 February 2015). "Med Health introduces flat-rate pricing". Pittsburgh Business Times. Retrieved 1 January 2023. (subscription required)
  12. ↑ "Ind. Radiology group institutes flat-rate pricing".
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