Make a Radical Rate Change

By Paula Ford

More than one TAS owner has been paralyzed about raising rates.  The problem is that the longer you go without a rate increase, the harder it is – for both you and your customers.  The key question is how to make a radical change in the way you charge.  The answer is to “just do it” – but do it thoughtfully, and do it one customer at a time. 

The first step is to make up a new price list for new customers.  They will accept your new prices as normal, and every profitable customer you sign up will help lessen your worry about losing older, unprofitable customers.  Your new prices will also establish your target when negotiating rate increases with unprofitable customers.

Your new price list must allow you to charge enough to compensate yourself and your employees well, including providing good benefits.  It also must be enough to allow you to upgrade or replace your equipment when needed, allow you to join ATSI, and participate in user groups so you can keep abreast of new developments in the industry. 

If you’re working as an operator as well as running your business, having family members work for little or no pay, working staff over forty hours without paying overtime, or offering no benefits, then you need to right those wrongs with your new rates.  Remember, you have overhead that needs to be covered.

Secondly, let your competitors find out that you’ve raised your prices.  The odds are that you are the one holding prices down in your area, and once you raise your prices, others will immediately follow.  When your customers find out that their rates are going up, you’ll want them to discover that the competition is comparably priced.

Next, run a system report that shows the number of incoming calls, minutes used, and how many resources each client is using.  Quickly scan the report for the ten accounts with the highest “operator talk time.”  Next, calculate how much you’d bill them if you charged a dollar per minute – and then compare that to how much you actually bill them.  If a dollar per minute charge is significantly higher than what you actually billed, you’ve got big trouble. 

While your target price may be more or less than a buck per minute, one dollar a minute is in the ballpark. Check what a plumber, electrician, or phone installer charges per hour and divide that by sixty.  In comparison, a dollar a minute seems reasonable!

Your busiest customers are the ones who will have the most effect on your bottom-line profit, so they have to be fixed first.  If you have a customer who takes 100 minutes per month, you can grossly undercharge him and still only be losing $50 to $200 per month.  But when you have a customer who is using 1,000 to 5,000 minutes of your operators’ time every month, a pricing error could easily mean you’re losing thousands of dollars every month.

It’s easy to raise a customer $7 to $20 per month.  It’s much harder to find that you have an account that you’ve been billing $600 per month and now realize you should be charging them $2000.  Believe me, I’ve been there, done that, and bought the T-shirt!  I once bought a small service and waited nine months before analyzing and raising rates.  That was a bad move on my part!  One customer had us doing quite a bit of work that our system did not track.  We had to check their database to decide whether to dispatch the call and then had to give information from that database to their technician. 

When you have to triple a $600 client’s rate, do it all in one increase, but have a conference with your client where you clearly lay out all of the work you perform, and make sure you give them some labor and money saving options, like front-end voicemail, gathering less information from each caller, or picking up their messages using voicemail or email.

We offered this customer three choices: $2000 with everything done live, $1300 if the techs got smartphones and we emailed the messages instead of doing live delivery, or $800 with a voicemail screening and smartphone delivery.  The customer gulped hard and chose the $2000 package.  Six months later they got smartphones that could receive our long text messages.  They later experimented with voicemail screening, which they’ve kept and periodically tweak. 

I really expected them to go for the $800 deal or find another answering service.  I did, however, give them a detailed “specification of work performed,” which I urged them to show any other TAS they might contact.  This was to make sure they wouldn’t get a lowball quote from someone that didn’t understand the complexity of their account.  My primary contact later told me they talked to about a dozen services and were turned down by most.

Lastly, don’t be tempted to try gradual increases.  If you are losing $1000 per month on a client, reducing it to a $900 monthly loss doesn’t make any sense.

Once you have analyzed and adjusted the rates for your ten busiest clients, repeat the process for your next ten.  Continue this until everyone has been moved to your target rate.

Paula Ford is with Answer Center in Virginia Beach, Virginia.

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