How to Start or Buy a Telephone Answering Service: Entry Level

By Steve and Chris Michaels

Updated January, 2007

A prerequisite for starting your Telephone Answering Service (TAS) from scratch is to ask yourself three simple questions:

  1. Do I like answering telephones and taking or delivering messages?
  2. Am I a “people person” who likes to deal with people and the problems/rewards that go along with it?
  3. Is my timing right and do I have enough capital to last while the service is being built up?

There is always going to be a demand for telephone answering. A great many people are “turned off” by the frustration of expecting to talk with a “live person” and having to listen to a recording that advises the caller to leave a message at the sound of the tone. Exasperation of this kind can sometimes cost a business thousands of dollars in lost revenues. Realizing this, today’s successful businessperson wants the personal touch of a friendly, professional “telephone secretary” answering their phones for them.

The professional telephone secretary can pass along the proper messages to the different callers, take messages, get clarifications, even set up meetings and schedule appointments. In many instances, business people come to think of the operators at their telephone answering service as an extension of their business.

A Telephone Answering Service is a labor intensive, technology-laden business. To get started you’ll need an initial investment of about $5,000 to $10,000 with facilities plus working capital. Paper-based equipment can sell on the used market from $1,800 to $4,000 and new from $8,000 to $15,000 for a four-trunk system (which would handle around 200 customers). In today’s market, it is possible to purchase a used paperless, computerized system using either DID (Direct Inward Dialing) or ISDN (Integrated Services Digital Network) for under $10,000.

If you are going to purchase used equipment, make sure that you deal with a reputable seller who will guarantee that the equipment is in good, operable condition. Going directly through the manufacturer or a broker will insure that you will be getting what you are paying for.

In a paper- based operation, messages would be written on a piece of paper, time stamped, and then put in the customers message slot. When the customer calls in, you would simply deliver the messages over the phone. Other options are to fax, voice mail, email, or text message the customer.

But before you do anything, you should do a market survey to determine how many customers you can generate in your area. Remember, if you are not in the position to run your service for several months at a loss, then you may want to reconsider this type of business venture. If you’re determined, have a marketing plan and check your competition. You should then query potential clients such as doctors, plumbers, funeral directors, towing companies, apartment complexes and the like, informing them of your intentions to start an answering service. If the query is positive and you can sign up between 80 to 100 customers at $100 – $200 per month then here are a few tips for the beginner:

In setting up your own facilities, whether it is out of your home or a small office, keep your costs in line with a realistic view of your first year’s anticipated income. There will be very little walk-in traffic and most of your customers will sign up for your services over the phone. It is important to secure a business site because when you order your phone lines, the phone company will want to have an address to verify that there is enough cable pairs (phone lines) to serve your location. In the beginning, it is recommended that you have anywhere from two to four DID lines and at least two business lines. You will then need to order DID numbers. DID numbers come in blocks of 20 or 100 depending on your phone company.

Here’s how DID works: When a new subscriber comes on to your service, they order call forwarding from their phone company and you then assign them one of your DID numbers, such as 555-1234. When they wish to leave their office and have you answer the calls, they call forward to their DID number, which in this case is 555-1234. When a call is forwarded, the central office of the phone company transfers the call plus the last three or four digits of the DID number, in this case, 234 or 1234, to your service. Your DID equipment recognizes the number you have assigned to that particular client and brings up the answer phrase and pertinent information for them. That is how you know who the call is coming from.

If you were to order four DID lines and 20 DID numbers, you could service 20 customers and could receive up to four calls at a time. Never allow your customers to use your DID number as a number that they put on a business card or advertise in the yellow pages. If this client doesn’t pay, you will continue to receive calls for them on that number even though you have reassigned it to another user. If they do not have a phone number, such as a traveling salesperson who visits your territory occasionally, then they should get a remote call forwarding number or a cell phone from the phone company. They own that number and can have it call forwarded to your DID number.

An alternative to DID is ISDN. The first thing you must do is to be sure that your equipment is capable of utilizing the ISDN capabilities. Next, be sure that your local Telco is able to offer ISDN to your location. Some have a mileage restriction from the central office and if you are outside that area, the charges are normally more than people are willing to pay.

Now, find a Telco representative that is familiar with ISDN. One BRI ISDN line can cost about $100 per month and about $100 for installation depending upon where you are located. There have been services that have 80-120 clients running on 1 ISDN line. You can have up to 8-call appearances, (an ISDN terminology) sort of like lines or trunks when using DID. On some manufacturer’s equipment, the digital ISDN feeds the software with caller identification information, such as the calling party’s phone number and the forwarded clients phone so the operator has a display of the answer phrase of how to answer the call. Unlike DID where each client gets their own number, all of the clients call forward their phone numbers to the same ISDN number.

Speaking of BRI, DOE’s, NTI’s and buttons – what are they? BRI (Basic Rate Interface) is a type of line that includes three channels- two Bearer (B) channels plus one Data (D) channel, which is called a 2B plus D. The analog lines are capable of doing one thing at a time, while ISDN lines are able to do multi-functions at the same time. The B channels can handle the voice transmissions, faxing, modems, etc. while the D channel handles the monitoring of the line. Since the D channel is always open, this provides the possibility of performing all sorts of operations (security system, fire and emergency monitoring, etc). Also, the D Channel allows “conversation” between you and the Telco’s central office. ( i.e. letting you know that another call is coming in, you can tell the central office to patch or transfer two calls, you can know why you are getting the call, etc.).

These accounts do not call forward. Either the answering service or the client can bridge the line. There is an actual connection of an accounts line to your ISDN equipment. Imagine a large phone with 64 push buttons. Each of those buttons can represent one DOE (Digital Office Equipment). When ordering these lines, you no longer tell the rep what jack and position you want the line on, instead you tell them what button to put the line on.

The NTI is a network terminator – this is the bridge between the Telco and your equipment. These can be purchased from a variety of vendors with prices varying widely so shop around. You need one NTI for each BRI ISDN line coming into your office. This piece of equipment is priceless when a line is down. If a DID trunk is down for some reason, you may not be aware of it for quite a while. If an ISDN line is down (which rarely happens), the NTI will alert you of a failure. This also is great when tracking a problem and the phone company insists it is your equipment for this monitors the line coming into your site.

Pricing of ISDN lines is normally less expensive than DID trunks. Check with your Telco regarding rates for installation and monthly charges. Normal activities can be done in less time with ISDN. Line connections are made and disconnected faster. Patches (transfers) are actually done at the Telco central office therefore, your equipment is not tied up and your customers don’t complain of busy signals due to patches. You need less lines because ISDN lines all handle multiple calls at one time, while DID’s can only handle one at a time.

Next, you should check with the Yellow Pages to see when they close for the next issue since some of your new customers will come from this source. Another very important source of lead generation is the Web. In these days and times, it is almost imperative that you have a website that is current because many prospects now check out the Internet for new answering services.

Once you have done your survey, chosen a name for your company, decided on a location, picked out your equipment and ordered your phone lines, you should be ready to order your business cards, stationery, furniture and all of the incidentals that will be needed for your bureau. Remember, if you have decided on utilizing paper equipment, you will need a carousel or message rack for your client’s messages.

Just about anyone with a business card will be a good prospect for your services. People working out of their homes are very good prospects, especially those holding down regular jobs while moonlighting with a part-time business of their own. Every salesperson is a prospect: people who work on a 24 hour “on-call” basis and repair service business owners such as elevator maintenance companies, electricians and locksmiths. There are other kinds of services that will be interested too, such as funeral homes, towing services, cable TV companies, and customer complaint departments of virtually every business in your area. By all means, don’t forget the doctors, dentists and other professionals. You may want to design a flyer for your business and target a certain segment of your potential customer base, such as real estate agents. Rewrite your flyer so it pertains to the particular industry that you are addressing. Be sure to send your flyer to those names and companies that are listed in bold in the White Pages of the phone book as they are good leads.

The average rates to charge for your service should be based on the industry average for your area. You neither want to charge too little nor price yourself out of the market. Industry standards are approximately $1.00 – $1.25 per minute, which will be hard for you to determine if you elect to go with paper-based equipment. To find out what your averages are, simply cold call your competitors to see what they are charging. An example would be $90 for a specific number of messages -usually 60 to 100 with a surcharge of 95¢ for each call beyond that quantity. Other calls, such as wake-up calls, patches or cross-connects (patching a call from your caller to your customer, pages and reminder calls for appointments, are usually billed on a “per-call” basis. Every time your operator does something for a client, there should be a charge involved. When answering services first began with cord boards, they would charge a flat rate with unlimited calls because it was much easier for billing purposes, as they didn’t keep track of the number of calls per client. But when answering service equipment became more sophisticated and bureau owners started counting calls, they realized they were losing money from the customers. Some client’s phones were very busy while other client’s received only several calls per month.

Most telephone answering services provide a variety of other services to keep their operators busy during the times when there are no incoming calls. These services range from alarm monitoring, paging and wake-up services to private post office, mail drop and forwarding services. The important thing is to keep your operators busy doing some kind of work that makes money for you. You will learn through experience how to properly staff your bureau for optimum performance and profitability.

Once you are ready to go, consider the attitudes and feelings of the people who will be working long hours for you. Invest in some cheery paint for the walls, non-glare lighting, carpeting for the floors with static mats for the computers. Look around for good office furniture, including chairs, and buy or lease only what is absolutely essential. A pocket calculator and a PC will work fine until you get the business running on a profitable basis.

If you have a paper system, you should keep the customers message slips for totaling at billing time. It’s a good idea to have each operator file them in your customer folders as they finish their shift. Retention of these message slips for at least 90 days is a good policy. You may find a customer will want to check a message received or double-check his or her billing against your records

Preprinted message pads save time, accuracy and clarity in message taking. You should have a plentiful supply available and within easy access for your operators. If you have a paperless system, you can store messages externally such as on a ZIP disk or other type of media.

You’ll need some form for maintaining basic customer information, such as address, name and number to contact during an emergency, and any special answering instructions. For this, simply use 3 x 5 or 4 x 5 index cards and place them in each customer’s message slot for easy operator reference. Many services have these cards laminated in plastic to prevent them from getting dirty or deteriorating with constant use.

Each time a customer signs up for your service, you should have them sign a simple contract that specifies the name and address of the firm to be billed for the service, and the typed name as well as the signature of the person authorizing the service. There should also be space on this contract for alternate phone numbers, names and addresses as well as phone numbers of persons to contact in case of an emergency and any special answering instructions the client may want you to use. Don’t forget to include a clause requiring a 30-day notification of cancellation by either party to the contract. In order to cover any disconnect charges, it’s also a good idea to state that a full month’s payment must be made for any partial month’s usage. You’ll probably want to stipulate that the first and last month’s base charges are to be paid up front at the time of service. You always want to bill in advance for the basic service, and in arrears for message units or overcalls. It is also not unheard of to charge a one-time set-up fee for in-putting them into your system.

One other item of paperwork you should have is an Errors & Omissions Insurance Policy. This protects you and your operators against any liability from mistakes or missed messages – very good to have, and available at very low cost through the Association of TeleServices International. Your other insurance needs are those basic to any business. Always shop around for the best rates.

In the beginning you can operate a telephone answering service with two people, yourself and one other. However, we strongly suggest that you add to your operator staff just as quickly as your customer list warrants. The longer you try to operate with just two people the longer it’s going to take you to achieve real profitability.

You may elect to start a niche bureau, which caters to daytime clients only. This will relieve you from having to staff your bureau 24-hours a day, plus weekends. Remember, if you want a 24-hour, seven-days-a-week, full-service operation, it will require at least three full-time operators plus at least one relief operator.

Ideally, you should try to hire people with telephone experience. It will take some time to train inexperienced people, so bear this in mind when you begin looking for people to hire. It’s always a good policy to hire your new, inexperienced people for the evening shift. Break them in by having them “sit in” with an experienced operator during the daytime hours, and have someone close at hand during their first week on the evening shift before turning them loose to handle your customers by themselves.

The most important qualifications to look for in an operator are voice and attitude. The voice must be pleasant and sound alert, interested and ready to help the caller. Warn your operators never to allow their “personal feelings” show through when they are answering the phone; they represent your business and your customers. As such, they must project a professional image at all times. Remember, your service is only as good as your worst operator.

Teach your operators to answer the phones with a “smile” in their voices. Train them to take their time with the callers, and get the message right by reading the message back to the caller. Also, be sure they ask the caller for the correct spelling of his or her name. You should also have your “difficult to pronounce” clients’ names spelled out phonetically. There is no faster way to loose customers than to mispronounce their names.

You can start your inexperienced people at minimum wage with your experienced operators making more with time and experience on the job. Try to explain to them that the success of your business depends on them, and as your business prospers, so will their monetary rewards. Get them involved and interested in helping you succeed.

Another important item that should be initiated from the start is to have all of your employees sign non-compete agreements. This legally prevents them from soliciting your customers should they leave your employment or you sell your business.

Selling your services, building an ever-larger customer base, adding on new features is the name of the game for real success. Purchasing the wrong equipment/features can easily eat away at your profits while your labor costs can quickly exceed your revenues. You’ve got the Entry Level start up information, and from here on; the rest depends on your own ambition.

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Steve and Chris Michaels operate TAS Marketing, a business brokering company focusing on assisting clients buying and selling telephone answering services and outsourcing call centers. Contact them at 800-369-6126 or tas@tasmarketing.com.