By Larry Goldenberg
Usually just mentioning the word “Pricing” will elicit a lot of spirited discussion–whether in formal discussion or sitting around the bar at the end of the day. The reason is simple: no matter how well we manage our business, if we do not price our services properly, we will not maximize our profit potential.
The purpose of this article is to give you some new food for thought; perhaps a different thought pattern and approach then you have taken before. And if you begin looking at the pricing issue differently, you may be able to develop a new long range pricing plan.
Have you ever thought about how your accountant, lawyer, or electrician charge? They usually charge in 15 minute increments with, in many cases, a one-hour minimum, and the time includes his or her coffee, bathroom, telephone and run-out-to-the-truck breaks.
The 15-minute increments mean that this service provider will bill on average 7-1/2 minutes extra on every job, and because of the ability to schedule their work and charge for many minutes of unworked time, they can bill their clients about 85% of their employee’s time (i.e. they pay an employee for 40 hours, they can bill for about 34 hours).
On the other hand, we have to always be available, and possibly overstaffed and pay a grave operator who is never totally productive at premium pay, and we bill in six second increments, not 15 minute increments. Therefore we can only bill about 50% or so of our operators time, not 85%. I feel strongly that we must at least bill for all of the time that we do spend on our clients behalf, and in most instances we do not. We, in an over simplification, perform five functions for our clients:
- Answer their phone and take a message ( including “wrap time” after the caller hangs up).
- Think Time–for a dispatch client you have to review the instructions to determine what course of action to take, and that is usually done off line. If you are charging by the unit or connect time, you are not charging for this time at all.
- Dispatch–relaying, digital page, alpha page, etc.
- Quality control–you probably run “priority message holding lists” several times per day, and manually review those accounts to be sure any messages do not need dispatch.
- Account maintenance–we are constantly changing instructions, phone numbers, on-call people, and of course, updating on-call information and schedules, etc. Taking a message and completing the process by delivering that message to our client is really a fairly complex, multi-step and time consuming process. We need to charge for all of the time we spend on that entire process. Now let me tell you what our billing program looks like. It isn’t particularly better or worse then many, but it allows me to illustrate my thinking on the subject of pricing. About three years ago when analyzing our clients call times, we realized many accounts were taking more than 1 minute per incoming call. So, we informed clients who’s incoming calls averaged more than one minute ( and only those clients) that we would charge by the time of the incoming calls. We did not receive one call questioning that.
Then as we began thinking about charging for total operator time for new accounts, we realized we were losing “wrap time” in our pricing for current accounts. So without any announcement, we added 10% to our billing of “in or connect” time to accounts who we billed by connect time. We have never had any client even blink when we have explained that 10% wrap time charge. That 10% add on is a significant amount of extra billing.
Then last summer, because of staffing problems, we were limited in our ability to take on new accounts; therefore, we decided that we would only take accounts that were willing to pay a fair price. We went from charging $75 for 50 calls and 75¢ per call to charging by pure operator time (all of the time our telephone service representatives were on screen for that client) and using a sliding scale with five increments. We start at $75 for 50 minutes and 95¢ per additional minute to the top of $695 for 800 minutes and 80¢. This gives prospective clients the availability of a discounted lower rate, but based on a higher volume of calls not just as a request for a lower rate. It has lead to a number of clients choosing our $120, $210 and $370 base rates.
In essence, on one day I looked into the mirror and saw someone who was worth 75¢ per unit we charged for (and we did not charge for all of the time we spent). The next day I looked into the same mirror and saw someone who was worth 95¢ for every minute we spent on my client’s behalf; a 27% increase. The only real change was our attitude. We decided our service was worth it.
Have we lost prospective accounts because of our pricing? Certainly, but we have always done that. A couple of local competitors charge only 55¢ per message. Given that we are two to three times larger then those competitors, we came to the conclusion long ago that there are enough companies around that are willing to pay a fair price for quality professional service. There have been enough new clients to meet our needs that are willing to pay for time billing at 95¢ per minute.
Larry Goldenberg is the owner of Direct Line TeleResponse, Berkeley, CA.
[From Connection Magazine – November 2000]