By Donna West
We put our first rate increase into effect when we were not quite one year old. It was the simplest little note on a card the size of a #10 envelope. It said, If you pay peanuts, you get monkeys, and we don’t want monkeys answering your phone! Therefore on [date] you will see a rate increase go into effect.
There were no complaints!
We have raised rates ten times in the 10-1/2 years we’ve been in business with very little fall-out, and we’ve done it in a variety of ways. I’ll share these ways and others with you, but let’s start with the philosophy of rate increases.
1. Raise rates regularly: At Focus, we prefer to do increases in the fall; October is good; so is September. In the DC area, call volume is beginning to even out after the surge of summertime calls. Whatever your peak season is, try to raise your rates right after. Your customers are used to higher bills and won’t feel the increase so much.
2. Raise them at the same time every year, so customers expect the increase: If you need to change the month in which you are putting increases into effect, simply move your rate increase forward by a month or even two at a time until you get them where you want them. If your quality has been really good the past six months, raise them a significant amount. If you’ve had a lot of over-rings, just raise them a little. There is one exception to that rule, and we’ll get to that later.
3. Always notify your customers the month before you raise your rates: For instance, if you’re going to raise your rates on the November invoices, put a notice in the October bills. You may want to add a reminder on the November invoice itself that the amount shown represents a rate increase. You can put it in your newsletter, or you may not want to bother repeating it at all. With a small increase it really isn’t necessary.
Never give a rate comparison in your rate increase notice. Take a note from the big banks and just say, On October 21, a rate increase will go into effect. If you feel you must put in the amount, give only the new amount, not the old amount. Most of your customers have no idea what they are paying for individual services. They only know, for example, that their bill is about $180 per month.
4. Charge for everything you do: A wise person once told me to charge something for everything I did; that way it’s easy to raise the cost. If it’s free, it’s real difficult to begin charging. That person was right. It’s easy to raise the cost of faxing messages or the cost of an additional voicemail box by $1. If you’re offering a new service where the customers have the ability to change their own locate or on-call information, charge for it. If you want the word free to get people interested, make it a free introductory offer, three or six months; let the customer know you will be billing for it when the free period is up.
5. Itemize every single possible thing you can do on your invoice: Itemize everything on the bill, whether that customer uses those services or not! List operator services, auto-answer, additional voice mail boxes, automated paging, alpha pager, digital pager, everything you have (or a large selection of common services; everything might be a bit much). If the customer doesn’t use that service, it’s N/A on the bill. If they get it, but it’s always been free, you can either put N/C or allocate a part of the base rate for that service. The purpose of itemizing is two fold; it acts as advertising. Every single time you send an invoice, you tell them what else you could be doing for them. Eventually someone will ask, What is this Fax-on-Demand anyway? and, bam, you’ve got em! At least that’s the theory.
This method also allows you to raise a portion of the rate more easily. For instance, let’s say delivery of a message to an alphanumeric pager has always been included in the cost of the basic rate service of $75. Now perhaps the base rate becomes $60, but with a $15 alphanumeric paging charge included, the package is back to $75. So the next time you want to raise rates, your base rate stays at $60 and alpha paging become $17.50. The whole package becomes $77.50; easy.
Or perhaps you raise the base rate to $65 and the alpha paging stays at $15. Now you are charging $80 for the bundled service.
Breaking out items included in the base rate well in advance of a rate increase will facilitate the increase when you are ready.
While we’re on the subject, packaging or bundling is a good way to sell more. A contractors package might include: operator services with one alpha pager (for the boss) and three digital pagers and fax backup, all for only $150 per billing period. Your customer may get something in the package they wouldn’t ordinarily order, such as fax back-up. It may not raise rates, but it increases the bottom line.
6. When the minimum wage goes up, so should your rates. Always! Send out a letter with your rate updates because of the minimum wage increases. You can use this letter up to four months after the law actually changes. We all know our own employees will start asking for more money whenever there is a minimum wage hike. Use this while the change is fresh in everyone’s mind.
7. Lower the amount of time or units included in your base rate: One of the simplest ways to raise rates is to cut the amount of time or units covered in your base rate. This is a great little increase if your quality hasn’t been quite up to par. The Focus base rates only includes 50 minutes of time. We stopped giving an hour of time many, many years ago.
8. Another way to squeeze out a little extra income is to increase the round-up: Some equipment is set to round-up in six second increments. If yours is preset, you’re stuck. Focus uses Startel equipment, and it allows us to select our own round-up. You may want to move your round-up to 15 seconds. Some people are rounding up to 30 seconds in an attempt to cover wrap time, and more for order entry or accounts with really long templates. Be sure you check with the people who support your billing package to see if there are any calculations that need to be adjusted in the billing formulas to accommodate around-up change.
9. Meet the pay demands of better quality operators: If your quality has been suffering, you can turn that into a reasonably good rate increase. Tell your customers that you are raising rates so you can meet the pay demands of better quality operators. Promise every dime of increase will go to operator payroll and training and supervision; then do it. The risk is: you’ve got to get better quickly; your clients will expect it; they’ll figure they’ve funded it.
10. Offer a premium service! Isolate a trunk group and limit the number of customers on the trunk and increase the number of operators open to that trunk. Charge significantly more for this service; your customers won’t think its premium unless it’s expensive.
11. Charge a holiday fee: Focus began charging $5 for each of the six major holidays: New Years Day, Independence Day, Labor Day, Thanksgiving and Christmas, about five years ago. Actually, I heard the hint at an ATSI presentation. We made it voluntary for our customers and explained that it would allow Focus to pay our staff double time instead of time and-a-half for the day. The ideal holiday to put this into effect is on Thanksgiving. By the way, I know of people who are charging $15 per holiday. Focus has just been raised to $7.
12. An annual maintenance fee: Several people in our industry are charging an annual maintenance fee. The purpose of this fee is to cover the addition of lines and trunks to their offices, increased telephone company charges and equipment costs. We’ve heard amounts from $15 to $50 and apparently those doing it have had no resistance from their customers since it’s a one time, annual fee. At least one person breaks the amount out on their initial set-up fee so the precedent is set when the customer comes on board.
13. Other maintenance fees: There is a fee I hope everyone charges: an on-call maintenance fee. This fee is for an on-call coordinator. That person’s responsibility is to call the customers who rotate people being on-call and confirm that Focus has the proper person listed to contact for urgent calls. There is a nominal fee for this service charged on every invoice. It could look like this: On-call coordinator service…$3.
There is a much larger fee, charged on every invoice, for programming maintenance. This is for the customer who has 30 people listed with pagers and home numbers who changes something at least once a week. That would be a line item listed: Account maintenance…$15.
Don’t forget a big programming fee when they change all 30 pagers too! That may be listed as: Programming fee, 1 hour…$18.
Remember it costs you that much or more to have a person make those changes. Labor is what you are selling. Do not give it away free.
(Due to the length of this article and importance of its content, Part II will appear in the March/April, 1999 issue.)
Donna West is President of Focus Telecommunications, Inc., www.focustele.com.
[From Connection Magazine – January 1999]