How to Implement a Tactical Rate Increase Strategy for Your Answering Service
December 23, 2016
To remain viable for the long term, telephone answering services need to periodically adjust their rates to keep up with ever-increasing costs. Not doing regular rate increases will eventually doom even the best run answering service to failure.
But almost as bad as not doing rate increases is doing annual across-the-board rate adjustments. This is because everyone receives the same rate increase, but not everyone deserves one. Some accounts are already profitable and are more than covering their own costs. Other accounts are unprofitable and drag down the viability of the entire answering service, but even with the rate increase they could still be unprofitable. (The reason for this is that answering service rates never perfectly align with the costs of providing service. There will always be some mismatch.)
The solution is to implement a tactical rate increase strategy as an ongoing, monthly revenue building exercise. Here’s how:
Discover Your Minimum Profitability Rate: Divide your total number of minutes worked in a month by the amount of revenue generated. If you are presently making a profit, this is your revenue per minute threshold.
If you are not profitable, or not as profitable as you want, increase your revenue generated to the amount you wish to produce. Be reasonable. This becomes your target revenue per minute threshold.
Regardless of your billing rates, always do this calculation using minutes. It’s the most accurate approach.
Conduct a Profitability Analysis: For each account, divide the number of minutes worked for the billing cycle by the amount of revenue billed. Again, regardless of your billing strategy, always do this calculation using minutes of work.
All genuine answering service billing systems will do this calculation for you with just a couple of keystrokes. Sort the list from least profitable to most profitable. If your billing system can’t sort your list, then import the calculations into a spreadsheet for sorting and analysis.
Make the Least Profitable Accounts Profitable: Calculate rate increases for your least profitable clients. Aim to increase at least 5 percent of your client base each billing cycle, but no more than 10 percent—unless you are in a financially desperate situation.
The rate increase must bring these unprofitable clients up to your revenue per minute threshold, which you calculated in the first step. If you don’t bring them up to that rate, they will still be unprofitable (just not as unprofitable.) Don’t increase their rates incrementally. They must become profitable starting with the next billing cycle. It’s better for them to cancel service than for you to keep an unprofitable account.
For the first few months, some accounts will likely incur sizeable increases. Handing out huge rate increases may seem unfair, but the only unfair thing is to keep an account that you lose money on every month, month after month.
Repeat Each Billing Cycle: Continue increasing rates of your least profitable clients each billing cycle. As you progress, the rate increases will not need to be as dramatic, so this will become less emotionally taxing.
You will probably always have unprofitable accounts to increase, but in the event everyone becomes profitable, congratulate yourself and then raise your target revenue per minute threshold. Then use this extra money to grow your business by investing in marketing initiatives, new technology, advanced training, and hiring staff who is more qualified.
Janet Livingston is the president of Call Center Sales Pro, a premier sales and marketing service provider for the call center and telephone answering service industry. Contact Janet at firstname.lastname@example.org or 800-901-7706.
Peter Lyle DeHaan is a freelance writer from Southwest Michigan.
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