Strategic Rate Increases Provide Consistent Top Line Growth
December 16, 2016
Undercharging is a key reason for failure among many telephone answering services. Too many answering services, especially startups, simply don’t charge enough to cover their costs, account for overhead, and make a profit. They don’t last long.
Other answering services start out charging appropriate rates, but they fail to make periodic increases to cover escalating costs, the chief of which is payroll. After a few years of no increases, they find themselves in a dire situation where they are losing money and at risk of going out of business. But it will take a 20 to 30 percent across-the-board rate increase to make up the shortfall. By the time they realize this, they’re too afraid to act. What if their clients won’t accept the increase and leave for another answering service?
To avoid this, some answering services routinely increase the rates of all their clients every year. This accomplishes three things. First, this helps revenue better track with expenses. Second, since the increases occur regularly, they are smaller and therefore the fallout is less. Third, and most importantly, annual rate adjustments condition clients to expect—and accept—small rate increases each year.
Yet there is a key problem with these across-the-board increases. Quite simply, they’re not fair because they affect different clients differently. Though most answering service rates relate to the amount of effort required to service an account, they never fully align.
Therefore, one account can be profitable, while another account on the exact, same rate might be unprofitable. If you give all your accounts the same increase, say 3 percent, then the profitable account becomes more profitable, while the unprofitable account might still remain unprofitable, just not as bad. Even if the rate increase moves them to a breakeven point, that account is still not contributing to the answering service’s success.
Now, if you give an across-the-board rate increase, which of these two accounts is most likely to consider leaving your service over price? The more profitable one because their effective cost per minute is higher. (Regardless of your rate structure, your profitability analysis must always be based on revenue per time.)
That means your most profitable accounts are the most likely to cancel service after an across-the-board increase, while your least profitable ones are the most likely to stay. The result is losing the accounts you most want to keep and keeping the accounts that are actually pushing your business toward insolvency.
That’s no way to run a business. So smart answering service owners forgo the annual rate increase in favor of making strategic rate increases each month on their least profitable accounts. Doing this month after month, year after year, consistently produces ongoing top line growth, which trickles down to bottom line profits.
That’s the right way to run an answering service.
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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