Rethinking Rates? Charge More – You’re Worth It!

By Donna West

It has been said that we are in the Information Age, the Communications Revolution. I think that is very much true. It has also been said that the TAS industry is dead or dying: I do not agree with that! But I do believe we need to adapt to be what our customers need us to be. And, I believe it will take constant improvement of our equipment and our service to do it.

We badger our vendors for upgrades and complain bitterly about the cost. Our vendors are giving us the tools we need to make more money. Our vendors are not charging too much for their goods. We are charging too little for our services!

Are you using the most top-of-the-line equipment your vendor has to offer? Do you plan to upgrade to the best within the next year to 18 months? Do you want to but can’t afford to? Why not?

Is it because you’ve locked yourself into the low rate cycle? You have convinced yourself that your customers won’t stand for a rate increase. Your area is more depressed than most. What are you going to do when you must have better equipment to be able to compete?

The consultant I hired to help set up our company suggested rates that were too low for our area. Or course, being a start-up, we had few customers and were able to give great service, so we grew quickly. The problem was we couldn’t live on the rates we were charging as we grew.

Eventually, we realized we were one of the cheapest guys in town. We were giving good service, yet we were struggling to make ends meet. We were also losing good employees because we could not afford to pay them well.

We had a meeting at which we agreed: “We are going to raise our rates dramatically.” I felt that I would rather take a chance on losing customers than go broke trying to keep them. One month later, we put a 27% increase into effect. Over a period of 5 months, we lost about 25 customers because of that increase.

We switched some of the ones who stayed to voice mail with operator revert or automated answer, and we found other creative solutions to cut their bills, but only by cutting their operator time. That’s okay. Cutting operator time on an account works out just fine. Often, you will find that you can get more money for the operator time used while you are charging the customer less overall. You will increase the number of accounts each operator can handle by lowering t he time he or she is actively on line with each caller.

One thing that we did was begin billing by the complexity of each account. If a customer needs our most experienced operators to answer their calls, they pay more than the customer who needs a simple, name, number, message with alpha or fax service for every message taken. Those are the two extremes of our service levels. The middle rates went to the customer who took much of the guess workout of handling the account. For instance, if there is a prompt asking, “Do you need a call before the office reopens?” And the instructions are “Page if the caller says ‘Yes'” (regardless of the actual message), that customer gets a lower rate than the one who insists my staff make the decision as to whether or not the call will be dispatched. We stress that we can do anything that our customers need us to do. But, it can’t all be done for the same price.

Actually, when we raised our rates and categorized them we found ourselves selling bigger, more complicated and more lucrative accounts. I call it the L’Oreal Syndrome: “Sure it costs more. But I’m worth it!” When we are buying for our business, don’t we want the best money can buy-within reason?

If most of doubled what we charge, our bills would still fall within the same percentage rate in our customer’s overall budget. By that I mean if a customer is spending 1% of his or her revenue to pay for answering service and we doubled our rates, he or she would probably still only be using 1% of his or her revenue to pay our bill. For many of our customers, our bill is in the “noise level” of what it takes to run their company.

I know this is not always the case. For a small plumber, our bill could be a significant part of his budget. But the bigger the percentage, the more he really needs us and the more willing he is to pay for our services.

Recently, our service suffered some real setbacks. The quality we had been providing these past two years has not be en as good as would have liked. Over the first 6 or 7 years of Focus’ existence, we were excellent, really good. I almost never head, “I’m leaving because your rates are too high.” I only began hearing that when our quality deteriorated. But, there was more to the sentence that was being left unsaid. They weren’t leaving because our rates were too high. They were leaving because our rates were too high for the service we were providing.

If we want to provide good service, than we need to pay well. I have no intention of competing with McDonalds for staff. I don’t want anyone who is willing to work for just above minimum wage. They don’t have the self esteem necessary to handle our calls. My customers want a professional image; it enhances business. They do not want, “just an answering service.” I can’t give them operators who are not serious about their position.

You can bet that the really good clients out there don’t hire $6.50-an-hour employees. A $6.50-an-hour employee makes $13,500 per year gross. If that is what you’re paying, you will have many employees who are working for you while they watch for a better opportunity. And let’s face it, this job is an excellent training ground.

Our doors stopped revolving and we got a much better class of applicants when we upped our wages. Our overall sound improved and we started attracting bigger and better clients who are not as concerned with nickels and dimes. We are talking about a professional message center. If you build it, they will come.

I suggest you decide what pay scale you think will attract and keep good people. Then decide what equipment you need to upgrade to remain competitive. Then increase your rates to accommodate those figures. If you lose some customers, don’t worry. You will make more money on the customer base you have left and then you can begin to grow! If you increase your rates by 10% and lose 10% of your customers, you are still making the same amount of money with less work.

If we don’t upgrade our services, we will lose everything! Look around you. Services are being bought at fire-sale prices because folks haven’t kept up. This causes panic among owners that exacerbates the problem. We hear about companies selling at 3 or 4 times gross. But let’s face it. The big successful services are not selling for that. They are not selling at all.

I’ll bet we all are getting letters from folks who want to buy our services and it probably causes most of us concern. We wonder if we should sell while we are able. Will the climate get worse? Do we have the energy to build our business to fit the very technical age we are entering? Sure we do!

I have a dear friend who knows a good deal about our industry. He says we are some of the most naive business owners he has ever met. We are sitting on gold mines! Properly managed and properly grown, we could take our companies public in a year or two if would learn to be business people!

It is no secret that one of the groups buying answering services plans to take their operation public. But, you don’t need to be a big conglomerate to do it. Many folks have turned from “Ma & Pa” to strong corporations. Where did they start? They started with a strong rate structure!

We started Focus 10 years ago with zero clients and low rates. Now, we have average bills of $180 per billing period. We are a multimillion dollar company. We have had a rate increase every year we’ve been in business except two (and then we only stretched it to 18 months). We even raised our rates when we terrible! Gutsy, huh? I once heard Betty Sweet say, “You should always, always, always raise your rates every year.” That way your customers will expect it. It works.

I attended an NAEO meeting in Florida several years ago and Tom Gelbach told me that everyone in this industry should be charging an average of at least $1 per minute to be able to move into the future. That was in 1990. I’d be willing to bet that more than 50% of our competitors still aren’t averaging $1 per minute! It was true when Tom told me and it’s even more true now.

There is exciting stuff come down the pike. There really is a communications revolution. It has started and it is going to take money to become a viable part of it. Plan for the future now or when it comes you will be just another notch on someone else’s expansion belt.

Donna West is President of Focus Telecommunications, Inc.,

[From Connection Magazine, March 1997]