Charging by Degree of Difficulty

By Donna West

For as long as I have been in this industry I have been hearing about how we need to increase the value of our services, but we are convinced that cannot charge more when we do. The excuses vary, from “I live in a depressed area,” to “My competitors charge a flat rate” to “I can’t raise my rates, my clients simply won’t pay more.” We are our own worst enemy! We do not value our own services highly enough! Our attitude is what is hurting our industry. We have to stop assuming that our clients cannot afford to pay more for our services; they can – if they want to!

There is only one excuse for not raising your rates – lousy quality. If your clients are screaming about mistakes, it is hard to raise your rates. Unless, of course, you pledge that the increase will improve quality quickly and then you follow thought on your promise. Then you can get away with increasing rates when service is bad. But you had better produce! If your quality is not good, you need to devote all your energy to improving it; then you can charge whatever you want, within reason.

To raise rates, you need to communicate with your clients. You must explain why you need to charge what you do. It can be through newsletters, proactive telephone calls, or letters that are not included with bills. Whenever you significantly change the way you bill, you need to communicate extremely well. You will still lose a few clients, but you will end up making more money.

One of the best ways to raise rates is by doing something so logical that your client base cannot argue with you: charge by level of difficulty or complexity.

Each account is different and each client’s needs should be investigated and then priced according to the total cost to deliver exceptional service. Every potential client should receive a written proposal for customized services. Most of your proposals can be in a standard format, with some being more formal and individualized than others, but all need to take into consideration each client’s unique requirements. Never send out a price sheet – in fact my company does not even have a price sheet to send out. Our sales team has a book with pricing guidelines, but it is not for public viewing; it is an a la carte menu for the convenience of our sales staff.

Before a proposal can be written, get a thorough understanding of what your potential clients are trying to accomplish. More importantly, realize that they might require what they do not even know exists! Listen to them and ask questions to guide them in the right direction. Here are some of the typical questions to ask a service industry prospect before drafting a proposal:

  • Do you have more than one office?
  • Do you service residential accounts, commercial accounts, or both?
  • Do you have contract customers? Are there ID numbers? Purchase orders? A VIP list?
  • Is your business seasonal?
  • Do you have a guaranteed response time? What is it?
  • Will we handle only emergency calls?
  • Will we be contacting one person for all calls? How will we contact them?
  • How is your on-call rotation set up?
  • What information do you need us to obtain? Addresses? Contract numbers? Equipment numbers?
  • Should we screen the calls according to your instructions or allow your callers to determine the urgency of their needs?

These questions will help you to understand the degree of complexity for a potential account. Then, when you understand the particulars of their needs you can properly price the account and subsequently service them accurately.

There are two separate and unique aspects to consider for each account: handling the incoming call and delivering the captured information. If you charge your clients by time, billing is fairly straightforward. Whenever you are working for your client, time is being accumulated, so the complexity of processing calls is usually factored into their bill.

If your company bills by the number of calls or units of work, then these aspects must be looked at more carefully to make sure that numerous prompts, detailed information, or complex instructions are taken into consideration. The degree of difficulty that matters most today is in the delivery of the collected information. This has traditionally been overlooked as a “profit center,” yet as our clients’ demands grow more sophisticated, you may actually be losing money because of the time involved in the clients’ delivery instructions and methods.

By way of example, consider a fictitious plumbing company, “Leaks of America.” “Leaks” is a full-service company that offers both commercial and residential service. They employ forty plumbers and technicians who have individual digital pagers. Our staff is to ask each caller if they require emergency service. Also, we need to page all calls from their contract customers as they offer 24-hour service agreement and promise an eight-hour response. They service a large area and have four people on-call each week. There is a separate person on-call for plumbing issues, blockages, commercial accounts, and supervising. Leaks faxes their on-call schedule to us weekly. All of the employees have been entered into our system and their pager and home numbers are pre-programmed. We have documented for our staff, Leak’s instructions for paging, back-up on-call procedures, the contract customer list, and explanations for common types of service.
Here is their typical usage and a traditional bill.

Calls answered                                                                             200
Emergencies paged (90%)                                                           180
Time spent to answer calls (200 @ 1.5 minutes)                         300 minutes
Time spent for pages (180 @ 20 sec)                                            60 minutes
Giving information to the on-call staff (180 @ 1.5 min)                 270 minutes
Total time                                                                                       630 minutes
Base rate (includes 50 minutes of time)                                      $ 81.00
Usage charges: 580 minutes (630 less 50) @ $1.12                 $649.60
Fax service                                                                                    $19.00
Total bill                                                                                        $749.60

Pretty significant, right?. Now, look at what was not billed:

Time to read instructions to determine if and who to page (required for every call which needs to be paged): 180 calls @ 1 minute or 180 minutes.

Time for discussions with manager or co-worker to make a shared decision when in doubt (approximately 25% of the calls): 45 calls @ 1 minute or 45 minutes.

Time to enter the on-call list and verify pager numbers: 4 weeks @ 10 minutes or 40 minutes.

Time to do a quarterly update of information: 4 times a year @ 1 hour is 4 hours per year or 20 minutes per billing period.

The total unbilled time is 285 minutes and the lost revenue is $319.20! This does not include the time spent checking for undelivered messages, finding and removing outdated “temporary” information, training, taking customer service calls, and other administrative tasks.

Do the rates you charge adequately cover the real costs of servicing each of your accounts and provide enough profit to afford the growth you would like to achieve? If not, consider charging by degree of difficulty. Again, consider the two aspects of the call, taking the message and delivering this captured information:

Message Levels: Use the client’s requested message criteria to determine what clients should pay. If you bill according to time used, more complicated message calls simply take longer and increase the billing accordingly. If you bill by messages (or units) you should carefully consider the complexity of the message taking instructions, charging more for increased complexity.

Level I: Obtain a name, number, and brief message.

Level II: Also get the address or other standardized information.

Level III: Information must also be given to the caller.

Level IV: Complicated message prompts and data fields.

Delivery Method Levels: Delivery methods are an increasingly important factor when determining the level of difficulty for each account.

Level I: Easy name-number-brief message accounts that are delivered by voice mail, fax, a single alpha pager, or digital pager with hold for pickup.

Level II: Delivery instructions that are more complicated or delivery to different on-call personnel at different times or days.

Level III: Accounts where the staff must make decisions, such as if there is a drain problem or a plumbing problem or if a call should be paged or held for the office.

Level IV: Clients with different types of calls or different people to call. Also accounts with off-line information such as an appointment calendar or other reference book. This includes going to a website or to hot-key to another program.

Also consider a monthly programming fee if on-call schedules or personnel lists need to be updated on a periodic basis. You might call these clients to verify their on-call staff as a courtesy. This follow-up assures better quality and is appreciated by these clients who pay more.

Restructuring your accounts in this way allows you to institute a rate increase that does not look like a rate increase. Call it “restructuring” and let your clients know why their account is at the cost level that you have assigned to it. If any clients want to lower their costs, you can explain that simplifying their account will result in lower labor costs for you and therefore lower rates for them.

When you tie training to the degree of difficulty, it is even easier to justify the cost to your client. Only your most skilled and experienced staff members can service a complicated account. Everyone understands that experienced people are paid more. Clients who use the services of your more experienced staff members must share the cost of this higher skilled labor. In addition, better training increases your quality and clients do not mind paying for quality. Everyone wins.

Once clients really understand what they are paying for, they will not necessarily want to lower their labor costs. Try this method of determining the level of difficulty for your accounts. You will not “raise your rates,” you will just “restructure your accounts” – and make more money in the process!

Donna West is President of Focus Telecommunications, Inc.,

[From Connection MagazineMarch 2002]