Raising Rates Is Imperative

By Jacquelyn Ormsbee

I was in my second year of business as the owner of a new telephone-answering service.  My accounts were all drastically underpriced, flat-rate accounts, and I was having trouble making ends meet.  I was a novice at running a business and only knew about managing an answering service from the perspective of my experience as an operator.  I had a long and eye-opening discussion with my accountant.  He said that I had to double my rates or die.  He explained that I could lose half of my clients at double the rates and still make the same amount of money.  However, he didn’t think I would lose that many clients.  I then asked myself the tough question if I really wanted to be in business or not.

Ultimately, I decided that doubling my rates really was how I had to approach it.  Because it was such huge increase, I wrote a forthright letter explaining the dire situation (without sounding too desperate).  I explained how much I enjoyed servicing my clients and helping their callers.  I also offered them alternate billing options, such as time-based usage billing.  Then I proceeded with the rate increase.  I did, in fact, raise my rates two times – and in some cases three times – so that each account was now profitable.  To my utter amazement and total shock, I did not lose a single client because of the rate increase.

That was done during the month of February.  Since then I have followed the advice of many industry veterans and raised my rates every year.  I picked February as the month to do this.  I also started using time-based billing more.  I now have about 70 percent of my clients on time billing, with the remaining 30 percent on a flat-rate plan appropriate to their usage.  Last year, because of the economy, I delayed my increase until July, and I plan to continue that as my new “standard.”  

I tell clients that I raise my rates between 3 and 10 percent per year.  The month before the increase, I put a line item on their bill as a reminder, but I do not mail any rate increase letters.  When I do the increase, I put another line item on the invoice to reminded them; for time-billing accounts, I note that the price increase for overages (additional time) will be seen on the following bill.  Most accounts I only raise 3 to 5 percent, but if an account has changed it’s “personality” and is now more complex, the rate increase will head towards 10 percent.  Flat-rate accounts are subject to change whenever their account changes in a way that affects volume or complexity, such as adding an additional office or another partner.  In those cases, I explain the reason for the increase.

I’ve never lost a client to price increase.  I have had a few clients protest their increase, and then I negotiate with them.

I treat my clients fairly, and I'm honest about my pricing methods with them.  Prices go up everywhere for everything.  I often have clients call me to know in advance what their increase is going to be this year.  The majority of my clients are happy with their service; they tell me this regularly. 

So believe the wisdom of the industry experts: Raise your prices; be profitable.  I personally keep the words of Paula Ford on my monitor: “Profit is not a four-letter word.  Fear is a four-letter word.”

Jacquelyn Ormsbee is the founder of Best Connections Answering Service.

  [download issue]