| New Buyers to the
Industry You've seen an ad in a newspaper or trade
publication with a telephone answering service for sale and wondered what it would be like to get into this industry.
Your first question should be, do you want to run the service as an owner/operator or as an absentee/owner? Let's
discuss these two options separately.
Owner/Operator
When purchasing an existing TAS bureau there are a few key items that you should
address. One of the main questions is to ask will the present management stay? You are going to need help with
understanding the day-to-day operations of the business, scheduling of operators, up keep of the equipment, etc. If the
bureau that you are buying does not have a manager, then make sure that the seller will stay on for a period of time to
fill you in on all the details. It is important not to make any radical changes when you first take over the business.
The staff will be nervous as it is, so try to keep the business running as usual but keep your eyes open for areas of
improvement. If you are new to the business, hiring a consultant to evaluate what you have purchased could be valuable.
In fact, you may want to consider having an expert evaluate the business before you buy it.
In evaluating a business, take into account the TAS equipment manufacturer and age of
the equipment that is servicing the bureau: Are you going to be able to continue on with the present computer
equipment? Is it feature rich with options for your customer base such as alpha dispatch, voice mail, fax, and voice
logger with e-mail delivery? Are you able to become web-enabled with the current equipment? What kind of software does
it come with and is the system upgradeable? Is it on a service contract, is the licensing transferable and does it come
with a spare parts kit? If the equipment is old and out dated, then the price should reflect that fact. If it is brand
new; is the seller going to pay off the lease or are you going to assume the payments? These are just a few questions
concerning the equipment.
There are a few tricks in making your business more profitable. After you have settled
into your new business, start to incorporate a 28-day billing cycle if your call volume can support it. This will give
you an additional month's revenues for the year. You will also want to incorporate any new features that will cut down
on your operator labor, since that is going to be your biggest expense. A well-run answering service can generate a 30%
profit. Your labor should run you around 40%, with 10% going to phones and taxes, and 20% for administration. Utilizing
a voice mail system along with faxing and e-mail for message delivery should reduce your labor by at least 10% to 15%.
Instead of having to staff up for your busy times, which incurs additional labor, the messages for your customers have
already been delivered so there are no highs or lows in your staffing. The three most convenient ways of message
dispatch are voice mail, faxing, delivering them to their alphanumeric display pager or delivering the messages via
e-mail. Another way to drastically cut down on your labor is to offer auto-answer to your customers, with the option to
press 0 to reach an operator.
There are three basic ways to price your services. The first is the old way that
bureaus used because of the paper-based equipment and to save labor, which was to price the service on a flat rate
basis. The customer would be charged a flat rate of, say $95 a month for unlimited calls. If the customer was receiving
a substantial number of calls, then the owner would simply increase the rate. The flat rate system saves labor by not
having to count the calls at the end of the month; however, it usually restricts your ability to make extra money and
is not fair to all customers concerned. The second, example is to charge a rate of, $95 a month for 70 calls and then
to charge approximately 90¢ for overcalls, patches, pages, etc. This method is preferable because it can be used
by paper based as well as paperless equipment. Of course, different packages may be established, such as live answer
with voice mail dispatch or a service with a pager for different customers' needs. With this method, it is customary to
bill the basic service in advance and the message units in arrears. The third and most profitable way to charge is by
the minute or message unit, which will require a paperless, computerized system with this capability. With this method
of billing, you are able to offer a low monthly rate, for example, $30 per month, with a per-minute charge of, say,
99¢. Every time the operator logs on to that account, the clock starts ticking. So, if the customer wants to check
in for messages live and chitchat with the operator, they will be paying for her time. By far, this is the most fair
and profitable way to charge for your service.
As a new buyer, you should be prepared to pay cash for a business. The prior methods of
a down payment with the seller holding a note are changing although some businesses may still be purchased that way. If
a service is in distress and the owner just wants out, you may be able to pick it up for a percentage of the
receivables per month with nothing down. And then again, if a service has sophisticated equipment, a good staff with
large billings and ample profits, you may have to pay all cash. There are as many variables as there are
services.
Your best advertising is word of mouth; the second is by having a web site on the
Internet and the third is an ad in the Yellow Pages. You may also elect to hire a sales person or do some direct mail
advertising. Some bureau owners use their existing customer base for referrals. In your bills, simply put a stuffer
advertising a free month, or something that will entice your present customers to bring you some new business. When you
become web-enabled, a good source for your advertising would be to buy a banner on one of the major search
engines.
Raising Rates:
Common misconception:
If you raise your rates 10% what percent of your customers can you afford to lose - and still break even?
Common response:
Most people will say, if I raised my rates by 10% I could lose 10% of my customers and break even.
Truthful and correct answer:
It's not always the same, but you might actually be able to lose up to 50% of your customers and still break even!
How can that be so?
Scenario #1
Presume for a moment that you have 200 customers, gross $40,000 per month and that your net profit is 10% - or $4,000
per month. If you raise your rates by 10%, you double your net profit percentage to 20%.
If you raised your rates 10% and NOBODY quit you'd bill $44,000 per month, right? So your take home profit would be
$8,000 per month... or 20% profit! If you raised your rates 10% and 50% of your customers quit, you'd be billing
$22,000 per month... with a 20% profit you are still taking home $4,400.
Scenario #2
Presume that you have 200 customers, gross $40,000 per month and that your net profit or take home pay is 20%
or $8,000 per month. In this case if you raised your rates by 10% you would be going for 30% profit. With a 10%
increase and no one quitting, you'd bill $44,000 and be able to take home $12,000. If 33% of your customers quit after
you raised your rates to give you a 30% profit, you'd end up billing $28,333 of which 30% would be profit... and your
take home pay would be $8,400 per month.
This can't be true... can it? Is there a trick here?
These figures are actually totally accurate, but there are a couple of underlying issues that you can't avoid.
If your client base goes down by 50%... or even by 33% you'll need to cut back your expenses to maintain your profit
margin. It's pretty easy to cut labor costs; eliminate overtime and cut hours, lay off a few people, eliminate
supervisory positions and cut pay, or just don't fill positions that fall vacant. You may quite easily disconnect a few
phone lines here and there, too... BUT cutting costs on equipment leases, office rent or even utilities is harder to do
and generally takes longer to do.
The second big kicker comes with the presumption that your service isn't dominated by a couple of "whales" or
large accounts. If you have 2 or 3 accounts that are each billed $5,000 per month - losing all of those at once is a
potential MAJOR blow. Losing any "whale" account is serious and requires careful thought.
The last big presumption is that everyone who works for you is getting paid - fairly. How often have you all seen an
answering service where the owner works as an operator 40 hours per week AND spends many more hours doing billing,
collections, sales, training, etc.? Underpaying any owner or manager means that you are overstating profits. If you are
such an owner, your business probably doesn't make any real profit, because if you replaced yourself with a fairly
compensated employee or employees... there wouldn't be enough money to pay the bills. In Scenario 1, if the owner is
taking home $2000 per month and works 80 hours per week he/she is working for $461.54 per week.... or only about $5.76
per hour! The plain fact is that you can't hire a competent operator for that amount in most places in the U.S. If you
have a manager working for that, sooner or later you are going to be in trouble with the Federal Labor Relations board
for paying salary in violation of the minimum wage act... if you've got ANYONE working over 40 hours on salary and they
could come out better getting minimum wage plus overtime for the hours in excess of 40 you ARE violating the law.
If you are the owner of an answering service taking home $2000 per month working 80 hours per week.... raise rates...
Raising rates in this case is turning an obsessively expensive hobby into a real career.
Gradual is the Key…
How you raise rates is important. There is no law that says you have to raise rates on all your clients in the same
month. Spread it out! Raise 40 to 100 per month. You'll reap the profits a little slower, but if you do lose a few
clients that will also spread itself out, too.
A 10% overall increase doesn't necessarily mean you have to raise every client by 10%. Seriously, if you've got an
account that is chronically late and you have to cry, beg, and threaten with a cutoff notice to get what's owed you -
raise that client's rates by 20% or 30%! If you must lose clients, why not lose the bad ones? And if you must raise
rates, why not raise them higher for the clients who make you work harder and longer?
TIME billing - Using time to measure your work IS critical to making an equitable profit on every account. I'm sort of
the lone eagle in our area when it comes to billing per minute - most of my competition is still doing per call. If
that's your situation I'd advise you to initially move to "per call" rates. If you are currently on monthly
billing, going to a 28 day billing and raising rates is a big load. For your business the rule is, carve the big hunks
off the carcass first, the soup bones and marrow will still be there tomorrow - or next year. If you only plan to raise
rates on 10% of your clients in a given month, it makes far more sense to raise the rates on your least profitable
accounts FIRST!
The best defense of "per minute" rates is the key word "incentive". Everyone is in business to make
a profit and we shape the way we operate our businesses to maximize those profits. Every answering service has a built
in incentive to avoid overstaffing - having one extra operator on one shift per day can easily cost almost $100 in
wages plus benefits - multiply that by 365 days. In a "per call" shop the most valuable operators will be the
ones who can take the highest number of calls per hour, and the higher the per-call rate the bigger the profit is. An
operator who averages 40 calls per hour at 60 cents per call can generate a maximum of $24.00 per hour in revenue;
every additional 10 calls that the operator can pump out will increase his/her profitability by $6 per hour! If every
call is counted the same, including automated or semi-automated functions like faxing, e-mail and alpha paging, some
operators will be able to produce a throughput of 100 calls per hour. The owner or manager has no incentive to
encourage patience, politeness or good manners since those qualities have a negative impact on his bottom line. In fact
the "call back in 20 minutes when the office reopens" is a real profit maker. In the "per minute"
shop, the operators are still under time pressure due to the staffing level, but they have no incentive to hang up if
the caller stutters or is hard of hearing. The client pays a lot less for wrong numbers, recorded telemarketers, but
the staff are encouraged to take enough time to get a complete message because they bill more for really long calls.
Any business, which has a substantial number of elderly or disabled people as their customers, should do well to insist
on paying per minute as they will pay less for really short calls, but the operator will never be criticized for taking
extra time with a difficult caller.
Therefore I would suggest that you get rid you your "per message" rates ASAP. Even though I generally
advocate gradual change, making the change from per message to per call (or per minute) is something I wouldn't spread
over more than three months. If I thought I could do it faster, I would.
Put a note on this month's bill letting them know the rate structure will be changed effective with next month's
billing. The one exception to this rule is the "whale" that is paying you $1000 per month, and will be paying
you $3500 under the new billing structure. A personal consultation, with facts, figures and alternatives can often save
an account that would otherwise be lost (Hint #1: Screening Voice mail is our friend. Hint #2: Automating some or all
message delivery is also our friend.)
Obviously some people will bill "per call" no matter what - and frankly that's fine. Per call billing can be
quite profitable, it just isn't self-adjusting. If you bill "per call" it's okay to bill some clients $.50
per call and others $1.95 per call. There are dozens of services, which failed to charge more for clients with more
complex message tickets and more complex dispatching requirements but look at the result: You have two clients who each
get 100 calls per month and the first one uses 50 minutes of operator time while the second uses 200 minutes of
operator time for his long complex calls... you are just plain kicking yourself in the head if you bill them both the
same amount. It clearly takes four times as much operator labor to service the second account as it does to service the
first account. If 97% of your clients have calls that take an average of 45 seconds for an operator to process, start
to end, you can carry a few accounts at the same low "per call" rate and never notice or worry that they are
losers. Over time, we all know that clients tend to ask for a little extra here and a little extra there. If the client
doesn't have to pay more, he has no incentive to limit his demands. Per call billing is not self-adjusting, so whenever
a client wants to make a significant change to his account that increases your work... raise his rates!
How Do You Start Raising Rates:
1) Shop your local competition. Most of us compete in a wider arena now but why look at Timbuktu when you've got 3 or 4
competitors within a 50-mile radius.
2) Shop openly to start. I danced for joy when I found out that another local service was finally going to stop
charging 1960 rates.
3) Immediately start charging every new customer with your new rates - they have no prior expectations - the best way
to start a project is START!
4) Analyze your current client base for revenue per minute. Most systems today carry some kind of operator time/wrap
time statistics.
5) Strategize regarding the "revenue per minute" you are going to charge. Most of the businesses I've seen
charge between $.90 and $1.25 per minute.
6) Raise your least profitable accounts first. If they elect to go elsewhere and quit, what's the problem?
7) After your rate increase, DO NOT agonize about trying to find the perfect rate structure. Just get one that's a big
chunk better than the one you have right now! Anything you do will be an improvement to your bottom line - which will
give you the money and time to make further refinements.
Objections to Overcoming a Rate Increase:
1. But it was a wrong number, why should I pay for a wrong number? Answer: When your secretary answers a wrong number
how much do you dock her pay?
2. With per call rates you don't have to waste the customer's time reading "docu-messages" or your operators'
time creating them
3. Every call takes labor. Every call counts…and every call is counted.
4. But you charged me for 50 calls and I only got 10 messages… Yes, but you don't respond until we've paged you an
average of 5 times for each message.
5. Why should I pay extra just because I didn't answer the first page? Answer: Every call takes operator LABOR. We
don't give away our labor for free.
6. If your business has phone lines that are tariffed with "per call" charges, get real! You must charge just
to offset what you are being billed for.
Conclusion.
"You can't lose money on every transaction and expect to make it up with volume". The first truth to face is
that costs go up year by year. You need to make small increases just to keep treading water. Failing to make any
increase means that your profits take a small cut every year. If you have to make a 2% increase to stay even, why not
make a bigger one to get ahead? If you fail to raise rates your landlord won't cut the rent, your gas won't get
cheaper, your phone bill won't go down and your employees won't work for less. YOU and/or your retirement plan are the
only things, which will be adversely affected as your profits go down and down.
If you are working long hours because you can't afford to hire people, you are working with a finite resource that
can't stretch forever.
If you look at the two scenarios above you'll instantly realize that you simply WON'T lose 50% or 33% or even 25% of
your customers with a 10% raise. If you DO lose 10% of your customers, you can cut your staff hours and not only avoid
adverse effects, you can also improve your take home income. If you are an unpaid operator, you can take yourself off
of the phones and start selling new accounts - and improve your lifestyle by doing it.
Submitted with thanks by:
Paula Ford
Answer Center
Virginia Beach, VA.
Another Option for Pricing Telephone Answering Service
We have a 5-step rate plan. Plan A $85 for 50 minutes plus 99c per minute over 50. to Plan E $775 for 800 minutes plus
91c. There are 3 plans in between.
We bill most new clients by operator work time.
The reason for the 5 different plans; it reduces dramatically price haggling. The potential client sees we will
"discount" our prices, but it is based on volume not whimsy and the discount top to bottom is only about 10%
(not some wished for 30-40-50% discount). It encourages higher volume clients to pick a higher rate, which means we get
higher base, higher deposit. And while we discourage clients for "shooting to high" some clients will get
less minutes then they are paying for and we are ahead of the game.
We started billing for operator time about 5 years ago. We did not change to operator work time billing for most of our
clients who were on service at the time. I have felt that many of them (a lot of doctors) would have reacted
negatively.
However we did make a significant change and I highly recommend you do this.
For those clients that we do not bill by operator work time, we bill in one of two different ways:
1. If their incoming calls average less than 1 minute we bill by the message.
2. If their incoming calls average more than 1 minute we bill by connect time.
For example, if client's average message is 45 seconds, we bill I unit for a message (including info calls, hang-ups,
wrong #'s).
But if client's average call takes 90 seconds that would equal 1.5 units PLUS (and this is very important) we add 20%
for "wrap time". So the total we would bill, would be 1.8 units for every incoming call.
And when we do this on our Startel system it also means we pick up time for locates and when client calls in to pick up
a message from, let's say, a page.
I would estimate that we pick up about $5,000 a month in additional billing because we billed by "connect
time" rather than by the message and we pick up another $5,000 per month because we added 20% for wrap time.
We have had problems with some clients trying to explain and justify billing by total operator work time. I have never
had a problem explaining the complete logic of billing by connect time if their messages are longer and adding 20% (12
seconds on a 1 minute call) for wrap time.
We introduced this concept in a rate increase letter that was stated something to the effect " and since your
calls average more than 1 minute in length we will bill you by the time we are connected to your caller". We got
zero calls from out clients asking for an explanation.
Interestingly I have mentioned this concept a number of times and I do not think anyone has ever taken up the idea. It
will probably be worth thousands of painless dollars.
Submitted with thanks by:
Larry Goldenberg
Direct Line Tele Response
Berkeley, CA.
Absentee/Owner
If you are purchasing an existing business and are planning to run it as an absentee
owner, then take a good look at the net EBITDA profit (Earnings Before Interest Taxes Depreciation and Amortization) to
figure out what your profits will be. Some individuals in the industry do not think that absentee ownership works but
we have many past clients who run absentee businesses and are doing quite well. Check the staff, especially the
manager, to see if he or she is trust worthy and can run the operation with little supervision. Verify that the
software on the computer equipment has been updated, financial information checks out and to verify there is enough
cash flow to operate the business, pay the staff and have some money left over for you.
We would suggest that using your CPA to validate the Income Statements, Balance Sheets
and tax returns. Your attorney should look over the purchase contract. Most of the other items that you should check on
have been covered above. Remember, the rules for buying a business are: 1) never to fall in love with a particular
business, and 2) always be willing to walk away from a deal.
There is all sorts of help out there if you need it. The beauty of this business is
that it is almost recession proof due to the diversity of its client base. When one market segment is in a lull,
another one picks up. For example a company starts to downsize and lays off a secretary or receptionist and will hire
an answering service to pick up the slack. If you are looking for a business with a steady cash flow, diversity of
customers and a good profit margin, then the Telephone Answering Service business is for you.
Top of page!
 Tas Marketing
233 Whitepine Creek Road • Trout Creek, MT 59874
Phone: 800 369-6126 • Fax: (406) 827-4554
|
