Convenience fees, overhead charges, handling fees — these are billing items that just drive consumers nits. By calculating your costs correctly you can eliminate these charges and still earn the profits that your company needs.
As a result of long-standing litigation against the major credit card brands — MasterCard and Visa — merchants, meaning you as a retailing contractor, are now permitted to charge customers a surcharge for paying with a credit card. Ten states, including California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, still prohibit surcharging and state law trumps the federal ruling.
So as of January 27th of this year, many companies are now allowed to add a “convenience fee.” If MasterCard or Visa charges you, as a retailing contractor, a 3% processing fee, you can now charge that 3% directly to the consumer as a convenience fee. According to the settlement, merchants can’t charge consumers more than 4%, and you can’t add extra fees to debit card transactions.
The National Retail Federation points out that under terms of the settlement, a merchant who adds a surcharge to purchases on a Visa or MasterCard would have to do the same with American Express cards. But AMEX prohibits surcharge fees. So a retailer who accepts American Express as well as Visa/MasterCard would not be able to surcharge any of those cards.
Okay, so in reality, the new credit card rules have little or no impact for most of you. And even if you live in a state that allows the convenience fee (and you don’t accept American Express), you can add the convenience fee to a ticket. The question is, should you do it? I hope you’re saying a resounding, “NO!”
Customer Service Implications.
Why would I pay a convenience fee for using my credit card at one retailer when I could go to another retailer that doesn’t charge me that fee and purchase the equivalent item? I don’t know about you, but my answer is, “I wouldn’t!”
Overtime Charges for After Hours
As a consumer, I also don’t understand overtime charges. Remember, I’m a consumer who has been spoiled by retailers. I am a shoe-alcoholic. If I go to a store at 8:30 p.m. to buy a pair of shoes, I’m not charged any more for them than if I go during the “normal working hours” of 8 to 5. There isn’t an overtime fee associated with those shoes.
If you’re properly charging for your labor rate and building in a productivity factor, you don’t need to charge overtime. What’s a productivity factor? The hours billed by a technician versus the hours paid to a technician. Even with flat-rate, the productivity factor for most companies is about 62%. That means most companies are billing five hours of time and paying technicians eight hours. When calculating your labor rate, the rate based on hourly pay + benefits + overhead + profit, should be multiplied by the productivity factor for your company.
For example, let’s assume your labor rate is $100 and that covers the technician’s hourly pay + hourly benefits + overhead of at least 40% and profit of at least 20%. Everything is great as long as you bill 40 hours of the technician’s time that week: 40 hours X $100 an hour = $4,000. However, in reality, only 25 hours of the technician’s time is billed: 25 hours x $100 an hour = $2,500. With this method, neither the overhead or profit is met for the week.
Now, let’s apply the productivity factor to the labor rate. $100 divided by .625 (5 hours billed divided by 8 hours paid) and the actual labor rate should be $160 an hour. Do the math: 25 hours billed x $160 an hour = $4,000.
When the productivity factor is built into the labor rate, your overhead for 40 hours of pay is covered even when only 25 hours are billed. So an after-hours call means the only added cost is the overtime pay to the technician. Overhead is still built into the regular labor rate, but the overhead has been covered during the “normal working hour” calls. So after the direct cost of labor pay + overtime pay + labor benefits are paid, the remaining after-hours charge is profit because overhead is covered.
In fact, the company probably makes more profit on an after-hours call even without charging overtime than on a regular hours service call. So consider doing your bottom line and your customer service image a favor by eliminating overtime charges.
Yes, I’m suggesting that customer service and profitability aren’t mutually exclusive. Eliminating a direct charge for credit card fees and eliminating overtime charges are two examples that prove their compatibility.
Vicki LaPlant has worked with HVAC contractors for the past 30 years as a trainer/consultant. She helps people work better together for greater success. Vicki is a longtime Contracting Business.com editorial advisory board member and can be reached by e-mail at firstname.lastname@example.org, or by phone at 903/786-6262.