Minimum Service Charges

I was going to hire a company today to do something fairly simple that would have cost about $45 (that was the advertised price). It wouldn’t have taken them more than 15 or 20 minutes and I live within 10 minutes of the company’s office. Thinking I had found a reputable and affordable company, I called them to schedule an appointment and was told there was a $85.00 minimum service charge. The fact that I was a first time customer didn’t matter. Essentially, I would have to pay $85 for a $45 service.

I’ve never liked minimum service charges because I think they scare off potential (first time) customers. Because of the minimum service charge, I won’t be using the company and obviously won’t have any basis to choose them in the future or recommend them to others. The business the company is in is a type of business that is largely dependent on positive word of mouth, so they are losing out on a potentially lifelong, loyal customer over $40.

Most minimum service charges seem to function similar to this. The company doesn’t want to bother doing whatever for whatever the relatively low price point they set is, so they implement a minimum service charge. The company doesn’t find it profitable to help customers on an individual service basis, so they make you purchase more services to hike up the per visit/transaction charge. No matter if you get the most basic service or one that costs exactly the minimum service charge, you have to pay that minimum service charge if you want them to do any work for you. For the company, it’s upselling disguised as a policy.

What made my experience with this company even worse is that the minimum service charge wasn’t advertised especially prominently (it was buried on an obscure page on their website). They get their customers to call and talk to someone and then the minimum service charge is mentioned. If you’re going to have a minimum service fee, at least be forthcoming about it and tell your customers exactly how much it is and what they can get for that amount in the very beginning. Otherwise, customers will feel as if their time has been wasted and they’ve been led on.

The most important thing to do, though, is to think of the long-term value of your average customer.  If I use the above company 10 times over the next 10 years, that’s $450 they could make from me directly. They’re missing out on that direct revenue, as well as any revenue that might come from me telling others about the company, over a difference of $40. To me, that isn’t a good business practice.

6 Responses to “Minimum Service Charges”

  1. Yamini said:

    May 27, 09 at 4:08 am

    Hi! I stumbled upon your blog from the Perfect Apology website (http://www.perfectapology.com/customer-service.html), which I visited because I was looking for customer service case studies.

    I am a lead instructional designer and currently making a course for retail associates. Customer service is one of the many topics.

    I am trying to think if there anything the customer service associate could have done to change your mind? Or at least to make you think about it instead of flat out refusing. Something along the lines of “we can’t change the minimum charge policy, but while our team is there fixing the issue, maybe they could also look over other potential issues?”

    If I were in your shoes, I would have probably considered it. But then again a $85 minimum charge is an atrocious amount, so I might have refused it in the end after all.

  2. Doug Pruden said:

    Jun 11, 09 at 12:32 pm

    Minimum service charges can sometimes serve the business purpose of setting a hurdle that will chase away the kind of potential customers who will never be serious or generate any profit for the business. That could be the thought process in this case.

    Unfortunately though it’s probably more likely a case of a buiness that never really has given thought to the concept of the long-term value of your average customer. Too many businesses are managed by thinking only of what will generate the most revenue THIS month or THIS quarter or this year. Large corporations and small businesses alike seem to set strategies and execute tactics for the short term only.

  3. Dawn Lane said:

    Jun 11, 09 at 1:03 pm

    I provide administration services to a number of small businesses and see many people within my industry setting minimum charges and also then billing in 15 minute increments. What’s that all about?

    If a job takes 16 minutes to complete, then charge for 16 minutes.

    By being flexible, clients and potential clients will come back to you.

    What goes around comes around…

    Dawn

  4. Rocky Bourg said:

    Jun 11, 09 at 2:02 pm

    Yamini,

    I appreciate your inquiry but the most basic tenet of valuable customer service and basic human interaction was irreparably violated before the service rep answered the phone.

    The subject advertisement was purposefully, selfishly, and fundamentally deceptive. Deception is simply a three syllable word for lie.

    It is a common experience that if one party is willing to lie at the very beginning of a relationship, the foundation is, at best, weak and likely harmful.

    Companies that choose or have to depend on deceit to attract clients are likely delivering valueless products or services. I wish for them nothing but real and deserved failure.

    I also wish I knew the name of the culprit so that I could avoid patronizing and benefiting such unworthy, unethical companies.

    You would do well teach your students that regardless of contemporary capabilities and/or technological opportunities, one tenet that has never needed any evolution and should be a component of all business and human interaction is the “ethic of reciprocity.”

  5. Gail said:

    Jun 11, 09 at 4:42 pm

    Customer service and a company’s unwillingness to budge on “policy” is high on my mind these last couple of weeks. http://www.overnightprints.com lost this customer and drove me to publicly share my negative experience over $40. Is it really worth it to these businesses?

  6. Dave said:

    Feb 10, 10 at 6:23 pm

    The costs involved in running a business are staggering (I’ve been self-employed for 32 years, 10 employees). The reality is that there is a minimum price at below which a job is not worth doing at all because of overhead, labor and countless other expenses you can’t even imagine if you’ve never operated a business.

    You might think that a business is foolish to lose a long-term customer who would have spent $450 after 10 service calls, but if it cost the owner $46 each time to perform that service, then he is actually ahead of the game by NOT doing the job at all. You think he’s lost $450, but in reality, he just saved $10.

    Sometimes, depending on the type of business, much of the cost of a small job is just getting a worker to your doorstep because of all the overhead involved (rent, taxes, insurance, Worker’s Compensation, vehicle expenses, etc.) This is the reason for a minimum service charge. It allows the owner of a business to make a modest profit on each job. Otherwise, there’s no point in doing the work.

    Now, having said that, if this company advertised they would do the work for $45, then sprung the minimum charge AFTER they get to your door, then that’s completely unethical, and perhaps illegal. Shame on them. They will not be in business for long!!