If you're still on the fence about whether to charge clients minimum service fees, read Erik Eckel's three reasons why you should implement this pricing practice. Also, find out the one exception he makes to his rule.
It's a topic many IT consultants debate: whether to charge clients minimum service fees. I know a number of IT consultants who hope to price services in such a manner that clients pay only for actual onsite or remote service time, as opposed to a minimum hour or half-hour charge.
Certainly, most every client would like to pay for just 10 minutes (if that's all a service call takes to correct an issue) vs. having to pay a minimum charge equivalent to a half-hour or hour service call. However, actual-time pricing models don't work.
IT consultants can't afford not to implement minimum service fees, and those who do ultimately run the risk of overcharging the very clients they're seeking to protect by fielding reasonable pricing. Here are three reasons why.
#1: IT knowledge has value.
No one wants to pay a technician, whether the technician is repairing a washing machine, a garage door, or a computer, $100 for a 15 minute service call. But the specialized knowledge and expertise required to diagnose a problem and implement the repair has value, and that value deserves to be rewarded. That's capitalism.
I'm reminded of the timeless story about a government contractor who's hired to repair a failed complex system that no one else can get to work. The joke involves the contractor coming onsite, kicking the machine, and charging hundreds of thousands of dollars. When presenting his bill, the contractor is asked if he's really charging that much money to just kick the machine. The punch line is the consultant says no, he's not charging for the simple kick, just for his knowledge to know where to kick the machine.
#2: Fuel, time, and technology cost money.
The value an IT consultant provides must, at a minimum, meet or exceed the expenses associated with providing the service or repair. Even if a field engineer can correct a networking or email error within 10 minutes, there's much more work that goes into delivering the repair.
The consulting firm must pay for the advertising that generated the repair request in the first place. The technician must then take time to prepare an invoice for the repair, bill the client, and on occasion, pursue collections to actually get paid.
Then there are the costs of paying the technician. Fuel is also expensive, not to mention the time out of the office traveling to the client's location. It became much easier to justify minimum one-hour service calls last summer when a single gallon of gasoline exceeded $4.50.
Even if repairs are completed remotely, IT consultants must cover their costs, as remote connectivity technologies require subscription contracts and infrastructure development, and those technologies are not free.
#3: Long trip/short service expenses must be absorbed.
In those cases where IT consultants choose to charge just for the actual time spent onsite, the increased costs of long trip/short service calls ultimately get passed on to other clients. How? In the form of higher per-hour rates.
This is true even for service calls that last beyond 30 minutes or an hour. Whenever a technician leaves the office, there's wear and tear on an office or personal vehicle that must be covered, either in the form of depreciation, maintenance, repair, and/or reimbursement.
That employee spends time traveling, which is time spent out of the office. That's time during which other repairs and service work cannot be completed.
How does the rubber meet the road?
I advocate (and my business charges) minimum call-out fees. Typically, I structure pricing so that any onsite call, regardless of duration, is charged a minimum fee equal to 75% of my firm's hourly rate. The fee essentially provides the client with a half-hour of service. Additional time is then charged at the regular hourly rate, albeit it in quarter-hour increments.
The only exception I make is for clients on monthly maintenance contracts, where I pass clients discounts for the promise of requiring regular ongoing work; they pay for only the actual service time they require. In such cases, both parties win, especially as the costs of obtaining a client decrease with each successive service call the client generates.
Some IT consultants are opposed to minimum fees, while others are out there charging 45 cents a mile just to show up. I believe instituting the flat minimum fee is more equitable, as no client should be penalized if I happen to be on the other side of town when they call needing help. As for services completed remotely, minimum charges still apply due to client acquisition, billing, and other costs associated with delivering service.
Where do you stand in the to charge vs. not to charge minimum services debate? If you do charge a minimum service fee, have clients ever balked at this practice? If so, do you provide clients with any reasons for your pricing practice other than the three I outline above? Share your experiences in the discussion.Get weekly consulting tips in your inbox TechRepublic's IT Consultant newsletter, delivered each Monday, offers tips on how to attract customers, build your business, and increase your technical skills in order to get the job done. Automatically sign up today!