Nickel and Dime Pricing Can Cost You Clients

Are you trying to grow revenue by nickel and diming your clients? Charging clients extra service fees and costs irritates clients. I often hear customers complain about petty charges. There is a better way to recoup your costs without charging your client for every little fee just because you can. You’ll find clients are more than willing to pay where you deliver value.  Here’s how to grow revenue where you deliver value.

Is The Incremental Fee Worth It?

On a recent flight I was chatting with the person seated next to me. She was expressing frustration dealing with her current law firm. It seems that on every invoice, she saw hundreds of dollars of charges for photocopies and phone calls.

I asked why it bothered her, and she said “I don’t mind them recovering their costs to make copies, but it is clearly a profit center for them. They’re not Kinkos.  This is a law firm! I’m sure they have a flat fee for their phones just like we do. Charge me five dollars more per hour. Just don’t nickel and dime me.”

I recall reviewing bills from a vendor. Included in their large bill was an hourly charge of time to assemble the invoice. They also charged a premium for the postage to send us the invoice. We were afraid to send them payment for fear they would bill us for the time it took to deposit the check. We were generally happy with their services, but we switched firms because of those nuisance charges.

While someone in accounting will certainly be able to show you a spreadsheet with all of the additional fees you can earn, is it really worth charging those fees if it erodes customer loyalty?

Tie to Value

It used to be that you could sell an inexpensive product, and then charge a high shipping and handling fee. Today, companies that do not charge for shipping (both ways) like Zappos and Nordstrom have the most loyal customers. It used to be that on eBay, people would sell an inexpensive product and make their money on shipping. Now, the most popular sellers offer free shipping.

If you are a shipping company, then feel free to make money from shipping. But, in your business recognize that your customers become irritated when you clearly profit from areas where you add little or no value. Recall before that the person was not irritate at the law firm for billing for their expertise, but instead she was annoyed at the nuisance fees.

Don’t Let Accounting Take Over

I bet an airline accountant suggested the airline charge for checked luggage. The passenger, who thought they saved $40 on their flight, ended up paying an additional $100 for checked luggage fees. Earnings reports show airlines making huge profits on those fees. The airline may have won the battle for that flight, but they will ultimately lose the customer loyalty war. The passenger is not likely to fall for the same trick, again.

The excuse I often hear from companies is that the customer beat them up on price, so they have to make up for it elsewhere. Translation of that excuse, “We stink at negotiation, so we’ll get even by charging for other stuff.” My suggestion is to teach your team how to sell on value over price.

Where Do You Add Value

Zappos and Nordstrom charge retail pricing, but their customers are incredibly loyal. They provide exceptional customer service and perceived value. They make money on the areas where they add value, and do not charge for nuisance items.

The bottom line is that you should not charge for something just because you can. Rather, charge your client when you deliver value. Your client will be willing to pay even a bit more when they receive value, and you will build loyalty and appreciation.

It’s Your Turn

When have nuisance fees caused you to switch vendors? OR Why do you feel it is OK to charge for additional items?

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