Why aren’t you charging an application fee?

Continuing with the theme of examining trends over the four years of the Utility Fee Survey – 2012, 2015, 2017, and 2019, this installment looks at application fees.

An application fee, or service initiation fee, is charged to new accounts when applying for service. The purpose of the fee, as described in this blog post, is to recoup the cost of taking an application and starting service for a new customer.

Surprisingly, the percentage of utilities charging an application fee has remained virtually flat over the four years of the Utility Fee Survey. Application fees peaked at 53.3% in 2012, the first year of the survey, then declined in 2015 and 2017 before rebounding slightly to 50.4% last year, as shown in the graph below (clicking on any of the graphs will open a larger image in a new window):

Average fee amounts

Interestingly, as shown in the graph below, the median (an equal number of smaller and larger values) application fee has remained $25.00, while the average (the arithmetic mean) application fee has steadily increased from $31.74 in 2012 to $44.81 last year:

Why the disparity?

It’s valid to ask “why has the average application fee increased while the median fee has remained the same?”. This is because the number of utilities charging a $25.00 application fee has increased from 14 in 2012 to 17 in 2015 to 21 in both 2017 and 2019. This increase, coupled with a rising number of application fees of $100.00 or more (2 in 2012, 3 in 2015, 6 in 2015, and 7 in 2019) contributes to a larger average while keeping the median value the same.

Another contributing factor is the increase in the maximum fee each year. For the first two years, the highest application fee was $100.00, increasing to $150.00 for 2017 and maxing out at $250.00 for 2019. It’s worth noting that some of these large application fees are charged in lieu of a refundable security deposit.

This graph shows the distribution of fees by dollar amount over the four Utility Fee Surveys:

Takeaways

The first, and most obvious, takeaway from this analysis is, if you’re not charging an application fee, you should consider doing so!

Secondly, those utilities charging an application fee have been steadily increasing their fees. Similar to your reconnect fee, the application fee should take into consideration all of the labor, materials, and vehicle usage to process an application. If you haven’t reviewed your application fee recently, now might be a good time to do so!

Is it time to evaluate your fees?

If you’re not currently charging an application fee, or if you want to review all your fees, please give me a call at 919-673-4050, or email me at gsanders@edmundsgovtech.com to see how a business review could help find new sources of revenue.

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© 2020 Gary Sanders

Why argue with your customers?

Recent Utility Information Pipelines have been examining trends over the four years of the Utility Fee Survey – 2012, 2015, 2017, and 2019, and this one continues that theme.

With this installment, let’s take a look at what I consider a very important best practice regarding charging the cut-off fee (or reconnect fee or whatever you call your fee) on cut-off day.

If you’ve been a Utility Information Pipeline reader for any length of time, you know I’m a firm believer in the best practice of charging the cut-off fee for non-payment to all accounts as soon as the cut-off list leaves the office. By this, I mean not playing the age-old game on cut-off day of contacting the field service technicians each time a customer comes in to pay to see if they’ve been cut off yet or not.

The inevitable argument

As soon as you institute this policy change and start charging the cut-off fee to everyone at the same time, rather than waiting until the account has been cut off, invariably you’re going to have a customer protest. This customer is going to make the argument of “you can’t charge me a cut-off fee if you haven’t cut my service off”, or something similar.

So why not avoid this argument entirely! How do you go about doing this, you ask?

What other utilities have done

Other utilities, faced with the same dilemma from their own argumentative customers, have adopted what I’m referring to as “non-traditional terminology” to describe their cut-off fee. By non-traditional terminology, I mean basically anything not containing any of the following terms:

  • Cut-Off
  • Cut-On
  • Disconnect
  • Lock
  • Off
  • On
  • Reactivate
  • Reconnect
  • Restore
  • Shut-Off
  • Suspension
  • Termination
  • Turn-Off
  • Turn-On

Analyzing the trend toward non-traditional terminology

This graph below shows the trend over the four Utility Fee Surveys away from traditional terminology to non-traditional terminology. Traditional terminology is still king, but non-traditional terms are slowly gaining in popularity. Clicking on the graph will open a larger image in a new window.

What are some popular non-traditional terms?

For utilities who have adopted a non-traditional term for their cut-off fee, the graph below displays the 10 most popular terms reported for the four Utility Fee Surveys:

Is it time to revise your cut-off fee?

If you’re considering revising any part of your delinquent process – from late fees to the cut-off process, please give me a call at 919-673-4050, or email me at gsanders@edmundsgovtech.com to see how a business review could help you find out.

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© 2020 Gary Sanders