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

How much should your cut-off fee be?

The last installment analyzed cut-off fee (or reconnect fee or whatever you call your fee) trends over the four years of the Utility Fee Survey – 2012, 2015, 2017, and 2019.

Based on the data, I don’t believe some utilities are charging enough for their cut-off fee.

How do you go about setting your cut-off fee? One option is to compare your utility to neighboring utilities and simply follow what they are doing. But is that really the best way to go about it? A better option is to calculate your costs and establish a fair and equitable fee.

This issue unveils a new cut-off fee calculator to help you determine if your cut-off fee is sufficient. But first, let’s look at what goes into calculating a fee…

GFOA best practice regarding fees

The following paragraph is from the Government Finance Officers Association (GFOA) website best practices regarding Establishing Government Charges and Fees:

 
Calculate the full cost of providing a service in order to provide a basis for setting the charge or fee.
 

  • Full cost incorporates direct and indirect costs (including operations and maintenance), overhead, and charges for the use of capital facilities. Examples of overhead costs include: payroll processing, accounting services, computer usage, and other central administrative services.
  • One useful tool for calculating service costs is Activity Based Costing (ABC). ABC assigns costs to the activities required to deliver a service and can be more accurate than traditional costing methods.
  • The associated costs of collection need to be addressed.

Even if your utility isn’t a government entity, this is good advice to follow in setting fees, including your cut-off or reconnect fee.

Activity-based costing for cut-off fees

When determining how much your cut-off fee should be, it’s helpful to analyze the activities required to complete the process. These activities include:

  • Preparing the cut-off list
  • Delivering final notices (if you use one)
  • Disconnecting delinquent accounts
  • Collecting payments from cut-off accounts
  • Reconnecting accounts
  • Dealing with escalated calls from unhappy customers

Included in these activities are the following costs – labor (including fringe benefits), fuel, wear-and-tear and depreciation for vehicles, and consumables (paper, toner, ink, pens, and pencils, etc.)

What is your fringe benefit rate?

An often-overlooked component of the labor cost of any fee is fringe benefits. There are the obvious payroll-related expenses of FICA, Medicare, retirement, and employer-paid health insurance. But that’s not all – don’t forget paid time off.

If you have a full-time employee who earns three weeks of vacation a year, one sick day per month, and eight paid holidays per year, that’s 35 days each year this employee is paid, but doesn’t work. That’s an effective fringe benefit rate of 13.46% (280 non-working hours divided by 2080 annual paid hours).

The U.S. Department of Labor Bureau of Labor Statistics research indicates the fringe benefit rate is 60.51% for state and local government and 42.65% for private industry. If you’re interested in how the BLS arrived at these numbers, please see Table 1 in this press release from September of last year.

Cut-off fee calculator

I’ve developed an online tool, much like the Days of Exposure calculator, to calculate your optimum cut-off fee.

To use the tool, you will need to know the average hourly rates and miles driven (if applicable) for each of the activities enumerated above. You will also need to know the average miles per gallon and price of fuel for your vehicles, your fringe benefit rate, and the cost to mail or place automated calls for final notices.

In addition to the activity-based costs listed above, the tool adds five percent for consumables, much like an auto repair shop adds a percentage to your bill for shop supplies.

To calculate your cut-off fee, please click here.

Is your cut-off fee adequate?

If you’re wondering if your cut-off fee is sufficient, 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

A look at cut-off fee trends

The 2019 Utility Fee Survey was the fourth Utility Fee Survey, the third of which has alternated years with the Utility Staffing Survey. This means I’ve collected enough data to begin analyzing trends.

Cut-off fee trends

Below is a graph of the average and median cut-off or reconnect fees (or whatever you call your fee) over the four years of the Utility Fee Survey – 2012, 2015, 2017, and 2019:

The median fee (the value with an equal number of smaller and larger values) has steadily increased from $35.00 in 2012 to $46.50 last year. Interestingly, the average (or mean) value dropped from 2012 to 2015 but increased gradually in 2017 and 2019.

Breakdown by dollar range

To further analyze the data, I plotted the number of fees in $10.00 increments up to $100.00 and then the number over $100.00. This is displayed in the graph below (clicking on the graph will open a larger image in a new window):

This graph helps to understand the anomaly of 2012 where the mean was substantially higher than the median (34.08% higher as compared the next highest year, 2019, at 13.54%). 2012 had the largest number of fees in the $20.01 to $30.00 range coupled with the smallest number of fees at every other interval except for $80.01 to $90.00. The two fees over $100.00 that year were two of the three highest fees from any year.

What does this mean for your utility?

Cut-off or reconnect fees, as with any fee, should accurately recoup the cost of providing the service associated with the fee – in this case preparing the cut-off list, disconnecting, and reconnecting the accounts on the cut-off list.

Clearly, cut-off fees for the average utility have increased over time. If your cut-off fee has remained static for several years, it’s time to reevaluate your fee.

To assist you with doing that, I’ll be unveiling a new online tool, much like the Days of Exposure calculator, to calculate your optimum cut-off fee in the next Utility Information Pipeline.

Is your cut-off fee adequate?

If you’re wondering if your cut-off fee is sufficient, 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

Happy New Year 2020!

This is the annual end-of-the-year issue, where I usually take a moment to look back on the year past and to the year ahead. This year that seems even more relevant as we say goodbye to the decade of the teens (I said goodbye to my teens a long time ago!) and look ahead to the 20’s!

Tenth year!

2020 will mark the tenth year of publishing the Utility Information Pipeline. What began as just an idea in the fall of 2010 led to the first issue on January 4, 2011. That inaugural newsletter, announcing what I was planning to do and inviting readers to subscribe, was emailed to a couple hundred Logics customers. From that group, 76 people responded and became charter subscribers. Of those original 76, 37 are still subscribers today – 214 issues later!

Looking ahead

The 2019 Utility Fee Survey was the fourth Utility Fee Survey, so I’ve collected enough data to begin analyzing trends. Look for a couple issues in early 2020 to examine these trends, including one that analyzes cut-off and reconnect fees. Along with that issue, I’ll be unveiling a new online tool, much like the Days of Exposure calculator, to calculate your optimum cut-off fee.

2020 Utility Staffing Survey

2020 will be an even year, so that means it will be time for the biennial Utility Staffing Survey again. Look for the 2020 Utility Staffing Survey invitation in the spring with the results to be published a few weeks after that.

Blog moving to EdmundsGovTech.com

With Logics’ acquisition by Edmunds GovTech earlier this year, my blog will be moving from the Logics website to EdmundsGovTech.com early in 2020. When that happens, this will be one of the first places it will be announced.

Speaking engagements

Also, with the Edmunds acquisition, management is very much interested in having me speak to more groups. If you are part of a trade association and would like to have me speak at your annual conference or training session, please give me a call at 919-673-4050, or email me at gsanders@edmundsgovtech.com.

New years’ resolutions and goals

Happy New Year 2020! If one of your goals for the new year is to improve your utility business office operation, 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.

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© 2019 Gary Sanders

Is your utility losing credibility…?

Over the course of the next few Utility Information Pipeline issues, I’ll be analyzing and reviewing some of the trends I observed from the 2019 Utility Fee Survey. If you need a refresher, here are links to the three results issues for the 2019 Utility Fee Survey:

But before we start analyzing the data, let’s take a look at something else that stood out to me.

Generic email addresses

One of the things that surprised me about the survey responses is the number of utilities still using generic email addresses. By this, I mean an email address without a domain name specific to the utility. For example, xyzutility@gmail.com rather than jdoe@xyzutility.com.

Over the seven-year history of the Utility Fee Survey, the percentage of generic email addresses has dropped slightly, with the exception of a small uptick in 2017:

A bigger surprise

Even more surprising to me were the attendees from a recent utility conference where I presented my Improving Revenue Collections for Utilities presentation. A whopping 68.75% of the utility staff (this excludes board members and non-utility employees) attending the presentation had generic email addresses!

Branded email means credibility

A Verisign survey, dating back to September 2015, “found that 65 percent of consumers believe a company-branded email is more credible than a business using a free email account.” Even though your utility may not be a for-profit business, the need for credibility is no different!

If this was the case in 2015, I have to believe it’s even more important now – over four years later!

How to solve this

There’s an easy, low-cost way to solve this. First, secure a domain name for your utility. If you already have a website, you’ve got this step covered.

Next, signup for Google’s G Suite which provides branded email, shared calendars, and cloud storage for as low as $6 per user per month. You get the same easy-to-use email interface you may already be using for your personal email with a branded email address identifying your utility.

If you’re considering doing this, please contact me and I can provide you with a promotion code good for 20% off the first year of either the G Suite Basic plan or G Suite Business plan.

Questions about how to do this?

If you have questions about getting started with branded email addresses for your utility, please give me a call at 919-673-4050, or email me at gsanders@edmundsgovtech.com and I’ll be glad to assist you.

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© 2019 Gary Sanders