Customer Service Thingie

Warrantees/Guarantees

warrantee: In business and legal transactions, a warranty is an assurance by one party to the other party that specific facts or conditions are true or will happen; the other party is permitted to rely on that assurance and seek some type of remedy if it is not true or followed.

(info from: http://en.wikipedia.org/wiki/Warranty)

Guarantee: The assumption of responsibility for payment of a debt or performance of some obligation if the liable party fails to perform to expectations

Quotations/Estimation

A quote is where you calculate an actual charge price for a job that you are doing for a customer, where as an estimate is just a close guess to the price that you will charge the customer before making a quote.

Charge out rates

These are the six basic steps you need to take to work out a charge-out rate for your time:
1. Decide what income you want from your business.
2. Work out how many hours you can realistically charge out per year.
3. Work out a chargeable rate to achieve your income.
4. Work out your overhead costs.
5. Work out an additional hourly rate to cover these costs as well.
6. Add a profit margin.

1. Decide what income you want

Let’s start by assuming that you want an annual income of at least $36,000 (before tax) from your business (this figure could be related to the standard of living you want, what you could earn elsewhere as a salary, or what you could earn by investing your money elsewhere, plus a risk margin for being in business).

2. How many hours can you realistically charge out?

When you’re selling your knowledge, skills and services, you’re effectively selling time. The key point here is that you have to be realistic about the amount of time you can actually charge out during any one year. For example, if you work 40 hours a week every week of the year, you theoretically have 40 x 52 = 2080 hours of working time at your disposal. However, in most cases, unless you’re prepared to work considerable overtime, you’re unlikely to work this full amount. You do need some holidays (say three weeks). If you add up all the statutory holidays (Easter, Christmas, New Year, Waitangi day, etc., you’ll find that they take away another two weeks. If you get sick,  you might lose another week. So the working year now shrinks to a more realistic 46 weeks of 40 hours, or a total of 1840 hours. This is how it’s worked out: Total year: 52 weeks x 40 = 2,080 Deduct: Holidays: 3 weeks x 40 hours = 120 Statutory Holidays: 2 weeks x 40 hours = 80 Sickness: 1 week x 40 hours = 40 Total hours to deduct = 240 Balance available = 2080 - 240 1,840 (or 46 weeks at 40 hours per week). But it would still be unrealistic to imagine that you can bill out all these hours. Think of all the other non-chargeable activities you’re involved with in running your business:
• Administrative tasks
• Banking
• Meetings
• Tendering for work
• Marketing and promotion work
• Waiting for work and travelling time
• Tea and toilet breaks, etc.
One way to find out how much time you’re spending on such tasks is to keep a diary for a week (or longer if appropriate). You might be surprised to find out how much time is taken up with such ‘non-productive’ work. Let’s assume at a conservative estimate that these non-chargeable tasks take up 25% of
your time.  So one quarter of the 1,840 available hours needs to be deducted for these tasks: 25% of 1,840 = 460 hours. Subtracting 460 from 1,840 leaves you with a total of 1,380 chargeable hours.

3. Working out your charge-out rate to cover your income requirements

Now you can work out a charge-out rate to cover the income you want from the business. You’re aiming to earn a minimum of $36,000. You’re able to charge out only 1,380 hours yearly. To get an income of $36,000 you must therefore charge your time out at $36,000 divided by 1,380 = $26.09 per hour. To this you must also add the ACC levy appropriate to your line of work. (Ask your accountant how much you should add on to cover this). Let’s say the ACC levy rate for your activity is 4%. So
$26.09 plus 4% =$27.13. So in order to earn a salary of $36,000 a year, you must at least charge your time out at $27.50 (rounded up). But this is only the labour component of your charge out rate. What about your office overheads (the cost of running a business)? You have to recover these costs as well, or you’ll be running at a loss. This takes us to step four.

4. Working out your overheads

You should know what your overhead costs are likely to be, either from your Business Plan or from your Cashflow Forecasts. (You can also check your previous Profit and Loss Statement and isolate all of the overheads on it). Let’s assume, for this exercise that they are something of this order:
. Accounting fee $1,000
. Advertising $2,000
. Cleaning $500
. Depreciation $1,000
. General expenses $500
. Heat, light, power $1,000
. Insurance $600
. Legal fees $600
. Motor vehicle $3,000
. Printing $800
. Rent $6,500
. Repairs and maintenance $900
. Telephone $1,200
. Other $200
TOTAL $19,800

Let’s round this off to $20,000. (Very few businesses can realistically operate with overheads of less than $20,000 a year). So $20,000 divided by the 1,380 hours means you need to add another $14.49 to your hourly charge-out rate of $27.13. Adding a profit margin So far the charge-out rate will enable you to achieve your required income, plus an extra amount per hour to cover your business expenses and overheads. There’s one extra factor to add: a profit margin. In addition to making your target salary of $36,000, you do also need to make a profit margin. After all, you will need to replace equipment that wears out and make repairs.

You don’t want to be taking this money out of your salary, or else you won’t really be earning that $36,000 a year. So the final calculation is: Charge-out rate to cover your income requirements  $27.13 Charge-out rate to cover your overheads (business expenses) $14.49 Subtotal $41.62
Profit margin (say 15%) $6.24 Final charge-out rate $47.86 This means that your charge-out rate should be realistically be at least $48 an hour minimum, (or $54 per hour if you’re quoting on a GST inclusive basis, since you’d have to add GST of 12.5% per hour, = $5.98, to this figure). Is the rate competitive?
At this stage you might be worried that the charge-out rate is uncompetitive compared to what others in your industry are charging. In some cases you might have to remain within an industry scale of fees.

In any event  you do have to be aware of the average in your industry as you might struggle to get work if you are a long way out. Here are some options: Lower than average. If your calculated charge-out rate is lower than the industry average, then you don’t have a problem - instead you have an opportunity to earn a better income and you can set your sights higher. For example, if you determine that your charge-out rate should be $48 per hour and you know the industry average is $60 per hour, you can raise your rate to this level or close to it.

Lack of confidence Many businesses undercharge at the start - mainly through lack of confidence or because they have not worked out how much it actually costs to run a business and make a reasonable profit! Might this be the problem here? Charging too little for your skills and services can be as bad for business as charging too much because it can undermine people’s confidence in you. They might wonder why you are so much cheaper
than others. Higher than average If your charge-out rate is higher than the industry average, then:

• It may be that other new start-ups are charging at unrealistic levels. This is a common problem in service trades (such as building, plumbing. electrical
work, etc.) where many begin a business not realising the true costs involved (such as overheads and taxes). They gain business at the expense of more
established businesses but may face difficulties after a year or so when the true costs finally impact on them. There is little you can do to counter this problem. Your one consolation is that these people are not likely to be in business for long, but in the meantime they have spoilt the market for others.

• Go over all the figures carefully again. Is anything unrealistic? After a year or so of operation, you’ll be in a better position to gauge more accurately the number of billable hours you can actually achieve in a year. For example, you might learn that 1,200 billable hours is a more realistic maximum per year. In the meantime, it pays to be conservative. One way to lower your charge-out rate is increase the number of hours you can charge out. For example, if you can bill out at $48 per hour, and there is plenty of work around, does it make sense for you to do administrative tasks that someone else could do at, say, $15 per
hour? (The Solution Guide: ‘Taking on your first employee’ will help you here). Increasing your billable hours will allow you to decrease your charge-out rate per hour and perhaps make your rate more industry competitive.

• If your rate is still well above average, then you might look at emphasising the value-added components that justify the difference, such as guarantees, superior quality and service (such as a premium for 24-hour call outs), backup and training, etc

(info from: http://www.nationalbank.co.nz/business/banking/information/guides/SG074Calculatingachargeoutrate.pdf)

Cultural issues:

In business there are different people from different cultures who speak English in different accents compared to others, so it can be hard when talking to someone who has a “thick accent” so to speak, and also, their cultural background may reflect in how they dress/appear in public. So the courteous approach would be is to have good communication skills  and try to pick out what a person with an odd accent is saying to you and try to understand them, because if they are a paying customer and you keep asking them to repeat what they have just said to you, then they may or will get annoyed or offended and say to others that you are not a very good place/business to go to.