With everything bundled together, the new room rate is now $260, and the hotel gets an extra $11.88 profit per day, or an additional 4.5% profit to the bottom line. Wow, I love flat rate pricing. Now, let’s replay the night before.
Again, my wife and I arrive at the desk after having traveled for 24 plus hours. We’re now greeted by a well-trained customer service representative. Okay, it cost a bit to train the front desk reps.
Let’s take $1 out of our additional profit. With 780 rooms times 365 nights, at $1 per night, that’s $284,700 for the year. Now, we’ll be generous and assume the rooms are only filled 60% of the time.
That means the hotel took in a little over $170,000 for the year. I really think the hotel could provide some pretty high-class training for that limited group of people for $170,000 a year, don’t you? By the way, while we’re on the topic, do you know that some of the best hotels in Vegas start employees in areas other than the front desk, and only after extensive training, they get to move up to the position of customer service rep at the front desk? What a novel idea. Invest a lot of time, energy, and money and training into employees that make initial contact with the customer.
I’ll let you ponder on that thought for a moment concerning who your customer makes initial contact with and how well they’re trained. Okay, time’s up. Gotta move on.
Our extra profit just dropped $1 per night. But guess what? We have a happy, well-trained customer service representative at the front desk welcoming us. Now the scene continues.
We’re greeted with an amazingly friendly representative with a statement something like this. Good evening, Mr. Grandy. We’re so pleased you chose XYZ Resort and Spa for your stay.
We have one of the most amazing resorts on the island. Your room rate is only $260 a night, and it includes free parking. Also, don’t worry about your luggage.
It’ll be brought to your room free of charge, and we have a no tipping policy. Your room fee also includes free internet service, use of our outstanding exercise facility, and there’s no charge for local calls. It’s late at night, but as you can soon find out, we have an outstanding breakfast buffet with a full view of the ocean.
Here, take these two free breakfast coupons that you and your wife can use anytime during the week that you’re here. Oh, and by the way, Mr. Grandy, we’ve provided you with that non-smoking king bed you requested six months ago. You’re going to love the view from your room.
And, we know it must have been a long plane flight. Here’s two complimentary tickets for drinks at the bar. You can use them tonight or anytime during your stay.
Mr. Grandy, we are honored to have you as one of our guests at XYZ Resort and Spa. Now, how do I feel when I leave the front desk? Wow. I’ve stayed at some really nice resorts in my life, but I have never, never been provided free parking, nor have my bags been brought to the room free of charge with a no tipping policy.
I don’t plan on exercising while I’m on vacation, but it’s really great to have it available free of charge in case we change our minds. Free internet, local calls. Wow.
I didn’t expect that. On the mainland, there is always a charge for local calls, and it seems the higher class hotel you stay at, the higher the cost of the daily internet, but not here. On my way to the room, I also reflecting on how friendly and well-trained the customer service representative was.
Let me say that again. I’m also reflecting on how friendly and well-trained the initial customer service representative was. The initial experience a customer has, especially a new customer, with the very first person they talk to within your company, has a huge, yes, a huge impact on their overall impression of your company, and therefore, the quality of the products and services you offer.
If the first impression is positive, chances are the customer will return. If they have a bad experience, well, what do you think? Now, take a second and ask yourself the question, who is the first person your customers talk to, and what do you suppose their initial impression is of your company? Sorry, I can’t help but throw in a few thoughts along the way. Let’s continue my walk to the room.
I can’t wait to get to the room to tell my wife we get two free breakfast buffets. I saw pictures of the buffet in the brochure, but never, never expected to receive two free coupons. And yes, we’re tired, and we’ll probably use those two Hawaiian drink tickets tonight.
I leave the desk a very happy camper. Now I arrive at the room, one with the king-size bed I requested six months ago. My wife is smiling and very excited as she says, guess what? We get two bottles of water free each day.
We didn’t need to stop at the grocery on the way. She then continues, you’ll never guess what else I found in our room. There was an envelope on our bed welcoming us to the resort with a note and a card providing a free, yes, a free $75 gift card to the spa.
It says we can use it anytime this week. Isn’t this a wonderful place or what? We then quickly unpack our bags. We find the nearest open area to enjoy our free Hawaiian drinks while we discuss what a wonderful resort this is and how much we’re looking forward to our stay.
Are we customer cheerleaders? You bet. Were we concerned about the room rate at $260 a night? No. What about the hotel? Well they made an additional $10.85 per night, that is after we took off the $1 for customer service training.
Now do the math with the hotel’s perspective in mind. At $10.85 per night additional profit times 780 rooms times 365 days a year with only a 60% occupancy, that produced a whopping $1,853,397 additional profit for the year. That’s nearly two million dollars of additional profit to the bottom line while creating customer cheerleaders.
Guess what? The same principles apply to your business. Let’s look at a typical service call from a time and material perspective and then from the perspective of flat rate pricing. First from the time and material perspective, the tech arrives at the customer’s home and greets the customer with a smile and announces he or she is there to take care of their problem.
The tech then tells the customer, Mr. Ms. Jones I haven’t looked at the problem yet but from what you’re telling me I would guess it’ll probably take about an hour maybe an hour and a half to fix the problem. So we charge $100 per hour for the time that I’m here plus parts but I won’t know the parts cost until I do the job. By the way also we have a trip charge of $50 plus a fuel surcharge of $8 and a miscellaneous supply fee of five bucks.
If all goes well you’re looking at around 200 maybe 250 for the repair. However if it takes me longer and if I have to go get parts that aren’t on the truck it might be a lot more. From the customer’s perspective what are they thinking? Gee my husband doesn’t make $100 an hour.
As a matter of fact I’m not sure my doctor makes $100 an hour. Besides that why do I have to pay for the tech to drive to my house? Much less pay an additional gas surcharge and a miscellaneous fee for supplies he may or may not use. If that were not enough to worry about what if it takes the technician longer perhaps three hours then how much is it going to cost me? I better watch him work to make sure he’s not goofing off.
After all time is money. The end result the call actually took a little longer than expected and the final invoice was $278. Now put yourself in the place of the customer.
Are you a happy camper? I don’t think so. Now let’s look at the same call but from the perspective of flat rate pricing. The same tech arrives again with a smile on his face.
The tech then tells the customer that he or she will take a look at the problem and will then provide a complete firm price for the repair. Note I said a firm price for the repair before the work is done. The tech checks out the job and then tells the customer the complete cost of the job will be $278.
The customer now knows that the total cost up front and they don’t need to watch the tech. The customer also is not concerned about how long it’s going to take and they’re totally unaware of any gas surcharges, miscellaneous fees and or that the company actually charges so many dollars per hour. The price is the same no matter how long it takes to do the job even if the tech has to return to the shop for additional parts.
Oh one last thing. The homeowner is physically looking at a predetermined price in a physical flat rate book which is telling them without telling them that any and all customers having the same repair will pay exactly the same thing they’re paying. That means no preferential treatment.