The FINANCIAL - When Is It Okay For Business To Slap Extra Charges On Customers

When Is It Okay For Business To Slap Extra Charges On Customers

When Is It Okay For Business To Slap Extra Charges On Customers

The very nature of business means you have to charge people for something. This will be a product or service, and customers come from far and wide to pay for it. You charge them, they pay you, and everyone is happy. The customer receives what they paid for, you fulfil your promises - it's a very simple concept. 

However, you often see businesses that add more charges to different things. As well as paying for the product/service, customers are charged additional fees. Usually, when you hear the term 'additional fees,' it sounds like a negative thing. The underlying tone suggests you've sneakily charged someone without them knowing. While this can be the case, it doesn't always happen like that. 

Generally, you'd try to avoid additional fees. Why? Because they can annoy customers, damage your reputation, and make it harder to secure repeat business. Nevertheless, there are instances where additional charges make sense. Below, you'll see some situations where adding extra fees is a smart thing to do, along with common scenarios where fees can be avoided. 

Cancellation fees

From a consumer perspective, it's annoying paying a fee to cancel a service. Why should you pay extra if you decided you no longer wanted a product/service? It doesn't seem fair, and it screams of a business trying to be greedy and taking your money. As a business owner, you know this isn't the case. You're not charging a fee to recover some of the money you should've got, it goes deeper than that. 

What a lot of consumers don't realise is that it costs money to create products/services. Not only that, but you may move your schedule around to fit a client in. If they cancel, it can lead to a loss of money - not just because they want a refund, but because you don't have time to find a replacement customer. Or, in the case of a product, you may have already created and shipped the product, which costs money. For someone to cancel it, you've wasted cash for no reason. 

This is why cancellation fees make so much sense for businesses. They act as a small insurance policy if people change their mind. It stops people from ordering things, then cancelling them after a day or two. If you offer services, it ensures that you don't waste time or money. A good rule of thumb is to offer a cancellation policy where it's free to cancel for a few hours, but the customer is charged after a certain point. Of course, it should always be clear when they're buying the product/service what this policy is!

Late payment fees

A charge for late payments makes sense in many situations. The most apparent one is if your business provides subscriptions. As such, customers pay a monthly fee to your company, on the same day of each month. Now, if they miss the payment date, it can be problematic for your business. You're missing out on money that you may need to reinvest in your company. The problems are magnified when lots of people start missing payments. So, a fee can be added on, encouraging people to ensure they pay on time. The extra charge is basically a way for the customer to make up for the delay. 

Similarly, you can implement this additional charge if you send invoices. This will resonate with business owners that provide services for clients. Often, you don't know how much the service costs until after the job is done. Yes, you provide quotes, but the final fee may fluctuate slightly. So, you send out an invoice, waiting for the client to pay you. If they start taking ages, it can be very challenging for you. Again, you may need that money as soon as possible - perhaps you have bills to pay! By delaying things, it puts your finances under unnecessary stress. Therefore, a late payment fee makes up for this. 

Ultimately, the late payment fee is mainly in place to discourage late payments. As long as you make it clear that this fee exists, it's a smart way of ensuring you get your money on time. 

Additional services

This extra fee comes when you have to add services onto the original service. It can sometimes be relevant to products, but there's a slight difference. All the fees we're talking about are things added on after initial payment has been made. Or, they're fees that aren't part of the initial price. For instance, when buying a new MacBook from Apple, you see the starting price. Then, as you add more features to the product, you're charged extra. This doesn't fall into our category as you haven't bought the product yet and you're given the total price at the end!

By contrast, consider a business that builds conservatories. You provide an initial quote based on the services you agree to provide. However, towards the end of the job, the client says they want to install underfloor heating in the conservatory. This wasn't part of your initial quote, so it's added on after. Charges like this are very useful and important for businesses that provide fixed quotes. A lot of companies provide a service at a fixed quote and say that it won't change. However, if someone needs a service that goes beyond the stipulations of the contract, they will have to pay extra. 

Woman in White Shirt Holding Smartphone

Service charges

Lastly, it can sometimes make sense to add a service charge as an extra payment. This tends to be popular in restaurants or cafes. The customers get a bill for their food/drinks, but there's an added fee that's called a 'service charge.' Essentially, this is the professional term for a tip. It's an extra charge that tips the waiters for doing a good job. 

This is a good thing to add on as it's beneficial for your employees. They know they're getting a tip no matter what! This concept may sound strange to you, but it's commonplace in lots of European countries. 

What additional charges should you avoid?

The examples above do a great job of showing when extra charges make a lot of sense. In any of the scenarios shown, you can see how an additional charge will benefit your business. More importantly, you see how it doesn't take advantage of the customer. That's the key - you can technically put loads of added fees on your products/services, but if you take advantage of the customer they won't stick around for long. 

With that in mind, here are situations where additional charges should be avoided to preserve excellent customer service:

Phonecall fees

In this day and age, there's simply no reason to charge customers for calling you. It is daylight robbery and presents your business as a very greedy company. If anything, it actually works against you. If a customer is thinking about leaving and wants to call for a chat, they'll be put off by the fee. Instead, they decide to leave without waiting to hear what you have to say. 

The reason this fee should be avoided is that it can easily be dodged. These days, you can pay for something like 1800 numbers, meaning you can literally offer calls without the need for fees. You have a local number, so customers are only charged their usual network rate. It's best to avoid charging them for calling you as it will just cause annoyance and unease - not to mention the fact it's unnecessary.

Enquiry fees

Unbelievably, some businesses charge for enquiries. No, that doesn't mean charging for a consultation, it means charging to enquire about a consultation. Needless to say, this isn't recommended. You have no way of justifying the fee, and it can act as a wall that stops people from enquiring. Ironically, in charging a fee to make more money, you probably end up missing out on lots of customers. 

Quote fees

This is quite similar to the previous charge but slightly different. After a consultation, you may want to provide a quote for your service. There is no need to charge a client for this quote. You can charge them for the consultation, but even that isn't recommended these days! However, if you have a consultation, then tell them to pay more money for a quote, it's a complete scam. They will not bother doing this, probably seeking out one of your rivals instead.

All in all, there are times where additional fees make a lot of sense. Usually, this is in instances where your business stands to lose something or gets put in a difficult situation. For example, cancellations and late payments can disrupt your finances and mean you miss out on business. If a client demands additional services, it's not financially smart to provide them without an extra fee. On the other hand, additional charges don't make sense when they can easily be avoided. Always think to yourself: can you justify this charge? Put yourself in the customer's shoes and think how you'd react if you were charged to make a phone call, request a quote, etc. If your business doesn't lose anything without the fee, there's no point in it.

Author: The FINANCIAL