Inside a Telephone Answering Service

Marginal Taxes. Marginal Profits

It's Sunday morning at my new favorite coffee shop, Royal Blend, downtown Bend, Oregon. It now has internet connectivity. Yea. This morning, in the spirit of the tax season, I am thinking about “marginal” tax rates and how this concept can be applied to how we operate Centratel.

To keep things simple and to reflect most people’s intentions, it is presumed that one makes as much money as possible and takes as many deductions as possible. At the end of a given year, after all income is added up, and then all deductions are subtracted, the individual derives net income and, from that figure, finds the total taxes owed. Also, the marginal tax rate is discovered. This is the percentage of additional taxes one would pay on any additional income over and above the actual total net income claimed.

Now, think about the pre-tax, gross bottom-line profits of your TAS. When thinking of profits understand that the same “marginal tax” concept holds true, except for one thing: “Marginal profit” is always 100%. Our thinking should be this: If, by trimming expenses or by adding income, one can increase the bottom line by one dollar, this additional dollar is 100% profit. And, the opposite is true: Waste a dollar and it’s 100% gone.

To illustrate: If one of your managers spends $600 on office supplies when these same supplies could have been purchased for $500 elsewhere, your manager has just reached into your pocket and, as I like to say, "gone down to the river and thrown your $100 cash off the bridge." If you over-staff just one shift, what does that cost, one hundred or more dollars? Again, that’s money literally out of your pocket and figuratively floating down the river. And, the brutal truth is that you did that to you because you are the owner and/or General Manager of your company and were not paying attention. It’s that painful and it's that simple.

Something I like to remember is that just because there are a lot of dollars flowing through a business does not somehow devalue these dollars into Monopoly money. This is real money! If my partner Sam and I can buckle down and find a way to save just 2% of our expenses, we can add over $2,000 in real dollars to the bottom line. The same holds true for billing properly for what we do and capturing any income that is falling through the cracks. Are you charging for everything you do for your customers? Are your service rates fair to you or do you buy into the knuckle-headed thinking that our industry is a commodity market and low prices are the only bargaining chip?

Consider this: Are you paying your people enough to keep them long-term? If you lose an experienced TSR, how much does it cost to replace this person? Do you have the courage to make a decision based on subjective analysis? Just because one can’t objectively measure the cost of replacing a good employee doesn’t mean it isn’t damn expensive. At Centratel, for instance, we pay way above industry standards because we operate under the belief that it is a smart business strategy to have long-term employees and almost non-existent staff turn-over. It’s a subjective belief; don’t ask me to prove it on paper.

Yes, new-found “marginal” income can go in your pocket. However, at Centratel, our choice over the years has been to invest it back into the company for higher wages to staff, better equipment, more customer service personnel, etc. The broken down answering service purchased in 1984 for twenty one thousand dollars is now worth in excess of two million. My partner and I lead simple, inexpensive lives and derive most of our satisfaction from providing good jobs and being the best quality service available anywhere. The value of our investment is a bonus.

Synchronicity

Thursday, February 24th, 4:30am: After some spontaneous middle-of-the night back and forth communications,  here’s a final email I sent to my brother, who lives in Tucson, at 3:45am:

“Steve: I just traded  emails with a close out-of-town friend, Nancy. She sent me a long email at the same time I sent one to her. Neither of us knew the other was up, much less composing emails to each other. Your first email came within minutes of those two transmissions between Nancy and me (yours came to me at 3:10, Nancy's came to me at 3:13, I sent mine to her, at 3:17). This is in the absolute middle of the night! With no knowledge of the doings of the others, we were all thinking of each other at the same time...TOTAL synchronicity! What’s going on here? The moon was full. Was that the reason?”

Since inexplicable connections are now on my mind, here are some other “synchronicities,” these occurring in my office on a regular basis: higher pay at the same time experiencing little employee turnover; trust in management staff while at the same time receiving strong loyalty and innovative contributions; a pleasant work environment while experiencing a relaxed atmosphere; for TSRs, constant performance testing with frequent performance bonuses and simultaneous high customer retention…paying attention to detail while experiencing a solid net profit (in the midst of a general decline within our industry).

The synchronicities described in the  first paragraph were the absolute truth but, well OK, the office-related pair-offs were not synchronicities at all and they have nothing to do with the moon. Indeed, no mystery at all. Connected as they are, they can’t be tied to some baffling celestial phenomenon. Here’s the great thing: cosmic synchronicities are inexplicable but, for the other correlations I mentioned, the causes are simple and the effects are real. It’s about rules of cause and effect in the real world. To my competition, or to anyone operating any business who is scrambling for an improved bottom line, reduced staff turnover or general peace in the office: Give it a shot. Change the way you approach things. Take the leap. It just works. Despite the simple logic of it all, I am amazed that very few business owners do these things. Most are out there killing fires, not at all in firm control and feeling at the mercy of whatever new thing that might arrive tomorrow.

Here’s a question: as a TAS owner, do you believe the two largest problems facing our industry are, 1) the minimum wage and, 2) the difficulty in developing a long-term, loyal staff? If so, start thinking about whether there might be a connection between the two. If you think the above are connected, do you think it’s because of the moon or some other mysterious, inexplicable force? That's just one connection; There are others. Are you connecting the correct dots?

Some reading recommendations: Stephen Covey (The 7 Habits…), Michael Gerber (The Emyth revisited). Jim Collins (From Good to Great). Read for comprehension; just about everything you need to know is in those three books. Also, check out some of the resources in our website (www.centratel.com).

-sc