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After setting up a solid calling card
infrastructure and printing your calling cards, it is time to start
making money. First, you need to set your selling rates, and then
you need to market your product.
Setting Your Selling Rates
There are many factors to consider when setting
your selling rates. You need to consider your competition’s prices,
your expenses, and the buying rates per destination.
Competition Pricing (The Hidden Fees)
Analyzing your competitor’s pricing is not as
straight forward as it may seem. Sure, they advertise 8 cents a
minute to India, and 1 cent per minute within the USA, but how much
are they really charging? The truth is that the profit for most
companies is NOT made with the per-minute charge, but rather, with
the various fees that they charge to their customers. Yes, there
are many cards in the market that do not have fees, but these cards
always charge a significantly higher rate per minute. Below are the
different fees that CardSaver supports:
- Activation Fee – The first time a
cardholder uses his card, he will be charged an activation fee.
- Connection Fee – Each time a cardholder
makes a call, he will be charged a connection fee.
- Disconnect Fee Factor – Each time a
caller makes a call, the total duration of the call will be reduced
by the percentage specified by the Disconnect fee.
- Maintenance Fee – After a specified
period of time, whether it be 6 hours or 30 days, a cardholder will
be charged a maintenance fee.
- Toll Free Fees – If a customer is calling
into your service via a toll free number, the customer will be
charged a surcharge per minute.
- Expiration after First Use – After a
specified period of time following the first use of a card, the card
will expire and become unusable.
- Extended Billing Increments – If the
billing increment is set to 3 minutes, a call lasting 9 minutes and
3 seconds would be billed for 12 minutes.
So let’s take the scenario where your competition
is charging 8 cents a minute to India. Let us assume they have an
activation fee of 39 cents, a connection fee of 39 cents, and a
billing increment of 3 minutes. There is no disconnect fee or
maintenance fee. Let us also assume that the customer’s call lasted
for 25 minutes (which rounds to 27 minutes if you are using 3 minute
increments). The total cost of the call is as follows:
(27 minutes * $0.08) + ($0.39 activation fee) +
($0.39 connection fee) = $2.94
The total charge per minute is actually 11.8
cents, NOT 8 cents. That’s a 50% difference! Even if your cost is
9 cents per minute, which is more than the advertised price, this
call would be profitable. So, as you can see, the profit is in the
fees, not the charge per minute.
Set Different Rates for Different Customers
In Economics, the practice of setting different
rates for different customers is called price discrimination.
Almost every company takes advantage of this economic practice
whether you realize it or not. The idea is to charge more to
customers that are willing to pay more, and charge less to customers
that are not. Put yourself in the following situation:
You are a resident of the United States, and you
are on a business trip in France. You have just landed at an
airport in Paris. Now, you need to find a way to call home and let
your family know that you have arrived safely. You also need to
call the office in the US and confirm the time of your meeting
tomorrow. Would you mind spending 30 cents per minute for this
call? Probably not, especially if your company is paying the bill!
CardSaver allows you to brand different cards and
set different rates for each card, thus allowing you to take
advantage of price discrimination.
Charge More for Uncommon Destinations
Generally, when calling card companies create a
new brand of card, it is targeted toward a specific region of the
world. For example, one of PEC’s customers created a card called
“Hello Africa” which targeted consumers wanting to call Africa The
rates for Africa were set so that it would yield a 10% profit. The
rates for calling to USA and UK were set to 5 cents per minute,
which is still a reasonable rate, yielding a profit margin of 400%.
It turned out that this customer made more profit from the few
customers that called USA and UK than from customers calling
Africa. Although most people will call the destinations you are
targeting, do not forget that people will need to call other
destinations as well, and they are usually willing to pay a premium.
Consider Your Expenses
By simply setting your selling rates higher than
your buying rates, it does not guarantee that you will make a
profit. You need to consider all your recurring expenses into the
equation, such as your lines costs, your Internet cost, your
printing costs, your co-location fees, and any miscellaneous
business expenses that you may have. The largest expense is usually
the distribution expense. It is always best to exaggerate expenses
to consider the worst-case scenario.
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