What in the world is a P.I.T.N. customer, and what is the connection with pricing? P.I.T.N. stands for Pain In The Neck. The connection with pricing is that in many business and professional services firms these customers are billed at a higher rate. This practice raises two questions:
How do you deal with Pain in the neck customers or clients?
- Is it ethical or fair to change P.I.T.N. customers a higher rate?
- How much higher should that rate be?
When we stop to consider the question, most of us realize quickly that we already charge different fees and prices to some customers or clients, even in retail (for example, a loyalty discount card). In business and professionals services firms, we also charge different rates. In fact, pricing can be a way to reward loyal clients, to encourage clients you want to work with, and to “fire” undesirable clients (who will not want to pay more). For example,
- You might combine some services into a package for profitable and loyal clients.
- You might discount your rate for non-profit organizations or start-ups.
- You might have different rates for businesses and for individuals.
- You might charge premium rates for clients using highly specialized knowledge or skills.
A number of professional and business services firms increase rates for clients that are difficult to deal with, or that demand excessive amounts of time, or even those that are very slow to pay. These are the P.I.T.N. clients.
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Ethics and Fairness
Is it ethical to charge some clients more than others? The answer is that it depends upon the circumstances. For the team at Little Black Dog Social Media, it would be completely unethical to discriminate against any group of clients based on some irrelevant difference (age, race, ethnicity, etc.), nor would doing so be fair.
We do offer a discounted rate to non-profit organizations and to start-ups. We offer this price break to all non-profits and to all start-ups – there is no discrimination within these classes of clients. We offer these discounted rates because (a) we like working with non-profits and start-ups and (b) we want to make it easier for them to work with us (knowing how tight budgets are for these classes of clients).
Many business and professional services firms provide highly specialized services in a micro-niche area of their practice or business (a concept introduced by David Wolfskehl, www.themicronichemethod.com). These individuals charge premium prices for the services that require extensive specialized knowledge, skill, and experience. Premium prices are charged for these services only – not for other more general services. There is no discrimination involved in premium pricing for specialized services, nor is it unfair to do so.
P.I.T.N. pricing, however, is frequently overlooked in business or professional services firms, and in other kinds of businesses.
For example, ABC financial planning and advisory firm works with both individuals and companies. They do not bill for unscheduled telephone calls. Financial Advisor Green is in the middle of a scheduled call with Business Client The Evans Company, when Advisor Green is interrupted by his assistant to take an emergency call from Mr. Brown. Advisor Green politely asks his contact with the Evans Company to hold, and takes the call from Mr. Brown. Brown launches excitedly into a plea that Advisor Green drops everything and shifts all of his invested funds to a new company he has just read about online. Advisor Green, not considering the matter an emergency, says he will call back later in the day. Mr. Brown insists the transaction must occur immediately. As Advisor Green again tries to end the conversation, she notices that the contact from The Evans Company has ended the call. Advisor Green explains that it is never a good idea to put all of one’s capital in a single investment. Mr. Brown argues. When the time comes for her next scheduled call, Advisor Green interrupts Mr. Brown, explains that she has another appointment and must end the conversation. Mr. Brown begins to argue, and Advisor Green hangs up.
Mr. Brown is the client who argues with Advisor Green about every recommended investment and frequently calls claiming an emergency. Others in the ABC firm have had the same experience with Mr. Brown. Advisor Green cannot charge Mr. Brown for unscheduled calls. To do so would be discriminatory, because the firms advertises no fees for unscheduled calls as part of their accessibility claim. She decides instead to charge him the P.I.T.N. rate to compensate for the unscheduled time usurped by Mr. Brown and for the loss of productivity in the firm resulting from his actions.
Is it fair to the staff, the firm, or other customers to allow Mr. Brown to continue this behavior? Should you tell him he needs to go to another firm? Should you refuse to take his calls? Should you raise his fee rate? Will a higher rate be sufficient reason for him to take his business to another firm?
How Much Should the P.I.T.N. Rate Be?
The justification for the P.I.T.N. rate is that it interrupts work in progress, costing productivity, possibly damaging client relationships, and possibly even costing the firm a client. The calls disrupt meetings, phone calls, trades, investments, etc. The calls typically last at least one hour, unless rudely terminated by an advisor with ABC. Further, because Mr. Brown argues about every investment, he uses a vast amount of time that the advisors should be spending with other clients.
One solution might be to monitor and track Mr. Brown’s interruptions for several months, determine the average amount of time utilized each month, and increase his rate for fees accordingly. Another solution might be to change the corporate policy and start charging all clients for unscheduled calls. Yet another might be to simply choose an arbitrary amount and add it to Mr. Brown’s fee rate.
What would you (your firm) do? Is a P.I.T.N. premium ethical and fair? If so, how would you calculate the additional fees? Please leave a comment with your opinion.