Are Surcharges Worth the Lost Customer?

For nearly 15 years, I have helped businesses small and large elevate their earnings by developing business strategies that drive opportunity. This week, I have had the opportunity to help an individual who has a premium lighting store in Utah. He has kindly asked me to refrain from using his name or business but will allow me to share his experience. For this purpose, I will use the name Charles.

Charles was recommended to us from another client. He indicated that for the last two months, his sales have continued to drop. Roughly about 6 months ago, he did a nominal increase across the board to offer an increased wage and add medical benefits for his staff. While the increase was very modest, he continued to have sales. During the outbreak of COVID19, he was able to continue to drive sales by selling selective popular products on a website along with limited store hours.

However, shortly after business returning to normal hours of operation, he noticed sales were great and immediately took a nosedive. His regular customers were nowhere to be found.

As with every client, I provide an intake form for the client to fill out and return to us. I also ask for additional exhibits to be provided. After receiving these items, I immediately knew the reason why people were not shopping at his store. However, to confirm my findings, I asked him to send a survey to only people who consecutively opened emails. One of the questions included:

  • To maintain a high level of safety amongst staff and customers, would you be open to a surcharge of 8% against your total check to provide our guests with Personal Protection Equipment (PPE) If no, please indicate why:

The purpose of this question was because one of the exhibits was a receipt. Charles was adding an 8% surcharge for PPE.

The next morning after the survey was sent, results were quickly arriving. 3,200 emails were sent out. 950 emails accessed the survey and provided responses, which tells me that the customers loved his business and were actively engaged with him. The 30% open rate is great. However, looking at the specific question every time, everyone selected “no.” Furthermore, some customers indicated that they were not shopping at his store because they felt that in addition to a sales tax, an extra 8% was too much to pay.

I agreed. The average ticket price was $750. For a $1,000 order, $80 was added for PPE. Now, we all know a single pair of gloves, a disposable face cover, and a squirt of hand sanitizer doesn’t add up to $80.

Charles and I had a conversation for about 20 minutes to wrap up our findings over a PPE surcharge. He is losing customers because he is placing a surcharge on every sale for 8% to cover the expenses to provide face masks, plastic gloves, and hand sanitizer at the door.

As I indicated, if you operate a business in which customers come in and you have public restrooms, you already have an expense that is related to toilet paper, soap, paper towels, etc. The point being is that you must absorb this cost. At the end of the year, this is a business expense, which can be written off. If you and your employees are utilizing the same items that you are putting out for your staff, then it becomes a business expense.

I realize that managing a business has a lot of direct and indirect costs that may eat up

your margins. It is especially important to take an annual review of everything cost related and see if there are ways to save money. Charging your customer for your costs is not the best way.

If you would like some help with this task, reach out to us and one of our consultants can help you review your cost strategies and come up with some ways to streamline your expenses.

Remember, your customer is looking at everything. The customer experience is from when they enter the door (or website) and until the sale is generated and the customer leaves. Surcharges, shipping costs, and other related costs are just as important as traffic flow, signs, prices, etc.

#costs #expenses #budgeting #retailsales #retail #surcharge #PPE #customerengagement

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