Why aren’t you charging an application fee?
An application fee, or service initiation fee, is charged to new accounts when applying for service. The purpose of the fee, as described in this blog post, is to recoup the cost of taking an application and starting service for a new customer.
Surprisingly, the percentage of utilities charging an application fee has remained virtually flat over the four years of the Utility Fee Survey. Application fees peaked at 53.3% in 2012, the first year of the survey, then declined in 2015 and 2017 before rebounding slightly to 50.4% last year, as shown in the graph below (clicking on any of the graphs will open a larger image in a new window):
Average fee amounts
Interestingly, as shown in the graph below, the median (an equal number of smaller and larger values) application fee has remained $25.00, while the average (the arithmetic mean) application fee has steadily increased from $31.74 in 2012 to $44.81 last year:
Why the disparity?
It’s valid to ask “why has the average application fee increased while the median fee has remained the same?”. This is because the number of utilities charging a $25.00 application fee has increased from 14 in 2012 to 17 in 2015 to 21 in both 2017 and 2019. This increase, coupled with a rising number of application fees of $100.00 or more (2 in 2012, 3 in 2015, 6 in 2015, and 7 in 2019) contributes to a larger average while keeping the median value the same.
Another contributing factor is the increase in the maximum fee each year. For the first two years, the highest application fee was $100.00, increasing to $150.00 for 2017 and maxing out at $250.00 for 2019. It’s worth noting that some of these large application fees are charged in lieu of a refundable security deposit.
This graph shows the distribution of fees by dollar amount over the four Utility Fee Surveys:
The first, and most obvious, takeaway from this analysis is, if you’re not charging an application fee, you should consider doing so!
Secondly, those utilities charging an application fee have been steadily increasing their fees. Similar to your reconnect fee, the application fee should take into consideration all of the labor, materials, and vehicle usage to process an application. If you haven’t reviewed your application fee recently, now might be a good time to do so!
Is it time to evaluate your fees?
If you’re not currently charging an application fee, or if you want to review all your fees, please contact me by completing this form to see how a business review could help find new sources of revenue.
© 2020 Gary Sanders