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Telephone Answering Service

Telephone Answering Service Valuation Methodology

By Peter Lyle DeHaan, PhD

Determining an appropriate valuation for a telephone answering service (TAS) looms as a challenging task, one that many outside the industry don’t fully appreciate. This paper details TAS distinctives and explains how to best determine the value of a TAS.

EBITDA

A common valuation method for most businesses is to use a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization). This general approach can be adapted to apply in most situations, but it fails to appreciate the nuances inherent in the telephone answering service industry.

When it comes to determining the value of a TAS, the EBITDA approach often falls short, underestimating the true worth of the answering service.

Multiple of Monthly Billing

An alternate telephone answering service valuation methodology, which has proven itself over time, is a multiple of monthly billing. Most TAS business sales are to others in the industry or to investment groups that understand the industry. In this case, call center valuation knowledge doesn’t apply and leads potential purchasers astray, undervaluing the property.

Answering Service vs Call Center

By definition, a TAS is arguably a subset of the call center industry. But the TAS industry is substantially different. It also predates the call center industry, which started circa 1980, whereas the answering service industry first emerged in the 1920s.

While EBITDA works as an effective evaluation tool for call centers, this methodology doesn’t translate nicely to answering services. An outsourced call center typically has a small number of large clients, whereas a TAS has a large number of small clients.

Client Cancellations

If a call center loses just one client, their whole operation plunges into disarray and their future viability is questionable—unless they can replace that one client in short order.

When in answering service, however, loses one client the impact on the bottom line is negligible and usually not even noticed.

Given this dynamic, EBITDA works well for call center valuations, where the business’s future viability is unknown, even questionable. Even those call centers that attempt to lock in clients with long-term contracts, still lack the confidence of those clients remaining with them should they become determined to leave. Given this reality, outsourced call centers typically sell for a low multiple of their EBITDA.

Contrast this to a TAS with their high number of low priced clients. From a financial perspective, the TAS operation becomes a numbers game. The astute business manager knows how long an average client will continue using their services. Some will stay longer, and some will be shorter, but the average is a number they can confidently rely on hitting, month after month, year after year. They also know the average monthly billing for a typical client.

Low Volatility

What this means is answering services have a predictable and measurable volatility that is both small and understood. When a client cancels service, which happens every month, their marketing department and sales team has scores or even hundreds of realistic prospects in its sales funnel.

This means that another client will soon take the place of the one that just cancelled service. This isn’t hard to do with a monthly cost of using a TAS starting at just shy of $100, with a $200 to $300 range being common.

Given these dynamics, EBITDA calculations underprice answering services, with a multiple monthly billing being a much more realistic and actionable figure. Yes, you can valuate a TAS using EBITDA and back into a reasonable approximation of its value. But doing this requires adjustments and assumptions, which takes too much effort to be practical. And it still often undervalues the property.

That’s why most in the TAS industry have persisted in using a multiple of monthly billing to guide their initial telephone answering service valuation efforts. It has worked, and it continues to work.

Adjusting the Multiple

Just as with the EBITDA valuation methodology, the multiple of monthly billing approach determines the multiple based on other business factors. A well-run optimized TAS will command a higher multiple of monthly billing then a poorly run, mismanaged, or ignored operation.

Given this, however, is that some answering service buyers purchase only the client base. This renders all other valuation factors as largely irrelevant. For them, the monthly billing is the only thing that matters.

Others purchase the entire operation, either to run independently or to merge into one of their existing answering services.

A Seller’s Market

The TAS industry is currently experiencing a seller’s market. It’s been in this mode for several decades. Based on what I hear from buyers and sellers is that sales often occur for a monthly billing multiple in the mid to high teens. And selling at over twenty times monthly billing isn’t unheard of.

Sellers, of course, are pleased with the payout, yet buyers continue to willingly make acquisitions under these conditions. They do this to pursue an economy of scale, which only the bigger players can fully realize. This has resulted in a decades long TAS industry consolidation.

Industry Size

The actual size of the TAS industry is hard to pin down with any degree of accuracy, yet when I researched my MBA thesis in 1998 the estimated size of the industry was 10,000 answering services, which soon decreased to 5,000 by the time I did my PhD dissertation a couple of years later. I now estimate the number of services to be one tenth of that number, probably lower.

This is not to suggest the industry is shrinking. It is not.

The demand for answering service is great and appears to be larger than ever in terms of overall sales. It’s merely that the number of services has decreased.

Future Outlook

This means that those providers who want to grow through acquisition—which is much faster and often easier than growing via sales and marketing—have fewer viable services to select from.

This is the main factor in driving up monthly billing multiples and keeping them there. I expect this dynamic to continue for the foreseeable future.

Learn more in Peter Lyle DeHaan’s book, How to Start a Telephone Answering Service.

Peter Lyle DeHaan, PhD, is the publisher and editor-in-chief of TAS Trader, covering the telephone answering service industry. Check out his books How to Start a Telephone Answering Service and Sticky Customer Service.

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Telephone Answering Service

Celebrate the Telephone

The TAS Industry Centers on a Readily Understood, Universal, and Reliable Technology

By Peter Lyle DeHaan, PhD

Author Peter Lyle DeHaan, PhD

Telephone answering services handle thousands of telephone calls every day. The majority are incoming calls that come from clients’ customers and prospects. The rest are outgoing calls made for clients. With the continual use of the telephone at work, it’s easy to dismiss it as commonplace, even boring. But let’s not overlook the all-critical role the telephone plays in our every-day work. 

In fact, let’s take a moment to celebrate the telephone as the essential star that it is. Let’s pause to applaud the telephone:

It’s Understood

Everyone knows how to use a telephone. Even those who prefer not to call someone and seek alternative means whenever possible still possess the knowledge of how to call a telephone number to talk to someone. 

The telephone is the best understood communication option, used by more people than any other alternative. The phone is also the easiest to use and requires little technical expertise and minimal training.

It’s Universal

The telephone is also ubiquitous. Though not all residences have a hard-wired telephone sitting in their homes, as they once did, virtually all businesses do. 

And most everyone carries around a telephone in their pocket. They may even have two.

Reliable

Email make get blocked, end up in spam, or be accidentally deleted. Text messages can suffer from delay or non-delivery. 

Not so with a telephone. A phone call goes through most every time. And in those rare cases when it doesn’t, the caller immediately knows by receiving a busy signal or a recording alerting them of a problem.

Conclusion

It may seem silly to celebrate the telephone, but without it we wouldn’t be in business. Though it’s easy to overlook the telephone for its always-available, always-working nature, let’s take a moment to appreciate it is the essential element and central icon that it is.

We exist because of the telephone.

Learn more in Peter Lyle DeHaan’s book, How to Start a Telephone Answering Service.

Peter Lyle DeHaan, PhD, is the publisher and editor-in-chief of TAS Trader, covering the telephone answering service industry. Check out his books How to Start a Telephone Answering Service and Sticky Customer Service.

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Call Center

Call Center: The Wrong Way

By Peter Lyle DeHaan

I selected on an internet firm to file my trademark application for my new publication, TAS Trader. After a perfunctory phone call to remove concerns over their viability, I submitted my information online.

Peter Lyle DeHaan

This set in motion a series of email communiqués with their “trademark team” that became increasingly frustrating, lacking in substantive communication.

Once it became apparent that we were at a communication impasse, I called again. To my dismay, “customers” are routed to a different group than “prospects.” My customer service contact was not nearly as impressive as my sales contact.

Regardless of what I asked, she responded with: “We cannot guarantee that your application will be accepted,” or “We do not provide legal advice, as was stated…”

Neither response was relevant to what I was saying. Each time her tone was mechanical and even-paced, as though I was talking to a robot, possessing limited response options.

“You’re not listening to me,” I implored. “I can appreciate you have to read this disclaimer to me, but…”

This evoked an emotional retort, “I’m not reading a script,” she declared with irritation. “I’ve worked here for five years and know what I’m saying; I don’t need to read it.”

Soon, she regained her composure and reverted to her tired verbiage, punctuated with, “Shall I place your order or not?” Eventually I acquiesced, albeit with grave reservation.

Although she answered quickly, after minimal IVR interdiction, her efforts were dispassionate and distant. Her responses were polished to the point of boredom, while her rebuttals were few, likely limited by a legal department intent on minimizing lawsuits.

Although she salvaged my account, the interaction was not successful and my customer satisfaction was nonexistent. The rep may have won the proverbial battle, but she lost the war; my account was salvaged, but my future patronage was lost.

Check out Sticky Customer Service for practical insights into how to provide great customer service (and what to avoid).

Peter Lyle DeHaan, PhD, is the publisher and editor-in-chief of Connections Magazine, covering the call center teleservices industry. Read his latest book, Healthcare Call Center Essentials.

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Call Center

A Tale of Two Calls

By Peter Lyle DeHaan, PhD

Among other things, my son Dan is a hockey player. We’ll never know if there was any connection, but this past summer he began experiencing lower back pain. The common advice to “take it easy and rest” was not helping, so we embarked on a more intentional course of action, pursuing every nonsurgical recommendation provided. In the end, surgery was mandated as the only remaining option to provide relief. The procedure went as planned, and he was up and walking, albeit gingerly, the next day. It won’t be long before he is back on the ice, playing the game he loves.

Author Peter Lyle DeHaan

For me, the difficult part about dealing with medical issues is not all the appointments, the treatments, or even the side effects of the medications – it’s dealing with all the bills and insurance payments. I’m still receiving Dan’s paperwork from six months ago. In addition, a seemingly simply procedure can generate three or four bills, while the same procedure on different days can be charged different amounts or be reimbursed at different levels. Understanding all this is nigh unto impossible. That’s likely a key reason why I shun visiting my doctor.

My philosophy about health insurance is apparently an anomaly as well. I believe that I should budget for and cover the smaller and manageable expenses, relegating any catastrophic fees to the rightful realm of my insurance company. Towards that end, I have a high deductible health plan and a Health Savings Account (HSA) to cover the deductible with tax-free money that I set aside. Of course, there is paperwork for that, too.

Each month, my HSA statement is several pages – just to document the monthly service fee and inform me of my interest income. That alone is presented in a confusing enough manner, but when actual medical charges began to appear, it became a convoluted mess. After spending over an hour vainly attempting to match less than helpful invoices and insurance forms with dollar amounts on my statement, I resorted to calling “customer service” for help. I was braced for a painful ordeal with an overseas rep for whom effective English communication was a challenge and source of confusion. It is sad that I have been conditioned to accept that conclusion as an inevitable outcome, but that’s what unbridled and ill-executed offshore call center outsourcing has done to U.S. consumers: It has prepared us to expect mediocre phone support. Happily, I have a different outcome to report.

My call was quickly answered, there was no queue, and no queue announcements. I don’t even recall being subjected to an IVR on the front end of my call. The agent was cheerful and pleasant – dare I say perky – while communicating in my language with ease and aplomb; I never once had to ask her to repeat herself. I explained my dilemma, and she agreed that their statements were hard to understand, assuring me that she would help me to understand mine.

Telling me that supplemental information was online, I logged in and she walked me through the options to get to the page that would provide the additional detail. Amazingly, she went through this information with me line by line, explaining what each item meant and informing me that I could click on any entry to obtain more detail. Upon doing so, it was easy to see that transactions occurring on the same day were added together on my statement. Armed with this additional clarity, I was quickly able to match up the statement amounts with my paperwork.

She then said something surprising, “The website is confusing to use, so feel free to call back next month when you receive your statement, and I can go over this again.” It was as though she was paid on commission and wanted me to call again. Wow, that’s customer service that I’ve not experienced in a long time.

So for this call, call center technology was not used to restrict me from talking with someone, my call was answered quickly by a personable, knowledgeable, and trained person who spoke English clearly, my frustrations were acknowledged and validated, I was not treated as though I was ignorant or incompetent, and I was asked to call again.

My second call was to the firm who was filing my trademark application for an e-publication that I recently launched, TAS Trader. Although I could have paid my attorney to do so, I sought a lower-cost solution, searching online for a company that specialized in filing trademark applications. I found one whose website was compelling and looked professional. Although the entire transaction could have been handled online, I called them anyway. I wanted see how they responded to my call and to confirm (or refute) my conclusion that they were a viable and professional organization. Having received the answer to my question and being satisfactorily impressed, I entered my information on their website and clicked submit.

This set in motion a series of email communiqués with their “trademark team” that became increasingly frustrating and lacking in substantive communication. Once it became apparent that we were at a communication impasse, I called them again. To my dismay, “customers” are routed to a different group than “prospects.” My customer service contact was not nearly as impressive as my sales contact.

It seemed that no matter what I said, she responded in one of two ways: “We cannot guarantee that your application will be accepted…” or “We do not provide legal advice, as was stated…” The frustrating thing was that neither response was appropriate to what I was saying. Each time the wording was the same, and her tone was mechanical and even-paced. It was as though I was talking to a robot that possessed limited response options.

No matter how I phrased my concern, I received one of these two responses. “You’re not listening to me,” I implored, only to hear yet again the same monotone verbiage. I suppose that when one is not being heard, it is common to talk louder. Anyway, that is what I began doing. It didn’t alter her response. I wasn’t quite yelling, but I was getting emotional. Even so, she maintained a calm aloofness.

“I can appreciate you have to read this disclaimer to me, but…”

This evoked the only bit of emotion from her, “I’m not reading a script,” she exclaimed passionately with raised voice. “I’ve worked here for five years and know what I’m saying; I don’t need to read it.” Soon, she regained her composure and reverted to her tired verbiage, punctuated with, “Shall I place your order or not?” Eventually I acquiesced, albeit with grave reservation; my filing is now winding its way through the bureaucracy at the U.S. Patent and Trademark Office.

To recap this call, the rep answered quickly, after minimal IVR interdiction, but her efforts were dispassionate and distant. Her responses were polished to the point of boredom, while her rebuttals were few and likely limited by a legal department intent on minimizing the chances of being successfully sued. Although she earned a tic mark for an account salvaged, the interaction was not successful, and my satisfaction as a customer barely hit the tolerance level. The rep may have won the proverbial battle, but she lost the war; my account was salvaged, but my future patronage has been lost.

That’s my tale of two calls; which one best exemplifies your call center?

Check out Sticky Customer Service for practical insights into how to provide great customer service (and what to avoid).

Peter Lyle DeHaan, PhD, is the publisher and editor-in-chief of Connections Magazine, covering the call center teleservices industry. Read his latest book, Healthcare Call Center Essentials.