21 March 2007

Can you generate more income with a only a little extra effort?

An old accountant of mine introduced me to an idea which I believe has merit for many other types of businesses. He explained that due to a general tightening up by the taxation department a proportion of his clients were audited every year. It wasn’t anything out of the ordinary it was just the way that things were going. It was fair to assume that if you were in business you would be audited at some time in the future.

When a client is audited there are lots of expenses, especially the bill from their accountant who has to spend a lot of time sorting out records and answering the questions raised by the taxation department. So on top of the fine that they may receive the client also receives a bill for several thousand dollars from their accountant. All in all it is a very unpleasant experience for all involved.

My accountant introduced “audit insurance”. What this basically means is that as a client you can pay a couple of hundred dollars per year and if you are audited all of your accountants bills will be covered by this insurance. Due to the increased possibility of being audited this appears to me to be excellent value.

My accountant funds this insurance himself. All of the money raised from the policies goes into a pool. If he has a lot of clients audited he may lose out but if he only has a few he tends to make a few dollars. In reality everyone wins. As a client I have the peace of mind that when I am audited I don’t have to worry about being hit with a large accountants bill at the end of the process. I also believe that this is a great service being offered and if my accountant makes a few dollars well good on him for having the initiative to put the plan in place.

Perhaps there are ideas like this that your business could put into place that could not only generate extra income for your business but also offer a degree of peace of mind for your customers. I have had friends in the car hire industry who say that often they make more money out of the insurance than they do out of hiring the car.

The key here is that you are taking some of the risk away from your customers and taking that responsibility on yourself – for a fee.

I went on a whale watching trip out of Boston in the USA several years ago. The company made a bold statement. If you don’t see any whales they will refund half of your money. This seemed like a fair deal and as none of their competitors made the same offer I went with them and we saw about thirty whales and I was told they see whales every trip without fail making this a fairly safe offer on their behalf.

I saw a similar insurance idea in Borneo (of all places) where you could go on a fishing trip for about a $100. You could then pay an extra $10 and if you didn’t catch any fish you got to go on another trip for free. They had self insured themselves. I got to know the owner during the day and I asked him how many people had claimed the insurance. He said five people in ten years had claimed the refund (“they couldn’t catch fish in a barrel with a bazooka”) yet almost 90% of all his passengers paid the extra $10 for the insurance. This smart entrepreneur had increased his revenue by 10% for a very minimal outlay. This doesn’t take into consideration those people that went fishing on his point simply because he offered the novel insurance.

On another nautical theme I remember going diving in Vanuatu once where you could take out clear water cover. If the water visibility dropped below 20 metres you dived for free. This premium cost about $20 per day but as a mad keen diver how could you refuse this offer? Once again the owner said that occasionally bad weather made them give away some free dives but overall they won out hands down as the visibility was normally well in excess of 50 metres. They had increased their revenue by almost 25% by simply introducing this insurance policy.

The only real danger in this area is making certain that you are very, very clear about what the insurance covers and how you will measure it. As my accountant said if I came to him smoking Cuban cigars and carrying suitcases full of small unmarked bills he would probably be asking for trouble. Make you offer clear. Remember that if you are taking money from people they will be expecting something in return. Be certain to give it to them.

On the bright side perhaps you could increase your business considerably simply by offering a new service or a type of insurance that really wouldn’t cost you a lot of time or money.

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