More comment on Using the CPI for rate increase and rate increases in general May 20, 2024

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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More comment on Using the CPI for rate increase and rate increases in general
May 20, 2024
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More comment on Using the CPI for rate increase from article on May 10, 2024
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Ken
          Maybe that explains why CPI is so expensive. They are using the CPI to base increases.
Mike E

another comment

Ken,
          I read Barren V’s comment about using the CPI to determine price increases. Price increases are a good idea. I have been in this industry for thirty years and monitoring rates have barely increased. Costs are increasing constantly and smart companies understand the value of consistently increasing their rates. Barren’s use of the CPI seems reasonable, but, you are correct when you suggest not limiting price increases to some external factor. Best just to determine a percentage rate and do it. No explanation, no justification, no excuses. Clients ask me what they should charge all of the time as if there is some sort of accounting formula that will determine the correct price. I remind them that, while their accountants may be a valuable resource, they should never let them dictate business decisions. The price to charge is the value to the customer, and that is the art of managing a business. I get price increase notices all of the time, internet provider, utilities, pool service, etc… Some of them try to explain how their costs are increasing. Customers don’t really care that your costs are increasing so don’t waste your time explaining why you are instituting a price increase, just do it. Of course, make sure that your contract allows you to.
          Using the CPI (or any other factor) as justification for price increases reminds me of a scene from the Broadway play, Fiddler on the Roof where Nachum the Beggar complains that Tevye only gave him one kopech. Nachum says that he was expecting two kopechs. Tevye explains that he had a bad week. Nachum replies, “so if you had a bad week, why should I suffer?”
Mitch Reitman
817 698 9999 x 101
Reitman Consulting Group
Fort Worth, TX
http://www.reitman.us

Response
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          When it comes to increasing RMR charges there are a few fundamental questions you should think about from time to time.  A well thought out policy would be even better.
          Should you be increasing your subscribers RMR?
          How often?
          Do you have the contractual right to increase?
          What’s the procedure for increase?
          What are potential consequences of increases?

Should you be increasing your subscribers RMR?
          The obvious answer here is, yes.  You don’t need to be an economist and know the ins and outs of inflation to understand that over time prices, for everything, go up.  If you don’t increase the RMR charges then rather quickly the pricing will be below market compared to new subscriber charges and your profit, if any, will be less.

How often?
          This answer will depend on the next consideration, your contractual right to increase.  But having the right to increase doesn’t mean you have to, or should.  While each subscriber may have financial or other issues, generally a plan affecting all subscribers would be best.  The Standard Form Agreements permit increases annually, and that’s what you should do.  If you’re wondering just how effective regularly scheduled increases can be, here’s a true story with one experience I’ve had.
          As a young attorney my practice developed collection work for the alarm industry. One client was the fabled Holmes Security in Manhattan.  Holmes sent over a collection for $900 a month with a few years left on the term of the contract.  It was a big case for me.  So I sue the subscriber, an individual, who turns out to be one of the most influential citizens in Manhattan; wealthy and prominent in the legal community as the owner of the official legal publication in New York for lawyers and judges.  Just what I needed getting started in practice.  Anyway, he calls me with genuine concern; tells me he’s never been sued.  So I ask why he didn’t pay his alarm bill.  I think he said he didn’t need it anymore.  I was surprised, thinking it was a security system for his business building, so I asked.  He tells me that its not for his building, but his Manhattan apartment; that he had the alarm for some 30 or 40 years.  He started with some low RMR [I don’t want to say under $1.00, but something like that] and after annual increases it was now over $900 month. I exercised my discretion and let him off the hook, though I did manage to get a free subscription to one of his law journals.
          Since then I’ve commenced collections against tens of thousands of alarm customers, many of them famous TV, movie, political personalities, but none with that kind of increase in RMR from start to finish.
          Rest assured that your subscribers aren’t going to suggest RMR increases, so it’s up to you.

Do you have the contractual right to increase?
          Yes if you use Standard Form Agreements; just one more reason these contract forms are the industry standard.  Without the right to increase it’s simple, you can’t; an attempt to increase can be considered a breach of the contract entitling the subscriber to terminate the contract, depending on how you presented the increase.  I’ve seen all kinds of variations regarding right to increase and I can tell you that the Standard Form Agreements have the simplest and most effective provision; every other variation reduces your right to increase and actually increases your risk for taking the chance of trying an increase.

What’s the procedure for increase?
          You have to look to your contract.  The Standard Form Agreements permit the increase, period.  Any revised provision can only complicate the process.  If you have the Standard Form Agreement you simply invoice the new amount.  If you don’t have the Standard Form Agreement then you need to follow your contract terms to the letter.

What are potential consequences of increases?
          If you have the Standard Form Agreements the subscriber has committed to pay the increase.  Other contracts, you better check the terms and follow them.  Some contracts permit the subscriber to terminate if not willing to pay the increase.  I’ve explained the evolution of this provision over the years in prior articles and if you haven’t gotten on board with the Standard Form Agreements by now, I do know what to say, but I won’t.

STANDARD FORMS  Alarm / Security / Fire and related Agreements
click here: www.alarmcontracts.com
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com