Minimum Spend 101

Today I’m going to talk about standard mobile Business Fleet Plans, and specifically a phenomenon called ‘Minimum Spend’.

This is an area that Dog and Bone is constantly asked to clarify for clients. Minimum spend is a key component of the most common type of Business Plans used by Australian businesses. We therefore feel it is important that it is clearly understood.

Minimum spend only really becomes an important factor in mobile fleets – that is, more than one mobile service on the account – but to start with I’ll use a single $40 mobile plan for the purposes of illustration, and build it up from there.

Under a standard Business Plan such as those available from (predominantly) Telstra or Optus, a single $40 business plan will include up to $40 of calling credit each month. (A $60 plan would include up to $60, and so on.)

This is credit that can be put towards eligible call types, including SMS and voicemail. If you don’t generate call spend equal to the provided calling credit, then you will only be credited back for the amount you used. Believe it or not, no carrier is going to credit you back for calls you don’t make. On the other hand, if you go beyond your included credit, you will continue to be charged at the same rate, on a pay as you go basis. There is thus no upper limit to the cost of each plan, depending on usage. The plan only defines a minimum usage. Simply put, it is the amount you will pay even if you don’t use your phone at all.

Let’s look at some examples:

Example 1.

Jim-Bob is on a $40 plan, but makes $65 worth of calls in a given month. How much will Jim-Bob pay in total for his mobile that month?

Answer: Jim-Bob will pay $65. This is comprised of a $40 access fee (his plan) + $65 calls - $40 calling credit.

Example 2.

Fabio is on a $40 plan, but only makes $15 worth of calls in a given month. How much will Fabio pay in total for his mobile that month?

Answer: Fabio will pay $40. This is comprised of a $40 access fee (his plan) +$15 calls - $15 calling credit. Because he only made $15 of calls, he only gets that much back in calling credit, since his plan includes credit of up to $40.

As you can hopefully see from these examples, there is no mechanism by which the user can spend less than $40 on a $40 plan. This is why it is called a minimum spend. There is also no upper limit on spend.

Fleet Usage

Now, as mentioned the real use of these Business Fleet Plans is when they are applied to a group of mobiles across an entire organisation. Let’s stay with Jim-Bob and Fabio for the moment.

Separately, Jim Bob and Fabio are spending $105 per month on their mobiles ($65 + $40). However, if they were to combine their services onto a single account, their mobiles would be treated as a fleet. In this case, their plans would be aggregated (added together), as would their call usage and their available calling credit.

Example 3.

Thus, using the spending patterns from the above examples, how much will Jim-Bob and Fabio spend each month if they combine their mobiles onto a single Fleet Plan?

Answer: They will spend $80 per month in total. This is comprised of their access fee for the month of $80 ($40 + $40) + $80 of calls ($65 for Jim-Bob and $15 for Fabio) - $80 calling credit ($40 + $40).

By combining their mobiles they would have reduced their collective monthly spend by $25. Under this mechanism they cannot spend less than $80 per month, even if they don’t use their mobiles at all that month.

If we extrapolate this out still further, to say 100 users, the basic premise remains the same. 100 users on $40 plans would incur $4,000 of monthly access fees (100 x $40). This defines their minimum spend each month. These plans would in turn provide up to $4,000 of calling credit. These 100 users should ideally be making about $4,000 of calls per month.

Two fundamental factors emerge from this. Firstly, it ceases to matter much what any given user is doing. All the numbers are aggregated together. So even if one user has a lower month, it is entirely possible that this shortfall will be taken up by another user making more calls that month, since fleets of 100 mobiles in our experience have fairly stable overall calling patterns. Too often we see companies panic and reduce or increase plans for specific users in the fleet based off sudden drops or spikes in usage, even though the overall fleet spend is stable. This often just creates difficulties in both the short and long term, which I won’t go into here. I’ll just say that it is almost never the right move.

The second important factor is that it is important that that your monthly call spend should equal or exceed your monthly access fees (minimum spend). If your fleet is paying $4,000 in access fees, yet is only making $3,500 in calls each month, you’re basically paying $500 for nothing each month. You’re paying $4,000 a month, but only seeing $3,500 in value.

There are naturally subtleties at play here that lie beyond the scope of this article, such as equipment acquisition and loyalty bonuses. But, all else being equal, the best strategy is to aim for a minimum spend that is about 5-10% lower than your monthly eligible call spend. In the above example, you’d be better off aiming for a monthly minimum commitment of about $3,300.

Of course, you’re better off just getting Dog and Bone to do it for you, since this is the kind of thing we do every day. But in the meantime, I hope that this has made the concept of minimum spend clearer. It is an important one.