Why companies need to cure their fee addiction

I recently dined at a restaurant with a few colleagues. Two of us ordered a glass of Red Breast Irish Whiskey after our meal. My friend asked for hers neat while I ordered mine on the rocks. Imagine my shock when I saw the bill:

That’s right, my drink was $1 more after the "rocks upcharge" was added. Charging $1 for ice has to be the dumbest fee I’ve ever seen. (If you’ve seen dumber, PLEASE let me know!)

Customers Hate Fees
The sheer outrageousness of that little fee completely ruined what was an otherwise acceptable dining experience. Just to make sure I’m not being overly sensitive, I did a little homework and discovered other customers hate fees too. Here are a few examples:

  • A 2006 study by Bain & Company found that fees were one of the leading causes of customer dissatisfaction (read more in their whitepaper).
  • A 2011 study by J.D. Power & Associates found that checked baggage fees decreased customer satisfaction by an average of 8.5 percentage points (here's the story).
  • High-profile attempts to raise fees by companies like Bank of America have led to widespread public backlash and customer defections.

Bottom line: Fees can negatively influence customers’ perception of service, especially when the fees are for products or services that used to be free.

Companies Are Addicted
For many companies, the fee addiction is easy to explain. The company faces pressure to increase profitability from investors, the board of directors, or competitors. Charging fees seems like a good way to boost revenue, pass costs along to the customer, or both. The financial motivation associated with a new fee is generally easy to measure. Here are a few examples:

  • Checked baggage fees added an estimated $3.36 billion in revenue to U.S. airlines’ bottom line in 2011 (source: MSNBC's Overhead Bin).
  • Bank of America hatched their plan to charge customers using debit cards a $5 monthly fee after legislation cost them an estimated $2 billion in revenue (source: LA Times).
  • Companies in a wide range of industries, from hotels to ticket brokers, use fees to make the cost of their product or service appear lower than it actually is.

Curing the Addiction
Companies will only reduce or eliminate unfriendly fees when they are convinced doing so will increase profitability. Making that case takes both data and guts.

Gathering the data isn’t always easy. It requires companies to look beyond individual transactions and examine their customers relationships. For example, when an airline charges a passenger $25 to check a bag on a flight, the airline knows it made an extra $25. What it might not know is whether the fee encouraged that passenger to book her next flight on another airline. Companies need to get closer to their customers through surveys, mining their CRM programs, and even face-to-face interactions to analyze whether fees are really a net gain or loss.

One way to add guts to the mix and make executives a bit braver is through a compelling success story. Here are a few examples from companies that resisted the urge to raise fees:

  • In the mid-2000s, Charles Schwab reduced or eliminated many fees as part of its well-publicized turnaround that led the brokerage firm to increase profits from $109 million in 2002 to $1.2 billion in 2006 (read more).
  • An estimated 650,000 people moved their accounts from Bank of America to a credit union in the fall of 2011 in response to an announced fee increase (source: Credit Union National Association).
  • Netflix built a successful company with a business model that eliminated late fees for movie rentals. Of course, they also made two enormous blunders in 2011, but that’s a different story. 

Would you lose a customer over 50 cents?

Would your business be willing to risk losing a customer over 50 cents? I know one that is.

I received a surprise when I reviewed the latest bank statement for one of my business accounts. My bank had imposed a mysterious 50 cent fee for something called "Currency Straps Ordered." It wasn't a lot of money, but I didn't want my bank to get in the habit of charging random fees, so I decided to give them a call.

You may already know what a Currency Strap is, but I had to do some digging to find out. It is a bundle of cash that has a paper "strap" around it to keep the bills together. Banks give them to businesses who work with cash. I've also seen them in quite a few action movies and spy thrillers when someone has a dufflebag full of cash.

My consulting business doesn't use currency straps, but I was still charged 50 cents for one. How?

I had visited my bank branch to deposit some checks into my account. At the end of the transaction, the teller had asked if there was anything else she could help me with. I realized I needed to get some tip money for an upcoming trip, so I asked her to give me change for a $20. Little did I know that this was considered a "currency strap" in the banking world. Gotcha!

The teller didn't advise me of the 50 cent charge, or I certainly would have gotten change elsewhere. It may be in the fine print of my banking agreement, but I don't remember seeing it. This fee was an unpleasant surprise.

It took 15 minutes on the phone with a customer service representative and then a branch manager to get to the bottom of this unexpected charge. To her credit, the branch manager quickly reversed the charge and was empathetic, but she also explained this was their corporate policy.

I'm now thinking of moving my accounts to another bank. It's not just the 50 cents, but all of the fees I've had to worry about avoiding lately. This bank clearly wants to make their money on fees, not service. 

Customer Service Tips


  • The only surprises your customers should ever receive are pleasant ones. 
  • Nobody likes fees. 
  • It's probably not worth Chase-ing a customer away for a lousy 50 cents.