Marketing $92 $108 $136
Collection (including collector $191 $271 $339
salaries and commissions)
Consulting $15 $25 $15
TOTAL $320 $433 $525
PRETAX PROFIT $111 $209 $203
PRETAX MARGIN 26% 33% 28%
*Balance forward of 750 active cases
**Based on overall collection rate of about 15%
WHAT THE EXPERTS SAY
POTENTIAL PARTNER/COMPETITOR
JOYCE MCCLARAN
Director of child-support enforcement for Tennessee, which in 1991 completely privatized one of its local CSE offices
I am impressed by Mr. Jones. He seems like a caring, hardworking person. And his business seems like a viable alternative. I am also impressed with his relationship with the state of Virginia. But in some states, such as Tennessee, the child support has to be paid to the court, which then disburses the money. Some courts and state agencies do not want to send the check to anyone but the custodial parent. I'm sure Mr. Jones doesn't want to have to collect from both the husband and the wife, but he may have no choice. Also, private companies need to understand any perceived or real animosity from the state. The contingency fee is not really the issue, because that's no different from lawyers' hourly rates and retainers. But it is frustrating to see a parent turn over 25% of everything collected, including money the state might have collected for her. Private companies like Mr. Jones's might find contracting with the state to be a more lucrative niche. They would get a volume of cases and a percentage of collections and would not have the direct involvement with the custodial parent, which can result in unhappy customers.
POTENTIAL CUSTOMER
SUSAN MATTHEWS
Women's health coordinator at Sentara Norfolk General Hospital, a 644-bed hospital with 3,000 employees, mostly women, in Norfolk, Va.
We see a relationship with Jones's company as an opportunity to educate not only employees, but the customers who call our information line, about a service that could be available to them. There's no reason we shouldn't share information about his agency with our employees. It's something we can do to try to enhance employees' satisfaction -- if they're having problems at home, it certainly could affect their work life. One thing I didn't know is that Child Support Services can't help people on welfare. Still, if it is able to handle a certain population, that's great. I don't necessarily see the 25% contingency fee as a problem. It's the mother's personal decision.
OBSERVER
CHUCK PIOLA
Partner in NCO Financial Systems, a $4-million collection agency in Blue Bell, Pa.
I don't think he's going to collect on as many debtors as he figures. You're talking about an expensive type of collecting. I'd compare these cases to "repo deficiency balances," the balance on a car that's been repossessed and sold at auction; you might collect 8% or less. But the application fee raises his unit yield. He'll make money, but he can't hit a 35% recovery rate.
POTENTIAL CUSTOMER/COMPETITOR
DONNA WARREN
A San Jose, Calif., mother and small-business person who through her own 12-year effort has so far collected $22,000 of a $47,000 support debt
I never considered using a collection agency, because I didn't want to spend any more money on what was mine. If I'd known then what I know now, I'd probably have hired an agency right off the bat to avoid the fights, the pain. I can understand why Jones spent money on TV advertising. Who's going to open the yellow pages and look for a collector? If I were him, however, I'd talk to parent-teacher associations, I'd donate money to after-school day care, I'd put out drug-prevention booklets with my company's name on them. He spent a lot of money on something that didn't help these mothers. If you give back to the children, then you touch each parent. He should call his staff "representatives," not "collectors," and there should be a lead representative for parents to talk to, someone who'll say, "What do we need to do to make this better?" Most district attorneys don't listen. If Jones listens, that's what will give him free advertising; that will make customers renew the contract. If he could diagram for each client what he's done, share the knowledge -- that alone would be worth the 25% fee. He wouldn't lose customers; he'd gain them. He's got to perform a service, not just a function.
CUSTOMER
MARION PULLEY
A working mother in Richmond, Va., who hopes to recover more than $3,000 from her out-of-state ex-husband
When I signed up with Child Support Services, I was told it would take three to four weeks for my case to be assigned to a collector. When you've waited as long as I have, three to four weeks makes you think, Oh no, not this again. I thought when the agency got my application package, it would call, at least acknowledge me. I have yet to get a call saying, "Here's what we'll do." I don't expect the service to explain every step it's going to take, but I do expect it to give me a general idea of what will happen. I would have wanted someone to give me a timetable, some kind of update each month. I'd probably be interested in using the service on a permanent basis. My ex-husband needs someone to give him a little prod each month. I don't want to go to court every year. I have no problem with the contingency fee. But Jones's agency should wait to take the $35 application fee until it accepts the case. Whatever the guidelines are for turning people down, they should be made clear. You've got some desperate people out there -- you've got to let them know where they stand. I was worried Child Support Services would take the $35 and say, "Sorry, your case is uncollectible." The company's customer service needs a lot of work.
