Each evening at 6 o'clock, closing time, the six answering machines at Magellan's kicked in. And each morning the machines played back partial orders and messages saying, "I'm not leaving my credit-card number on an answering machine!" John McManus, CEO of Magellan's, a travel-equipment catalog house in Santa Barbara, Calif., could only guess how many potential customers hung up. He knew he had to upgrade his system, even though his sales stood at less than $1 million in 1992.

The timing was perfect when McManus received a brochure from AT&T outlining its Merlin Legend automated answering and order-taking system, which has voice prompts that ask callers for their name, address, and credit-card number, and then item number and quantity. "We could see that our calls would get picked up without paying for extra labor," McManus says. Although the salesperson promised that AT&T's support would back McManus up, the CEO didn't sign the contract before meeting the local service people. "Salespeople sell you today, and then they're gone tomorrow," he notes.

He signed a $45,000, five-year contract (today, he says, he'd insist on a year-to-year contract) that covers a dozen phone lines -- taking not only calls throughout the night but also overflow calls during the day. That was a good deal, since McManus estimated that staffing up for the overflow coverage alone would take two more employees at a cost of at least $32,000 a year.

The AT&T system was installed over a weekend. On Monday morning McManus knew he'd made the right investment. Previously, Magellan's would receive maybe 20 messages during the night, mostly catalog requests and "a brave few orders." That morning McManus counted more than 200 messages, with a higher percentage of orders than usual. That ratio has stayed high: now about 35% of all calls are orders, up from 10% during the old answering-machine days. "That makes me think we had a lot of hang-ups and lost calls before."

McManus can track lost calls now. "We've never used a fulfillment house, so we've never benefited from that tracking," he says. His system, however, can tell him when the bulk of after-hours calls come (between 8 p.m. and 9 p.m., eastern time) and how many are hang-ups -- about 5%. Neither of those stats are yet high enough to justify staffing after 6 p.m.

"The system began paying for itself from minute one," he says. "Not only did orders increase, but you have to consider the customer's lifetime value." McManus's reorder rate is high for the industry, about 40%, showing that a phone system that keeps customers from hanging up will also keep them coming back.

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