Somewhere in most businesses’ revenue sits a line that exists because something is difficult for the customer. A fee for changing a booking. A charge for expediting what was promised at normal speed. A cleaning fee on returned equipment. A premium tier whose main feature is removing a limitation the business designed in. A quoting process so slow that few customers bother to compare.
None of these is automatically wrong. Some are the honest price of real work, and some fund capacity that must exist whether or not it is used. But each ties revenue to a customer irritation, which is an unusual position: the business is being paid to tolerate a problem it could remove.
Whether it should remove it is a strategy question. Whether someone else will remove it is a timing question, and timing usually decides the outcome. This article explains the forms these frictions take, why they persist, why competitors find them easier to remove than you do, how to sort the ones worth keeping from the ones at risk, and how to remove friction on your own timetable.
Two forms of friction
Direct friction is a fee, surcharge or premium charge attached to an inconvenience. It appears in the accounts, has an owner and is defended in budgets like any other revenue.
Structural friction is an irritation that protects margin without appearing as a line item: a slow or complicated quoting process that discourages comparison, contracts that are hard to exit, data that is difficult to export, or pricing so complex that customers cannot easily tell what they are paying. None of this need be deliberate. It survives because it is worth money.
Both share one property. The revenue depends on nobody removing the friction more cheaply than you can. In financial terms, the business has written an option against itself, and the option is exercised by whoever decides to remove the irritation first.
Why frictions persist
- They are treated as service issues, not strategy. Complaints about a fee go to customer service, which can apologise or waive it but cannot abolish it. Nothing in that path reaches the people who could decide.
- Durability is mistaken for safety. A fee that has earned revenue for years looks stable. Its persistence only shows that nobody has yet found it worth attacking.
- Removal is costed as pure loss. The proposal always looks the same: revenue lost, certain and immediate; extra business gained, uncertain and later. Often the volume response was never estimated, because nobody funded the work to estimate it.
Incumbents and entrants face different decisions
A business removing its own friction gives up a known revenue line in exchange for uncertain extra business. A new competitor removing the same friction gives up nothing, because it never had that revenue. They are not making the same decision, and the newcomer’s decision is much easier.
Clayton Christensen’s work on why capable, well-managed businesses lose to newcomers turns on this kind of asymmetry: the incumbent’s decision process behaves sensibly at every step and still fails to respond, because the response would damage the margins its best customers currently provide. Inside the business, the person defending a revenue line brings a number to the meeting, while the person arguing for the customer brings an anecdote. That is why the decision should not sit only with the person who owns the revenue line.
Customers stop mentioning frictions
Complaint data will not reveal a friction customers have given up mentioning, and satisfaction surveys will not reveal one that everyone in the industry imposes, because it has become normal. Look instead at behaviour: customers working around a step, third parties offering services to avoid it, or competitors advertising its absence.
Complexity can be a hidden friction
The most costly friction is sometimes one the business created for itself and does not charge for: a product or service with features few customers use, options that complicate ordering, or processes with steps nobody can explain. This is often a decision-making problem rather than a design problem. Different people inside the business wanted different things, nobody had the authority to choose, and including everything was the easiest way to avoid a decision. The complexity is a cost passed to customers in exchange for internal peace.
A simple diagnostic: for the last few significant additions to a product or process, who had the authority to say no? If nobody can be named, the fix is not a simplification project but naming someone with authority to decide.
Which frictions to keep
Not every friction should go. Some reflect real work, and removing them removes value. Sort them into four categories:
| Category | What it is | Response |
|---|---|---|
| Intrinsic | The difficulty is the work itself | Keep it, and explain it clearly |
| Passed-on cost | A real cost charged separately | Price it openly or absorb it deliberately |
| Unmade decision | Complexity standing in for a choice nobody made | Name a decision-maker and decide |
| Deliberate rent | A charge that profits from the irritation | Model the risk and set a date to change it |
How much a friction matters also depends on how often customers meet it. A customer who meets an irritation once a year barely notices. One who meets it weekly may pay a great deal to avoid it, or move to someone who removes it.
A friction register and three tests
List the frictions in your business in a simple register. For each, record the revenue attached, the cost of removing it, who could remove it more cheaply than you and how many customers encounter it. Then apply three tests:
- The language test: does the internal name for a charge differ sharply from what customers see or call it? That gap often marks a charge nobody has examined.
- The entrant test: if a competitor offered this free from next quarter, how much revenue would be exposed, and how fast would it move?
- The reversal test: would we introduce this charge today if it did not already exist? A quick “no” is a finding.
Find frictions from the customer’s side
Frictions are hard to see from inside the business, because staff have learned to live with them. Some practical ways to find them:
- Walk through your own process as a customer: request a quote, place an order, change a booking, return something, ask for an invoice copy. Note every step that feels unnecessary or confusing.
- Read your fee and charge list as a customer would, and ask whether each could be explained in one sentence.
- Ask front-line staff which questions and complaints come up repeatedly.
- Watch new customers during their first few transactions, when frictions are still noticeable to them.
- Compare competitors’ processes, especially newer ones.
A short session like this often produces a longer list than expected, and many items can be fixed cheaply.
Remove friction in stages
Removing a significant fee or step does not have to happen all at once. A staged approach reduces risk: trial the change with one product, region or customer group, measure bookings, revenue and complaints, then extend it if the results hold. Staging also gives operations time to absorb any work the old fee used to cover. Communicate changes positively to customers, explaining what has become simpler, so the improvement is noticed.
Removing friction takes more than a price change
Removing a significant friction usually changes how the business operates, not just its price list. Operations may need to absorb work the fee used to cover. Sales may need new ways to explain value. Finance needs to model the volume response honestly. Customer service needs new scripts. Plan these changes together, or the improvement will not hold.
Turn removal into a reason to choose you
Removing a friction is not only a defensive move. A business that systematically removes the irritations in its industry becomes the one customers describe to others: the supplier with honest all-in pricing, the one that confirms orders instantly, the one that makes changes easy. That reputation can be worth more than the fees given up, because it lowers the cost of winning new customers and makes existing ones more likely to stay. Tell customers what has changed, and use it in your marketing.
Watch the legal context
Fees and contract terms are subject to Australian consumer and competition law. Unfair contract terms rules, which apply to standard form contracts with consumers and many small businesses, now carry penalties, and the ACCC has paid close attention to practices such as drip pricing, where extra fees are revealed late in a purchase. Review fees and terms with legal advice, and make sure total prices are presented clearly.
A worked example
This is an illustration. A small equipment hire business earns about $1.2 million a year in hire revenue and about $96,000 in fees. Customers frequently complain about a $45 cleaning fee on every hire, a weekend surcharge, a damage waiver they find confusing, and the need to phone to confirm online bookings.
The owner builds a friction register:
- Cleaning fee: a passed-on cost. Cleaning actually costs about $20 per hire. The fee is folded into a slightly higher all-inclusive hire price.
- Damage waiver: partly a deliberate rent. It is simplified to a single, clearly explained option.
- Phone confirmation: an unmade decision. Nobody could explain why it was needed after online booking was introduced. It is removed.
- Late return fee: intrinsic. It keeps equipment available for the next customer. It stays, with a clear explanation at booking.
The entrant test is not hypothetical: a new online competitor in the region already advertises all-inclusive pricing and instant booking.
Over the following year, fee revenue falls by about $40,000, but bookings rise by about 12%, adding about $144,000 in hire revenue. Assuming roughly half of that extra revenue is contribution after variable costs, the business gains about $72,000 against the $40,000 of fees given up, and its reviews improve. It made the change on its own timetable rather than in response to losing customers.
How this applies to a small Australian business
Small businesses often add fees and steps over time without reviewing them as a whole. Practical steps:
- List every fee, surcharge and awkward step customers encounter.
- Classify each as intrinsic, passed-on cost, unmade decision or deliberate rent.
- Apply the language, entrant and reversal tests.
- Estimate the volume response before deciding a change is a loss.
- Name someone with authority to simplify products and processes.
- Plan removal across operations, sales and service.
- Check fees and terms against consumer law, and present total prices clearly.
The articles on reading discount requests and the customers who say nothing cover related ideas.
Signals worth watching
- Third parties offering tools or services to work around one of your steps.
- Competitors advertising free or simpler versions of what you charge for.
- Fee revenue growing faster than the service delivered.
- Complaints concentrating on one step, or falling because customers have given up.
- Regulatory attention to fees in your industry.
Common mistakes
- Treating fee complaints as a customer service matter only.
- Assuming long-standing fees are safe.
- Costing removal as pure loss without estimating extra business.
- Leaving complexity in place because nobody can decide.
- Removing intrinsic charges that reflect real work.
- Changing prices without changing operations and messaging.
Frequently asked questions
Should we remove all fees? No. Fees that reflect real, avoidable costs, such as late returns or urgent work, can be fair and useful. The aim is to keep the ones you can justify and remove those that profit from irritation.
How do we estimate the volume response? Look at how customers behave where the friction is absent, such as competitors’ offers or your own trials, run a limited test in one region or product, and ask lost customers why they left.
What if removing a fee hurts margins in the short term? That may be acceptable if it protects or grows the business over time. Stage the change, measure the response and adjust.
What about frictions imposed by our own suppliers or regulators? Some difficulties come from outside the business, such as supplier minimum orders or compliance steps. You may not be able to remove them, but you can often absorb, simplify or explain them better than competitors do.
Who should own the friction register? One senior person with authority across functions, so decisions are not left to the person who owns each revenue line.
Questions to ask
- Which revenue lines exist because something is difficult for customers, and what do they total?
- Who could remove each difficulty more cheaply than we could, and how soon?
- Would we introduce our largest fees today if they did not exist?
- For recent additions to our products or processes, who had the authority to say no?
- What would need to be true about extra business for removing our largest friction to pay off?
Bringing it together
Friction is not wrong in itself. Businesses that solve hard problems deserve to be paid for them. The risk lies in revenue that depends on a difficulty persisting while nobody is responsible for deciding when it should end. In a competitive market, most such frictions are removed eventually. List them, classify them, test them, estimate what removal would really gain and act on a date you choose. Remove the friction yourself and keep the customer, or wait for someone else to remove it and lose both.
Source: KEVOS notes, drawing on Clayton Christensen’s work on how established businesses respond to new competitors. Examples and figures in this article are illustrations. This article is general information, not legal advice.
