The Toll-Free Number Conundrum – Should You Buy or Lease?

The Ownership Myth

Technically no one owns a toll-free number. Toll-free numbers are assigned on a first come basis to RespOrgs that in turn are authorized to license the numbers to end-users. RespOrgs also trade numbers between themselves. As an end-user, you are being licensed to use the TFN you choose for the period designated in a contract and if you pay the monthly fee.

Some companies will say they are selling you a TFN—however, when you read the contract, what you are buying is a marketing package, or paying a one-time setup fee, or purchasing some other creative arrangement that includes the right to use the TFN. You are not buying the number.

Now this may change soon–the FCC has been contemplating a change that would allow for the sale of TFN. However, that is not the case today.

Buying vs. Leasing

Nonetheless, and irrespective of the above, lets consider which is better—buying or leasing your TFN. The average period that companies actively use and promote a TFN in their marketing is seven years.

Leasing the TFN allows you to spread out the cost of the TFN over the actual period you use the number. The monthly fee is expensed against revenue each month it is paid.

If you purchase the TFN outright, you will need to evaluate the tax consequences. Toll-free numbers are often treated as intangible assets and depending on your tax situation, may be amortized over a period of years—in some cases for as long as fifteen (15) years.

Generally, expensing the monthly fee will result in a more positive tax consequence based on the foregoing discussion.

Example:

$100,000 to purchase -> Straight amortization of the $100,000 price over 15 years is $6,667/year.

$1,000/month to lease – > Tax deduction (expense) $12,000/ year.

Opportunity Costs and Other Considerations

According to Investopedia, “opportunity cost represents the benefits an individual, investor or business misses out on when choosing one alternative over another. While financial reports do not show opportunity cost, business owners can use it to make educated decisions when they have multiple options before them.”

If you claculate the opportunity cost of buying the number outright as opposed to leasing it monthly, you need to assess if spending all that cash up front makes sense. In our current example, it would have cost a mere $12,000.00 to use the phone during the first year leaving a whopping $88,000 available for marketing, advertising, promotions. How much more would that $88,000 in advertising have generated in revenue.

Additionally, when you lease the TFN monthly, you have the contractual right to terminate the lease at any time based on a thirty-day notice of cancellation. So, what if a better number comes on the market? What if your business changes and your current number is no longer relevant? Indeed, what if you go out of business?

In all these examples, you would have paid a great deal of money for an intangible asset that might be hard to sell. We know this, because we have bought back numbers from Bankruptcy Trustees for pennies on the dollar.

About Ryan Reubelt

As a 15+ year subject-matter expert in the digital marketing, advertising, and analytics space, Ryan brings his experience and knowledge to help expand Champion Communication’s reach throughout North America. Having led multi-million dollar digital programs for various Fortune 500 companies within the tech and manufacturing industries, his expertise continues to help create and optimize new revenue opportunities.

Comments

comments