Adam Eric Junkroski
It’s a fact of life for any business that the time comes when current fee structures no longer provide the target revenue generation or profit margin. In accounting practices, this issue can be addressed at least in part by a move to value billing, but even in these cases, you might find yourself needing to charge a client more this year for the exact service you provided last year.
It’s not a fun or easy conversation to have.
Accounting firms and businesses of all kinds raise their fees all the time. Surprisingly, a large number of them make some major blunders when doing so. If you need to raise your fees, a discussion of some kind is warranted. Here are five things to avoid when you do:
1. Don’t Apologize
Saying you’re sorry implies acknowledgement that you did something harmful or erroneous. This isn’t an error, and NOT raising your rates will hurt your business. An apology might seem like a good way to acknowledge the increased burden on your client, but it will often come across as disingenuous.
The bottom line is that you’re in business to make money — and no business apologizes for that.
What to do instead
Rather than basing any communication on an apology, focus on the value of your services and how providing them hinges on being able to hire the best people and employ the best technology. As the expense of those things increases, naturally so must your fees. You can acknowledge that this has an impact on the client, but be careful when you do — always balance it with an equal emphasis placed on how you serve their needs better than anyone else can. Your firm and its services have tremendous value. It’s not something to be sorry about.
2. Don’t Wait
If you know you need to raise fees, do it NOW. If you wait, you might find you need to raise them even more. Before you know it, you have a major fee increase that will be difficult to explain and justify. It’s best to raise fees as soon as you need to do so, to keep the impact as minimal as possible.
What to do instead
Plan. A series of small rate increases over a longer period of time is often better than one big rate increase that comes out of the blue. On a five-year plan, you can estimate what you need to be charging for services at the end of the five years, and implement two or three smaller increases over that time to add up to your target. This accomplishes two things: it establishes that your fees are not static; and it makes the increases easier for your clients to swallow.
3. Don’t Grandfather Anyone In
You might be tempted, especially if there is some grousing about rate increases, to allow some clients to remain on the old fee schedule for fear of losing their business. In some very limited cases, this might be a wise move. But speaking generally, a client who is ready to up and go just because you need to keep up with costs doesn’t appreciate the value you’re bringing anyway. They might not be the kind of client you want to keep around.
What to do instead
Is someone objecting? Instead of bending on your fees, consider adding services. Especially services you can automate (surprise, much like Botkeeper!), which provide added value without adding a great deal to cost. Do they still seem put off? Review what they receive for the fees you charge, and don’t leave anything out. For example, you could say “we do your taxes,” or you can list every form, worksheet, research book, legal consultation and employee that goes into “doing their taxes.” Remember, the client rarely sees behind the scenes of what you do, and rarely knows exactly what goes into making the proverbial sausage.
4. Don’t be Defensive
When a client questions your fee increase — and especially if they do so with an attitude — it can be hard to avoid feeling and sounding defensive. After all, if you could reach your goals on the current rates, you’d be happy to leave them alone, right? Growth requires change, and pricing will always be one of the things that must change over time. Don’t make statements that sound like an ultimatum, and avoid language that indicates you’re irritated. Starting sentences with “Look,” for example, can inflame the discussion by showing your hand that you’re annoyed.
What to do instead
First, acknowledge how the client feels about it, and ask them to address it: “You definitely sound concerned/irritated/upset by this, and I don’t want you to feel that way. Can you help me understand what it is we do that you don’t feel is worth the increase?” This bit of verbal jiu-jitsu shows the client you understand how they feel and accept it, while indicating you’re about to have a discussion designed to put them at ease.
Additionally, it places their objection in a new context: oftentimes, the issue is merely that they don’t want to pay more money for the same services — who does? Asking the client to tell you what it is you do that they don’t think is worth what you’re charging invites them to make a judgment most people will hesitate to make — because they honestly haven’t thought about it. They just know they don’t want to pay more than last time.
This will also position you well for a services-based negotiation as we discussed earlier, rather than one occurring on fees. Regardless of how it unfolds, stay calm, sound calm, and use reassuring language. Allow the client to say everything they want to say, and if you hear them say something that bears repeating so they know you get it, say it back to them.
5. Don’t overdo it
When your firm principals are discussing rate increases, someone will inevitably suggest you “rip off the bandage” and raise them enough to cover the next X number of years beyond your projected needs. It can be tempting, because it means more time between rate increases, which clients will like, yes?
Not if the current increase can’t be justified with your services.
What to do instead
Keep it reasonable. It’s true you want to avoid increasing rates on a regular basis, but doing too much at once WILL drive away clients if you can’t back up the increase with your demonstration of value. There’s a delicate balance you need to find among attaining your goals, remaining competitive, and being fairly compensated.
This is another place where automation can help you — services that require minimal employee input cost you less, and can therefore provide you a good opportunity for higher margins. Just be careful. Your competitors might be loss-leading with their automated services to focus on higher-value things like CAS.
Strong value comes from the competence and quality of service, and clients will nearly always be willing to pay at least a little more for the assurance that they’re getting the best. And that’s you, right?
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