On a webinar with Spotlight Reporting we discussed that increasing your prices is often a good first step to scaling your firm. After all a price increase can increase your cash flow, profitability and available capacity.
Many accountancy firm owners would like to increase their prices or fees but worry about doing so. They often ask "how can I increase my prices without losing clients”. One person recently said: I have a client I’ve been working with for some time who is well connected, has become a friend, and pays on time. However, I am charging her the rates I had four years ago, when I started my practice. I need to bring her up to my current rates, as I can't afford to keep doing her work at rookie rates. What's the best way to tell her this? I really don't want to lose her.
In this article we consider pricing for accountants and give you tips on how to increase your fees and get yourself in the right mindset to do so.
I’m too expensive already
I often hear accountants say, “clients tell me I'm too expensive". It reminds me of when I was in charge of fuel pricing across the UK (another time, place and career). Managers would say to me they were getting complaints. But when I asked "How many complaints?", they rarely answered. In reality, it normally less than a handful, rarely as much as much 5%. The same is normally true for the accountants I’ve asked.
Experience with many practices says you will lose some clients, but generally lose the ones you want to lose rather than the good ones that really like you. Most firms report that the clients who go, were the price sensitive (“difficult”) ones. I.e. the low fee, low recovery and often very needy clients. Just the ones you wanted to ditch in the first place! Maybe the message is "you can't cook an omelette without breaking a few eggs".
The logic of a fee increase
You know that a 5% increase in fees adds as much to the bottom line as 18% more sales (assuming you have a 30% margin). Or, putting it another way a 5% price increase means you could lose 14% of your clients and maintain the same bottom line. Yes these numbers all depend on your net profit margin, but the principle is true. So, if you're wondering "How do i increase my prices", start with your own motivation and clear thinking.
Are you human?
If so, you suffer the same problem we all do, we’re human and don’t like causing complaints. Like all the store managers when I was in charge of fuel pricing, they hated the stress it could cause. This creates downward pressure on fees.
In other words, the problem is in our heads. If only 5% of clients complaining about your fees, perhaps you've got them right?
How to increase my prices?
Step number one in considering your fee increase is to adopt a different mindset, and get tougher at listening to people talk about your prices. It appears that the number one thing stopping accountants from charging the right price is a lack of confidence.
Try some/all of the following when you wonder "how to increase my prices".
- Recognise that you don't want to work with everybody and that, for some people, you will be too expensive.
- The more you are delivering added value to the specific clients, to whom you are The Go-To Expert the less price is an issue.
- Price increases tend to lose the more price sensitive, and more difficult clients
- You could merge a price increase with a change in other terms. There will be no price increase this year if….(the client pays monthly on DD, the client goes onto online accounting, etc.)
- Don’t try to increase all clients for the fee increase, target those that are most difficult to work with and are more demanding.
- Ensure you're over delivering, with excellent client service before thinking about the price increase
- Explain, but don't apologise! It's about an adult to adult conversation.
- Hold a client review meeting, listen to their needs, what’s working for them and what other services they may need. Now adjust prices to suit.
If you're interested, the action the person went for was the last one on my list. It was a friend, important client and the client review meeting seemed most appropriate. This might be the way to cook an omelette without breaking any eggs.
You may find The ultimate small accountancy firm's guide to increasing fees article useful