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Annual Fee increases

I've had some clients now about 12 months and need to think about increasing the fees to at least keep pace with inflation.

How do I do this?

Do I need to justify the increase? Im only thinking say 5%

Does anyone have a standard letter/wording that they would share?

Im nervous as I dont want to upset my clients but I believe I need to create an expectation that the fees will increase modestly each year.

What increases are you doing this year? How are you justifying this?

Thanks

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I do RPI every year now ...

easy to understand and no-one queries it. This is written in to my engagement letter so everyone knows what to expect. I used to do nothing for a few years and then 10% or something ... that was worse for me and caused more dissent. I just send a letter saying your monthly DD will go from x to y.

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06th Jan 2013 10:22

No Need

Can't you have a USP whereby a small efficiency shall be enough to give your firm that little extra? Quarter of an hr or half an hr saving should give you that 3-5% increase u need.

Explain to clients that better kept books and your knowledge of said books and system are enough for your efficiency savings.

On the other hand I have clients who expect extra work for nothing and that is where there should be a clear increase but not an inflationary increase.

There may also be a necessary reallignment of fees situation where your fees were way off from being realistic in the first place, But you guys who don't keep your hours will never be aware of this will you?

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06th Jan 2013 14:22

Agree with Steve Holloway

Inflation is an issue at present, and other costs have gone through the roof. Eg the cost of toners continues to escalate.

Why should the client expect you to keep to the costs of last year without a small increase? If you don't increase very slightly each year you will have much more resistance in later years when there is a much larger gap to bridge. I tried to explain this to the man who mows my grass, but he is too scared to take this advice. Silly - because all his customers are fond of him.

I don't have Steve's clause in my engagement letter, partly because the time spent on some growing companies (depending on what your services are) can be due to their growth as much as inflation. I do have a list of clients with a date to next increase their fees and write to them as Steve does.

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Another yes

If the work anticipated is the same as last year then we too just quote last year plus inflation.  In earlier years, when I had several staff, the rate of inflation tended towards "wage inflation" and was stated as such in the quote, now it's just "an inflationary increase of £xx over last year's fee of £x,xxx", like Steve, based on RPI.

As far as upsetting clients is concerned, turn it around, how would (do) you feel when your suppliers put their charges up by inflation?  It's perfectly acceptable so just go for it.

rhangus makes good points about efficiency savings and we keep the benefit of our better efficiency and let the client have theirs, consequently, with accounting clients, I'd guess less than 50% get the standard inflationary increase as rarely do things stay the same year on year.

@rhangus, I'm not sure I understand your point about firms who don't keep track of time not being able to charge properly (have you tried it, or seen it working properly?).  We set out in our quote and discussions, at the start of the year, exactly what we expect of the client and what we will do, and the moment we see the client's requirements not going according to plan we address it with them, getting them to put it right or charging them a bit more (or even less if they've done more than anticipated).

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Interesting subject

Vast majority of clients are on fixed fees paid by SO so increasing fees can be a pain, this is one reason I'm looking to change to DD.

My practice is young and there is nothing structured with regards to fee increases at the moment, with a number of clients the services provided have increased which has led to an increase in fees. For others I've renegotiated on an individual basis.

It would make sense once I'm more established to review all fees annually, I'm not sure an inflationary increase is the way I would approach it for all clients though.

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I just like an easy life!

All clients in scale bands depending on business size / accounting complexity ... all scale bands move up by inflation each April ... DD change takes 5 minutes. If a client comes up with something out of the ordinary then they can be billed separately for it. If their business grows or reduces unexpectedly then I will change their banding after I have done the job and amend the DD collection for the rest of the year. Only wish I'd thought of it 12 years ago rather than 2!

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07th Jan 2013 10:33

Still No Need

There can be no 100% correct answers.

Is it really worth it when you could spend a lot more than the 5 mins claimed to post and complete a s/o form. I suppose they don’t bother to justify it to the client. Why not wait on an obvious additional service requirement or why not just accept a slightly better rate than a fee increase as you surely become more efficient in the years to come? Does it not occur to you to put your client first?

Steve does your client not ever say, "oh really, well I too will go from X to Y and you are unfortunately X"?

Kent accountant is roughly there or there abouts.

As a compromise, if there really is no increase in time spent on the job, and yes I understand those of you who have employees, wages go up, and indeed overheads go up, but why not argue such a point say every 5 years where a definite justification could be made as things may have gone up say 15% in 5 years and I would happily ask say 10% on my fees and the rest in efficiency savings. At least that could be a letter to send for easy justification and more likely to be acceptable by most fair minded clients, avoiding losing the 1 in 20 or 30 that will spoil the point of the increase and bring your overall t/o down again.

I'm not saying its unfair to put prices up its just way too inconvenient each year and also I'm sure you understand my point of view on the efficiency side of things.

Then Steve says he likes an easy life. I'd like to see the justification for the increase of s/o from say 120 p/m to £160 p/m just because that client has crept over Steve's little line where that client, in his judgement, has moved from a category B to C say. A 33% hike in fees say for a marginal increase in their turnover/staff/transactions or even taking on another bank account source.

It's a debate.

I'm not saying I'm right here. But I'm arguing for my viewpoints.

 

 

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@ Rhangus

rhangus. wrote:

Steve does your client not ever say, "oh really, well I too will go from X to Y and you are unfortunately X"?

Then Steve says he likes an easy life. I'd like to see the justification for the increase of s/o from say 120 p/m to £160 p/m just because that client has crept over Steve's little line where that client, in his judgement, has moved from a category B to C say. A 33% hike in fees say for a marginal increase in their turnover/staff/transactions or even taking on another bank account source.

It's a debate.

A1:No, because my fees are reasonable as determined by the fees survey I did on here 2 years ago (all of which was published in full to my clients).

A2: The bands are broad, easy to understand and clients move down as well as up. 90% of clients never change and those that do are receptive to the observation that 'wow, look how well you've done but ... etc etc'

 

In answer to another question, I have used Fastpay to adminster my DD scheme and have been very happy. I fit neatly just within their flat fee for up to 100 collections per month so it is not cost prohibitive for me. Cost will be the main issue for practices with few clients I suspect but then you have to value your time and S/O's are a pain if you have lots to change. Once DD is in place it gives you fantastic flexibility to collect ad hoc fees and to administer mid-term adjustments if needed.

 

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By Glennzy
07th Jan 2013 11:25

I currently offer 3 year fixed fee arranegement.

I have just returned to practice so i am having to fight hard to re establish myself in a competative market. I am currently offering 3 year fixed arrangements (with a cavaet in there that if the business significantly changes within the time up or down the fee can be re adjusted).

Many smaller companies are struggling to get fee increases so the security it gives in a fixed term contract has been welcomed by most. From my point of view it hopefully give me 3 years work before I am price checked against someone else.

I price high in year 1 to include set up costs, Year 2 is priced right and year 3 I am hoping will take less time as I will have 2 years on the job and will pass back improvements to the bookkeeping each year. Then hopefully will re broker it onto another 3 year deal.

Touch wood its working so far.

 

 

 

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By chatman
08th Jan 2013 11:18

Where do you find wage inflation rates?

I increase by RPI, like Steve, but considering my main cost is my time, maybe wage inflation, as mentioned by Paul, would be better. Where would I find wage inflation rates?

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08th Jan 2013 11:38

Direct Debits

 

I currently use Standing Orders to set up my payments but would like to move to Direct Debits.

However, my knowledge of this area is zero.

Can anyone help as to how I would switch and how to go about it.

Thanks in advance.

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Not easy if you're small.

Opporchancity wrote:

 

I currently use Standing Orders to set up my payments but would like to move to Direct Debits.

However, my knowledge of this area is zero.

Can anyone help as to how I would switch and how to go about it.

Thanks in advance.

I'm considering this:

http://www.fastpayltd.co.uk

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08th Jan 2013 11:57

Back to the original questions

 

I've had some clients now about 12 months and need to think about increasing the fees to at least keep pace with inflation.

To be fair, this is something to think about when quoting fees in the first place. You should include the facility for inflationary fee increases in your engagement letter terms. An alternative is to make clear that, assuming the range of services and the quality of the clients' books and records remains constant, that you promise fees will raise by no more than inflation each year.

How do I do this?

Maybe you could address this by issuing new engagement letters (which would protect you anyway) as it's now clear that your practice is on a sound footing and as part and parcel of fully professionalising everything. No change in service but just some clearer undertakings about what you're doing and what you expect from your clients.  The fee increase is then just part of the wider message.

Do I need to justify the increase? 

Assuming you don't have a current engagement letter with a suitable clause, your only concern need be how to get the message across so as to gain client acceptance of the increased fee. It's a communication issue.

Good luck and I'm pleased the practice has developed such that you are confident about the way forward.

Mark

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08th Jan 2013 12:10

Fee increases

Several points on this from my point of running the practice:

Clients dont like huge increases so a small increase is better year on year.

I sometimes have to remind the odd client that does complain, that we are all trying to earn a living, and getting the price right for the service is crucial. Also they do need to look at the prices they are charging to their particular market, its amazing how many don't look at this.

I always make a point to discuss the time and potential fee with the ones that are going to complain, and have a very specific list of impovement areas in their systems or bookeeping. makes them feel that they are getting something back while you are hitting them with a bill or increase in fee.

This year i sent out and email/letter, it is a difficult climate, but software liceneces, staionery etc are all on the increase, i don't think we have much choice but to increase prices but put the point over fairly, and don't increase by too much.

 

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08th Jan 2013 18:36

What the Market will Bear

Being new to practice I pitch for clients on a regular basis. I like to come across a prospect served by an accountant who has increased fees incrementaly over the years, without considering the relative efficiency, including changes in technology (eg automatic downloaded posting and bank reconciliation), as they can now be out of kilter with the market.

Incremental increases each year are better than chunky jumps - but consider the competitive market that you operate in.

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By chatman
08th Jan 2013 19:17

Competing on Price.

agknight wrote:
I like to come across a prospect served by an accountant who has increased fees incrementaly over the years, without considering the relative efficiency, including changes in technology (eg automatic downloaded posting and bank reconciliation), as they can now be out of kilter with the market.

Is this because you compete on price?

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08th Jan 2013 20:17

I don't deliberately or methodically compete on price. The idea is to consider what the market will bear and aim for that. You could say that I am competing on price because, for example I know the going rate for a guest house in Torquay, so when I come across one that is out of kilter it is good news, as I quote my/the majority market standard price. What I would not do is go below this, without some kind of market justification (future bigger account, an add on etc). And I don't go above it, as I cannot be sure whether I am in a competitive quote situation so I quote what 'the market' rather than 'the prospect' can bear.

Sure though, I do not price on cost-plus as I think this is incorrect. I also don't have the experience to know the size of the 'plus' - which is probably a weakness for me to consider, as this statistic would be a good price check. *

With my comment on efficiencies I see that you are thinking I am competing on price, which again on one level is true - I may be cheaper. But my thinking here is that my price is the new market price, that will be adopted, as others realise they are out of step with new methods. We are not in a market where we accountants can widen our margins and keep the savings to ourselves is my view. (These are full-service gastro pub clients, where automatic download of bank statements is a dream.)

* Are there any statistics out there illustrating what 'the average' established sole-practitioner earns for me to benchmark?

 

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08th Jan 2013 20:09

Automatic fee increases

One of the things I loathed when I was employed by a large accountancy practice was the way the scale rates went up each quarter.  When I started my own practice I vowed I would never do this.  In the last ten years I have increased my charge out rates once.  That was by 20% and not one client complained when I wrote to explain what I was doing and why.  Generally, if I want to earn more, I think I should work harder.  I don't see why my clients should pay more automatically for the same service year on year.  That said, I do understand that if you have staff (which I don't) and those staff expect to be paid more, then whether or not to increase charge out rates is not so straight forward.  

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Being flexible

Whilst, as I say above, if all else is equal, the client can expect an inflationary increase,it is rare for everything to stay 100% the same year on year. 

Last year for example, most clients were aware that my own circumstances were changing (downwards) and so, in some cases, I waived the increase just to break the cycle and, in others, with a significant compliance element, I reduced fees because my own cost base had reduced significantly.

The key for me is to judge the client's outlook on what I charge and what they get.  With compliance work I think you must keep an eye on competition.  It's the extra advice/services and relationship management where you create your own market.

Whether it's wages/sub-contract costs, software or practically everything else I buy, I can't remember anything significant not increasing year on year and so, whilst not going overboard, I don't see why I should suffer this. By the way chatman, in answer to your question, wage inflation is the internal figure, not anything published nationally.

I agree that direct debits are the best solution and are now generally available to all.  We use Gocardless (2% per transaction with a max of £2), the accounting software links to it creating a weblink in the email sending the invoice for the client to OK a one-off payment.  Alternatively you can generate your own weblink to send where you want to generate a series of monthly payments.

 

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By chatman
10th Jan 2013 08:22

Wage Inflation

Thanks Paul. Now you have mentioned it though, I realise they talk about wage inflation rates on the news when discussing how to further impoverish people, so there must be stats somewhere. I'll try the ONS.

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Wage inflation

Hi chatman - the trick is to increase fees by 3% national wage inflation whilst paying your staff an extra 2%   :o)

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By timmne
15th Jan 2013 12:32

I don't see the point....

I think it's a little penny-pinching to increase fees at all just because of inflation.  It reminds me an old boss who tried to save some cash by emailing invoices instead of posting them, which is a saving that harmed our client's opinion of us more than it saved us money.

 

I have a couple of clients who pay say £6k per year.  A 3% increase on this is £180 per year.  I just can't see why me scraping for the extra £180 per year (a paltry £15 per month) is worth upsetting the client over.  All I have to do is spend a couple of hours less on the client every now and then and I've achieved the same just by working more efficiently.

 

My view is to set a fee at day one and review it every few years.  If I need to increase it (because of spending more time, nothing to do with inflation), that's a pretty acceptable time to do it and the client won't mind.

 

On the £6k clients, having to ask them to change their standing order from £600 to £618 seems a little petty.  Because I don't believe inflation really has much of an effect on my business in terms of what I pay out each year, I struggle to believe it's a good reason to ask clients to pay more.

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Watford

timmne wrote:

I don't believe inflation really has much of an effect on my business in terms of what I pay out each year, 

Are you living somewhere with zero inflation or even deflation?

Is that north or south of the Watford Gap?

 

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By timmne
15th Jan 2013 15:14

subject

Kent accountant wrote:

timmne wrote:

I don't believe inflation really has much of an effect on my business in terms of what I pay out each year, 

Are you living somewhere with zero inflation or even deflation?

Is that north or south of the Watford Gap?

 

You've read my comment out of context, which I knew someone would - hence my comment "in terms of what I pay out each year"... Nothing significant that I pay out has changed much in the last couple of years; if anything, things have gone down as suppliers are competing for my business in a tough market!

 

It's quite easy for people to assume that inflation affects them but in my business, it's had little effect.

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because even on a small business ....

like mine 2 - 3% = £1,500 per year. That will do nicely for me but then I don't have any £6k clients!

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