Inflationary increase in fees

Inflationary increase in fees

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We have been in practice for just about 4 years now. We have to date have not increased our fees. We think maybe it is time for an inflationary increase in our fees.

Having not done this before we are not sure how we go about doing this. Here are areas we are not sure about:

  1. Should inflationary fee increases be an annual process? If so what is the start date of the annual process is it the date of the engagement letter?
  2. How do we inform clients- face to face meeting? Email or letter? Would anyone share a template?
  3. Where can we find rates of inflation?

We are also thinking whether we should carry on absorbing the inflationary increases and we should find efficiency savings.

We would like to hear experiences of others.

Many thanks

Replies (19)

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By ShirleyM
12th Aug 2011 09:10

Our procedures

We renew our engagement each year, and it is completed after getting the accounts and tax signed off (but at the same meeting). This way, we know they will be returning, we know what services we will be providing, and the client knows what they will be paying.

We increase our fees each year by a small amount, unless of course we are providing less services. The client signs the quote, or we prepare a new quote to suit their new requirements.

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By MarionMorrison
12th Aug 2011 09:27

Not often

We try not to increase prices very often - it's an exercise in itself and is obviously not pleasing to the punters.  But it's better to increase by 10% once every 3 years and to make a virtue in the other years of the fact that you're holding prices.  If it creeps up 3%pa and you tell them that fact they'll feel exploited.

Also - put your prices up by the extent to which your costs have risen.  I reckon that our wage costs have risen over the last few years, but our technology and other costs have been falling. 

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By Jimess
12th Aug 2011 09:39

Our engagement letters have a clause which states that fee rates are reviewed annually, in our case in April.  We have not actually increased fee rates for two years now but have been advising clients at accounts meetings etc that we will be looking to increase the rates next April.

Costs efficiencies can only go so far and if like us you have experienced hikes in your software licensing costs of 20-25% this year it just cannot be absorbed so a way forward must be found.  We are looking at a mix of reviewing costs vigorously and looking at work efficiency, billing practices and charge rates.  We have found that we actually increased fee income by standardising fees on some work such as tax returns and payroll and to a degree bookkeeping - although I would not advocate standardised fees for new clients where you don't know what work is involved.  When I advise clients of the increases in charge rates/fees I also explain how they can make savings i.e better record keeping, balanced bank and cash accounts, etc.  Some clients take this on board enthusiastically and it helps all round with compliance issues etc, but others just take it on the chin.

Another change we have made this year is to put all of our payroll clients on to monthly standing order payment.  This saves us having to spend time collecting small accounts each month/quarter.  We advised clients that payroll accounts not paid on standing order would be subject to a further £10 administration fee to cover collection costs. The take up rate was amazing. 

Our fees reviews are carried out while we are preparing our budgets for the forthcoming year so it has become a sort of annual process I guess. Everyone these days is mindful of the economic situation, but at the end of the day you are running a business to make money and to put money in the bank and need to look after your business interests.

Good luck

  

 

 

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By zarathustra
12th Aug 2011 09:44

Dead easy

We just add 3-5% to the bill every year and 99% of clients just pay with no quibble. Never really seen the point for written qotes after first year. Very occaisionally clients phone up ahead of bringing their books in and ask how much it will be.

Of course if the scope of the work has changed some discussion about fees is required prior to commencement.

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Replying to johnjenkins:
By Steve Holloway
12th Aug 2011 10:23

Annual process ...

I went through a benchmarking exercise this year to bring my fees to an average of other similar practitioners. All my clients fall in to a number of fee bands which were the outcome of the benchmarking. The bands will be increased by RPI each April. Any work done in the following 12 months will be at the new band level. 95% of fees are collected by monthly DD running from April - March each year. I will simply change the DD figure for the April collection. All of this is in the engagement letter and on my website.

It was a lot of work but now I am feeling a lot happier! By the way, I think 3% p/a is a easier message than 10% every three years in my experience. There always seems to be a reason not to implement a large rise whereas people are familiar with the concept of inflation.

 

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By Top_Cat
12th Aug 2011 09:48

Just do it

Tesco's increases its prices by inflation, your clients are increasing their prices, their suppliers are increasing their prices, so why should you be the only one in the chain that doesnt ?

There's no need to discuss it - it should be something that is done automatically every year.

The biggest problem is knowing what is the rate of inflation? Who'se figures do you believe?

 

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By zarathustra
12th Aug 2011 10:48

Question for steve holloway

Steve, your system sounds good, but if a client has a march year end and the job is done in, say June, are you not waiting for a further 9 months to collect the rest of the fee? OK I know you get 3 months ahead of schedule, but I would still think, given the large number of March year ends this would damage cashflow.

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Teignmouth
By Paul Scholes
12th Aug 2011 12:27

Can't find a previous post on this topic

I'd 2nd TC on this, the question is the reverse, why wouldn't you increase your fee next year for the same work?  We too use 3-4% pa but use discretion as, in a handful of cases, if the client is very fee sensitive or the relationship has been a bit iffy, waiving it this year can help ease things.

There was a post a few months back where I guy hadn't increased fees since the 80s or something (in fact I think he might have still billed in shillings & pence) and was wondering why he wasn't able to put food on the table.

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By Steve Holloway
12th Aug 2011 15:13

@ Zarathustra

I do have a number of March year ends but that doesn't mean all the jobs are done by June!! I think it balances out as at the end of July my debtors figure was negative £1k and it will be only + £1k at the end of this month. Normally I would be carrying about 45 days debt which for me is about £7.5k, so I am thus far much better off in cash-flow terms. I am much busier in the Nov - Jan quarter and clearly I will have collected 7 - 9 months of fees in advance by then.

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By dbowleracca
12th Aug 2011 21:06

Annual increase of 5% usually
Generally we increase our fees by 3-5% but do agree with most clients what services they require and provide a new fixed price. This is done using a fixed pricing software system which van be automatically adjusted to increase prices by whatever you wish.

In my experience there is no resistance at all because we discuss everything openly in advance.

Not putting up prices is actually one of the worst things you can do for your clients. If you don't you make less money and therefore need more clients to give you the income you previously needed because of the inflation you suffer personally. This means that you have to work harder and can't give each client the service they deserve.

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By ChrisMartin
12th Aug 2011 21:41

I'm with MarionMorrison.....

....we increase fees every two years (so clients get two years at fee A, two years at fee B, etc). We're all different, so this is just what works for us and, importantly, my selling style. I find a bluff, honest, "we've kept it the same for two years" approach works well. Mind you, I always increase fees by at least 10% at that point. Usually more like 15%. If clients value what we do, they pay it. Unsurprisingly, there's a strong positive correlation between crap clients and fee issues.

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By Top_Cat
13th Aug 2011 08:43

Not increasing your fees makes you look foolish

Any accountant worth his salt will tell clients to increase their prices in line with inflation. All clients know that their raw material costs, electricity bills etc are going up, often ahead of inflation. Any client with at least two working brain cells knows that our costs have gone up just like theirs.

Quite honestly if you don't therefore put up your fees in line with inflation you look like a fool to the client. (which of course is exactly what you are by charging less than you should and therefgore "subsidising" clients).

 

 

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By dbowleracca
13th Aug 2011 10:10

Totally agree with TC
I would never consider keeping fees at the same level each year.

If you have a client who has turnover of say 100k and you charge 1k a year for your services, are they going to leave over 50 quid? If they do then there is something wrong with the relationship r the service you provide in my opinion.

If you are a business owner, would you respect and value the advice given by an accountant who didn't even increase their charges for inflation?

If you haven't increased your fees so you can help the client in these tough times then I can partially understand the reasoning but I don't agree with this practice. I would rather increase the fee by 20% and show them how they can make their business better - in fact I have done with many clients (by agreement obviously!). And if their business is so fragile that an extra 50 or 100 quid a year in accountancy is going to cause them problems then they won't be a client for long anyway :)

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By David Winch
16th Aug 2011 17:12

On the other hand ...

If you set your prices relative to the value you help each individual client achieve, you won't need to worry about when and by how much to increase your prices.

But even if you you don't set them this way, you still need to raise your prices.  How do you know if your prices are right unless you have been testing and measuring to find the tipping point where clients start threatening to leave?  You could be seriously undercharging and not know it.

As for timing of the rise, any time will do.  If you feel you need an excuse for raising them, then "because it's Tuesday" is as good a reason as you'll need.

Why not try 10% from tomorrow and see if anyone notices!

 

David Winch Make Sales Without Selling and Get Paid What You're Worth

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By Top_Cat
16th Aug 2011 18:19

Balance

Double your prices, and if only 40% of your clients leave you will be making more for less work.

If 60% leave you're in trouble.

It's really a matter of finding the right balance.

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Replying to alexesmith:
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By PennyC
16th Aug 2011 18:43

Yes, but

Top_Cat wrote:

Double your prices, and if only 40% of your clients leave you will be making more for less work.

If 60% leave you're in trouble.

It's really a matter of finding the right balance.

 

There goes 40% of your potential referrals

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By Top_Cat
16th Aug 2011 18:56

Like I said -

its a balancing act.

And of course, at double the fee, you only need half as many referals.

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By ShirleyM
17th Aug 2011 07:35

Suicide

Maybe it depends or the area, or the present level of your fees, but if I doubled my fees I doubt I would keep many clients (if any).

I think the only accountants who would 'get away' with doubling their fees are the ones who are currently offering services at rock bottom prices, and doubling the fee would just bring them in line with other accountants in the area.

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By dbowleracca
18th Aug 2011 07:15

It depends what you do when you double it
If you just double the fee, without demonstrating to the client lots of extra value, then I agree you would lose almost all clients.

However, if you spoke with the client and said "we are committing to make your business better, and the service we offer the best it can be, and as a result we have revised our fee structure and you fees for next year will be xxx. For this fee, you will get all the support you had previously, plus x and y and z, which means that xxxxxx. Of course, if you don't feel this kind of proactive support would be of interest to you, you can reduce the level of support to the way it was before and our fees for this would be xxx (10% higher than last year). This new service comes with a 100% satisfaction guarantee - so if you are vet unhappy with the service and we can't do anything to correct this, you pay only what you think it was worth. "

If you did this, you would obviously have to add a lot of value to what you do, but I think you could double the value without doubling your costs. We managed to do somethig similar by offering pre-year-end tax planning as standard. An extra hour on each client equated to around £200 extra in fees - and this can be delivered by a manager usually charged at say £70 per hour :)

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