increasing fees

increasing fees

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Hi everyone,

Is the general consensus that all fees increase by at least an inflationary factor each year?

I do this by minimum 3% each year but have had some grumblings this year even from very small one-man band type clients where the increase was minimal ! (At least i thought so).

Clients seem to say the work has changed or increased and in some cases they improved their bookkeeping so why pay more?

Obviously the wage and cost increases in our business dont matter to them, any advice on how to cross this bridge with our clients?

Many thanks!

Replies (36)

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By mrme89
28th Oct 2014 07:38

"Clients seem to say the work has changed or increased and in some cases they improved their bookkeeping so why pay more?"

Are you trying to say that in some cases, the client did more work and / or improved their bookkeeping? If the client has taken on more, making your job quicker and easier, it would be hard to justify an increase. In fact, depending on how much more the client has taken on, and the quality has improved too, a reduction might be in order.
If the client is going to take on more, and still receives an increase the following year, where's the incentive for the client to improve?

If I've misunderstood you, I apologise.

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By ShirleyM
28th Oct 2014 08:25

I think it's normal

If you rarely get a client moaning about your fees, then you can guarantee you are much cheaper than everyone else.

A couple of moans here and there (but they stay with you) means you are about right. A lot of moans does not necessarily mean that you are too expensive. It's all about handling their expectations.

I agree with mrme89, though. It seems your clients expected no increase, or perhaps a reduction, for having prepared better records. You should have made it clear that there would have been a much bigger increase if that hadn't happened.

It's all about communication and keeping client expectations within realistic boundaries.

Thanks (1)
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By Maslins
28th Oct 2014 09:15

Where a client's business has stayed broadly the same, I don't really understand increasing fees.

The first year's always the most work.  A small part due to sign up hassle (AML, LoE etc), but mostly as you're finding out all the history, tidying up messes, or for brand new clients explaining lots of basic things.

Second year onwards many of those things aren't there.  You're familiar with how they do things.  They're familiar with how you want things.

Don't think we've ever increased fees for an existing client, except where there's been a significant change in the business.  Some would say we're missing out on easy extra cash as many would "put up with" a modest increase.  However I think even a small increase makes clients consider their options, and arguably penalises loyalty.

I'd also say that with improvements in technology/efficiency, we can afford to keep prices constant despite many underlying costs increasing, and still improve profits.

I'm not saying we'd never increase prices, who knows what might be round the corner...but I think doing it by default seems a bit daft to me.

Thanks (2)
Replying to nicklongden:
By mrme89
28th Oct 2014 09:34

Increases

Maslins wrote:

Where a client's business has stayed broadly the same, I don't really understand increasing fees.

The first year's always the most work.  A small part due to sign up hassle (AML, LoE etc), but mostly as you're finding out all the history, tidying up messes, or for brand new clients explaining lots of basic things.

Second year onwards many of those things aren't there.  You're familiar with how they do things.  They're familiar with how you want things.

Don't think we've ever increased fees for an existing client, except where there's been a significant change in the business.  Some would say we're missing out on easy extra cash as many would "put up with" a modest increase.  However I think even a small increase makes clients consider their options, and arguably penalises loyalty.

I'd also say that with improvements in technology/efficiency, we can afford to keep prices constant despite many underlying costs increasing, and still improve profits.

I'm not saying we'd never increase prices, who knows what might be round the corner...but I think doing it by default seems a bit daft to me.

 

If you have managed to do a job quicker through improved systems and efficiencies, where is your reward if you don't increase prices by at least inflation? For example if the efficiency is through new software, you will have spent time researching and implementing the software and that time cannot be allocated to a client. Do you just accept that you absorb that time with no financial gain.

 

If you do decide to put fees up, and put them up in one big go, clients will moan and possibly leave. Increasing fees by a few £'s per year isn't a big increase and the clients become accustomed to the yearly increase.  

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Replying to Lone_Wolf:
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By Maslins
28th Oct 2014 09:44

Don't follow

mrme89 wrote:

If you have managed to do a job quicker through improved systems and efficiencies, where is your reward if you don't increase prices by at least inflation? For example if the efficiency is through new software, you will have spent time researching and implementing the software and that time cannot be allocated to a client. Do you just accept that you absorb that time with no financial gain.

If you do decide to put fees up, and put them up in one big go, clients will moan and possibly leave. Increasing fees by a few £'s per year isn't a big increase and the clients become accustomed to the yearly increase.  

I don't follow.  Costs are inevitably fairly arbitrary, but the kind of example I'm thinking of:
- last year costs were (say) £800, fee £1,000, profit = £200.
- this year costs were (say) £700, fee £1,000, profit = £300.
Yes some mercenary like folk would say why not increase the fee to further increase the profits, but I don't feel it's necessary.

Keeping fees constant maintains the status quo.  I personally think even a modest increase leads clients to question things (as the OP seems to have found).

...and to the comment re inflation, depends what you mean by it.  If you simply mean that general cost of living goes up by a few % a year, sure...but that's not universal across the board.  Some products/services get cheaper as underlying costs drop.  Why shouldn't accountancy be one of those things?

I'm not telling people what to do, I just think having a default 3% (or whatever) per year increase, regardless of what's happened to your business/your client's businesses seems silly.

Thanks (1)
Replying to WhichTyler:
By mrme89
28th Oct 2014 09:59

Let's use 3% as an example...

Maslins wrote:

mrme89 wrote:

If you have managed to do a job quicker through improved systems and efficiencies, where is your reward if you don't increase prices by at least inflation? For example if the efficiency is through new software, you will have spent time researching and implementing the software and that time cannot be allocated to a client. Do you just accept that you absorb that time with no financial gain.

If you do decide to put fees up, and put them up in one big go, clients will moan and possibly leave. Increasing fees by a few £'s per year isn't a big increase and the clients become accustomed to the yearly increase.  

I don't follow.  Costs are inevitably fairly arbitrary, but the kind of example I'm thinking of:
- last year costs were (say) £800, fee £1,000, profit = £200.
- this year costs were (say) £700, fee £1,000, profit = £300.
Yes some mercenary like folk would say why not increase the fee to further increase the profits, but I don't feel it's necessary.

Keeping fees constant maintains the status quo.  I personally think even a modest increase leads clients to question things (as the OP seems to have found).

...and to the comment re inflation, depends what you mean by it.  If you simply mean that general cost of living goes up by a few % a year, sure...but that's not universal across the board.  Some products/services get cheaper as underlying costs drop.  Why shouldn't accountancy be one of those things?

I'm not telling people what to do, I just think having a default 3% (or whatever) per year increase, regardless of what's happened to your business/your client's businesses seems silly.

 

100 clients @ £1000 fee p/a = £100,000

Inflationary increase @ 3% = £3000

New fees = £103,000

 

It is a low probability that a client left, but if one client left due to the small increase, you would lose £1000 in fees. But you would still have gained £2000 in fees - and guess what? You don't have as much work to do, so you can then look for new clients who won't mind paying the fees!

 

If a client leaves because of a £30 increase on a £1000 fee (using above example), they are probably the type of client that you could do without.

 

 

Thanks (1)
Replying to nicklongden:
By johngroganjga
28th Oct 2014 09:40

Inflation

Maslins wrote:

Where a client's business has stayed broadly the same, I don't really understand increasing fees.

What about inflation?

Thanks (0)
By ShirleyM
28th Oct 2014 09:51

Personally, we put fees up by around 3%

I like to give my employee(s) a pay rise to cover their increased living costs, and power and other office costs are always rising (especially power!!!).

Clients know that their living costs go up each year, and if they have commercial premises, then those costs go up, too.

Experience has shown me that a small increase each year is acceptable to most clients, and it stops my profits being eroded over time. There are few ways in which you can cut the main costs of doing business, other than increased efficiency, and eventually you may run out of options. What happens then? Lower profits, or a price rise?

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By johngroganjga
28th Oct 2014 09:59

Inflation

Of course we have to increase our fees to cover inflation, as do all businesses.  if we didn't we'd still be doing clients' accounts for £10, and their tax returns for £2.

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Replying to C.Y.Nical:
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By Maslins
28th Oct 2014 10:25

Inflation isn't a law.

johngroganjga wrote:

Of course we have to increase our fees to cover inflation, as do all businesses.  if we didn't we'd still be doing clients' accounts for £10, and their tax returns for £2.

Inflation isn't some kind of rule that means everything goes up by that rate each year.  Some things increase in price way more than inflation (eg often petrol and houses), others by way less (eg most electronics).  Each market/business should be looking at the situation of itself, its competitors, its customers, its suppliers, and making a call on pricing.  It may well be that increasing 3% is optimal, but that shouldn't be the default.

Everybody - do what's right for your own business.

Thanks (1)
Replying to psimonparsons:
By johngroganjga
28th Oct 2014 11:18

Inflation

Maslins wrote:

Inflation isn't some kind of rule that means everything goes up by that rate each year.  Some things increase in price way more than inflation (eg often petrol and houses), others by way less (eg most electronics).  Each market/business should be looking at the situation of itself, its competitors, its customers, its suppliers, and making a call on pricing.  It may well be that increasing 3% is optimal, but that shouldn't be the default.

Everybody - do what's right for your own business.

Of course it isn't.  Nobody has said it was. The reaction is to your omission of it from the factors that you said would justify an increase.  If I had adopted your policy in my dealings with clients my income would be 90% less than it is now, which is what it actually was, in money terms, 30 years ago. 

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Replying to rmillaree:
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By Maslins
28th Oct 2014 11:57

Omitted because not a cost I incur

johngroganjga wrote:

Of course it isn't.  Nobody has said it was. The reaction is to your omission of it from the factors that you said would justify an increase.  If I had adopted your policy in my dealings with clients my income would be 90% less than it is now, which is what it actually was, in money terms, 30 years ago. 

Inflation isn't a cost I incur, it doesn't appear in my P&L, hence it's not something I look at when thinking about prices.

"My policy" isn't that nobody's prices should ever increase.  It's that looking at nothing else and simply blanket increasing fees 3% each year because of inflation is daft.

I agree with a lot of Ken Howard's comments, though the middle paragraph doesn't really apply to us.  I guess some would say we're scaling up, others who look down upon it would say we're a sausage factory.  Reality is clients get a service they're happy with for a price they're prepared to pay.  Our profit increases predominantly by number of clients increasing.  Profit per client has probably increased slightly over the last few years due to economies of scale.  Therefore we feel no need to increase prices.  Other practices will have a different scenario they're working with.

If my workload was remaining constant, number of clients the same, then I'd probably want to increase fees per client too.

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Replying to justsotax:
By mrme89
28th Oct 2014 12:30

Inflation

Maslins wrote:

johngroganjga wrote:

Of course it isn't.  Nobody has said it was. The reaction is to your omission of it from the factors that you said would justify an increase.  If I had adopted your policy in my dealings with clients my income would be 90% less than it is now, which is what it actually was, in money terms, 30 years ago. 

Inflation isn't a cost I incur, it doesn't appear in my P&L, hence it's not something I look at when thinking about prices.

 

Of course inflation is a cost you incur. If something goes up in price, you have incurred it. It might not be a separate line on the P&L, but it is very much real.

 

Do you omit goodwill from financial statements on the same basis because you can't see it physically?

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Replying to ES accountancy:
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By Maslins
28th Oct 2014 12:47

Groan

mrme89 wrote:

Of course inflation is a cost you incur. If something goes up in price, you have incurred it. It might not be a separate line on the P&L, but it is very much real.

Do you omit goodwill from financial statements on the same basis because you can't see it physically?

You're missing the point.  "Inflation" is just a notional overall figure based on an arbitrary basket of goods.  Basing your own pricing on that makes no sense.  In case you were wondering, I didn't choose our pricing based upon goodwill either, maybe you do...

One of the main costs on our P&L is amounts paid to FreeAgent.  They haven't increased their prices since the company first started 7-8 years ago...yet I'm certain they're FAR more profitable now than in year 1, in spite of inflation.  I also pay less per client to them than I did 4-5 years ago, because they effectively give me a bulk buy discount.  So one of our most significant costs has experienced deflation.  Yes we pay more to them in total, but it's increased far less in percentage terms than our turnover.

It's lucky some of you guys don't sell electronics...otherwise I can imagine you sitting there trying to flog your 486 PC for £1,000 because it was £600 twenty years ago and you've allowed for inflation.

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Replying to Wilson Philips:
By mrme89
28th Oct 2014 13:02

More groan

Maslins wrote:

mrme89 wrote:

Of course inflation is a cost you incur. If something goes up in price, you have incurred it. It might not be a separate line on the P&L, but it is very much real.

Do you omit goodwill from financial statements on the same basis because you can't see it physically?

You're missing the point.  "Inflation" is just a notional overall figure based on an arbitrary basket of goods.  Basing your own pricing on that makes no sense.  In case you were wondering, I didn't choose our pricing based upon goodwill either, maybe you do...

One of the main costs on our P&L is amounts paid to FreeAgent.  They haven't increased their prices since the company first started 7-8 years ago...yet I'm certain they're FAR more profitable now than in year 1, in spite of inflation.  I also pay less per client to them than I did 4-5 years ago, because they effectively give me a bulk buy discount.  So one of our most significant costs has experienced deflation.  Yes we pay more to them in total, but it's increased far less in percentage terms than our turnover.

It's lucky some of you guys don't sell electronics...otherwise I can imagine you sitting there trying to flog your 486 PC for £1,000 because it was £600 twenty years ago and you've allowed for inflation.

 

But the pressure from tat basket of goods does affect you. If the cost of living goes up, the more pressure there is to earn more, meaning eventually your staffing costs will go up (or are your staff also immune from inflation and will never expect a payrise?).

 

Your FreeAgent cost has not experienced deflation, you have received a bulk discount. That is not the same as deflation, that's if we are still talking economically.

 

Luckily, I don't have to sell electronics. I do very well working in the accountancy profession - this is because I manage to grasp simple concepts.

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Replying to justsotax:
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By MattG
28th Oct 2014 13:00

Inflation

Maslins wrote:

johngroganjga wrote:

Of course it isn't.  Nobody has said it was. The reaction is to your omission of it from the factors that you said would justify an increase.  If I had adopted your policy in my dealings with clients my income would be 90% less than it is now, which is what it actually was, in money terms, 30 years ago. 

Inflation isn't a cost I incur, it doesn't appear in my P&L, hence it's not something I look at when thinking about prices.

I think the inflationary aspect is probably less relevant to your costs and your P&L and more relevant to the money you actually end up drawing from the business and what that income can afford you in your private capacity (as others have mentioned above). A number of your business costs may have decreased, or at least not increased, but what you spend your money on in your private life will likely have increased much more in line with inflation, because that is what the basket of goods represents. i.e. inflation affects what your profit is worth, even if it doesn't massively impact the amount of profit you make.

Increases may be tempered by economies of scale and absolute price reductions, plus possibly restrained by new entrants to the market who are willing to work for less, but you would still expect fees to rise, in the long term, because otherwise, as johnoganjga points out, we would still be doing annual accounts for £10.

That said the new entrants and changes to business practices could have a very large effect - take for example music albums, I'm pretty sure that even ignoring inflation they are cheaper now than they were 15 years ago, the rise of easy piracy combined with music labels taking the mickey for the last 40 years or so saw to that. There are other examples like Airline pilots, who, despite large barriers to entry have seen massive falls in their comparable pay over the last few years, alongside massive falls in the cost of flying and (most) airline profits. So it's not inconceivable that we should expect to see massive drops in income for accountants in future, but that's all getting a little to macroeconomic for me...

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Replying to Tom 7000:
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By Ken Howard
28th Oct 2014 13:57

New clients pay today's rate, old clients pay yesterday's rate!

MattG wrote:
but you would still expect fees to rise, in the long term, because otherwise, as johnoganjga points out, we would still be doing annual accounts for £10.

Of course, and NEW clients pay more, in line with the market, but old clients, for whom no more work is needed, continue to pay the same as when they first signed up.  So, yes, client A who's been with me for 15 years pays £900 p.a.. client B who joined last year pays £1,500 p.a. even though they're very similar in terms of business size etc.  I spend more time on client B for the first couple of years, setting them up, training, advice, etc., but then my work tails off for following years.  I certainly wouldn't charge new clients today the same fee I'd charge them 10-15 years ago.  So, in effect, it's new clients that pay more and increase my earnings, whilst leaving the rump of older clients just plodding along, with me watching the standings orders come in every month but spending very little time on them.

Maslin's example of Freeagent is spot on.  The same applies to me, as it does with Kashflow and Quickbooks online software.  My biggest "cost" is clients' online system subscriptions which I pay for and in turn is included in the monthly fee I charge my clients.  KF and QB clients are fixed monthly fee for life, as Maslin rightly says, FAC costs havn't risen for years - the cost in my P&L rises in proportion to income as client numbers increase.  Likewise, I'm today paying the same for my broadband connection as I was 10 years ago.  I'm paying the same for my outlook server as I did 5-10 years ago.  If my broadband or email provider suddenly decided to hike their fees, even by "as little as" 3%, it would prompt me to look at alternatives - if they don't rock the boat, they'll keep me as a customer for years to come.

As for personal income, my "take home" increases by considerably more than the published rate of inflation every year, thank you very much!  At the same time  I am reducing my working hours each year.  That's not by annoying clients through meaningless and unjustified annual increases - it's by a steady stream of new customers paying "today's" rate and in-house efficiencies meaning I can service more clients today than I could 10 years ago.

What is the average "loss" rate of those accountants who put their prices up by inflation every year?  I'll tell you my loss rate - it's been zero for the past 5 years.  Yes, not a single client has left me to go to another accountant, I've not received a single clearance letter from another firm.  Of course, clients leave, but in my case it's because they close down their businesses and either retire or move to a proper job.  Then, often, years later, they start a business again and come back, at which time, they pay a higher fee than they used to, but not as high as a completely new client.  

It's all part of customer service.  Keeping a client happy by not ripping them off is, in my opinion, a better way to keep clients who in turn refer new clients.  An existing customer is a lot cheaper and easier to deal with than a new customer.  I look at it as marketing.  I can either pay a small fortune in time and money to heavily advertise, market, attending business lunches, etc to get new customers, or I can keep existing customers happy and not spend that money.  Rather than having a marketing budget of several thousand pounds, I simply don't increase my fees for old clients = same end result!

I'm not saying I'm right and others are wrong.  It's just MY way of running my practice which works for me.  Horses for courses.

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Replying to C.Y.Nical:
paddle steamer
By DJKL
28th Oct 2014 11:43

Surely 10 guineas would be more appropriate

johngroganjga wrote:

Of course we have to increase our fees to cover inflation, as do all businesses.  if we didn't we'd still be doing clients' accounts for £10, and their tax returns for £2.

 

Surely you mean 10 guineas.

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Replying to C.Y.Nical:
RLI
By lionofludesch
28th Oct 2014 12:41

Guineas

johngroganjga wrote:

Of course we have to increase our fees to cover inflation, as do all businesses.  if we didn't we'd still be doing clients' accounts for £10, and their tax returns for £2.

Gosh, John - I go back a long way myself but I can't remember fees being that cheap. 

I do, however, remember all bills being in guineas.

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Replying to lionofludesch:
By johngroganjga
28th Oct 2014 13:13

Memory

lionofludesch wrote:

johngroganjga wrote:

Of course we have to increase our fees to cover inflation, as do all businesses.  if we didn't we'd still be doing clients' accounts for £10, and their tax returns for £2.

Gosh, John - I go back a long way myself but I can't remember fees being that cheap. 

I do, however, remember all bills being in guineas.

No I don't go back that far either - just extrapolating back from what I remember it being to what it must have been many years before that, when average earnings were, say, £4 a week.

I don't remember fees in guineas either.  Was that pre-decimalisation?

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Replying to SteveHa:
RLI
By lionofludesch
29th Oct 2014 12:59

Not as old as I thought

johngroganjga wrote:

lionofludesch wrote:

johngroganjga wrote:

Of course we have to increase our fees to cover inflation, as do all businesses.  if we didn't we'd still be doing clients' accounts for £10, and their tax returns for £2.

Gosh, John - I go back a long way myself but I can't remember fees being that cheap. 

I do, however, remember all bills being in guineas.

No I don't go back that far either - just extrapolating back from what I remember it being to what it must have been many years before that, when average earnings were, say, £4 a week.

I don't remember fees in guineas either.  Was that pre-decimalisation?

It was indeed - disappeared partly through decimalisation and partly because it tended to make no sense for fees in excess of 20 gns.

If I remember correctly, the guarantee for the ICAEW was half a guinea and may well still be 52p.

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By ShirleyM
28th Oct 2014 10:06

@mrme89

The extra fees wouldn't be 100% profit, though. It would cover the wages increase, the 50% increase in power costs, and other inflationary increases.

If an employee becomes more productive and turns out a lot more work, or finds new ways of making the practice more profitable, then surely they should be rewarded for their extra efforts and contribution to the profits. Why not the same for the practice? Why not keep the rewards of efficiency and cost savings to help the practice and it's employees?

It isn't mercenary to increase fees by the % of inflation.

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Replying to TessaW:
By mrme89
28th Oct 2014 10:08

100% Profit

ShirleyM wrote:

The extra fees wouldn't be 100% profit, though. It would cover the wages increase, the 50% increase in power costs, and other inflationary increases.

If an employee becomes more productive and turns out a lot more work, or finds new ways of making the practice more profitable, then surely they should be rewarded for their extra efforts and contribution to the profits. Why not the same for the practice? Why not keep the rewards of efficiency and cost savings to help the practice and it's employees?

It isn't mercenary to increase fees by the % of inflation.

 

It would be pure profit due to efficiency savings ;-) 

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By ShirleyM
28th Oct 2014 10:57

Agreed - we each choose how to set our fees

It isn't law, but it isn't mercenary either. We aren't ripping off clients by imposing an inflationary increase.

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By Ken Howard
28th Oct 2014 11:12

I never increase fees by inflation

As said above, "inflation" is meaningless as it's an average and bears no relationship to actual cost increases/decreases.  I've got plenty of clients still paying the same today as they did 10-15 years ago when I first took them on.  I've got other clients who are paying 2 or 3 times the original fee but that's due to doing more work when they either grow or their book-keeping deteriorates.  I hate "inflationary" price rises on my costs so I'm sure that clients hate them too.  Anyway, I have virtually all clients on fixed monthly retainers paid by standing order, so increasing fees every year is a pain in the neck administratively and often not worth the time spent.

I honestly don't think my overall practice overheads have increased over the past 10-15 years.  It's swings and roundabouts.  I pay a lot less for software these days as I use VT, Moneysoft and Taxfiler, which total a lot less than I used to pay for software.  By shopping around, using Amazon, etc., my office supplies remain cheap, and using the internet more means less spent on paper, postage, etc.  I only do a few hundred business miles, so motoring cost rises are insignificant.  Rent is the same as I have a small/cheap office.  Insurance is cheaper due to competition and shopping around.  I don't pay business rates anymore due to the small business rate relief.  Only costs that have actually gone up are power, water rates and ACCA subscriptions (GRRR).  

Over this period, my efficiency is far higher.  Scrapping Sage and taxcalc means I spend less on software and better still, I don't waste so much time now I use easier & quicker software!  I spend time nurturing clients so that messy plastic bag jobs are turned into decent online book-keeping or they're clearly told that if they don't, their fees will hike, not due to inflation, but due to time spent.  Upfront investment in my time pays dividends many times over when the client is properly "trained" to do decent online book-keeping.  I suspect that I make a "paper loss" on all new clients, based on old fashioned time based billing, for the first year or two, but all the years thereafter are clear high profits.  One of my first jobs that used to take 10-20 hours p.a. was £900 p.a. in 2000, and it's still £900 today, but the difference is I only spent 3-4 hours max on it each year now - I almost feel guilty that I've not reduced their fee, but the client is happy, and so am I - I'd never risk losing that kind of high profit client to try to take the mickey expecting a 3% p.a. "inflationary" rise!!!

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Replying to Davis_21:
Red Leader
By Red Leader
28th Oct 2014 11:18

the only way is up

Ken Howard wrote:

One of my first jobs that used to take 10-20 hours p.a. was £900 p.a. in 2000, and it's still £900 today, but the difference is I only spent 3-4 hours max on it each year now - I almost feel guilty that I've not reduced their fee, but the client is happy, and so am I - I'd never risk losing that kind of high profit client to try to take the mickey expecting a 3% p.a. "inflationary" rise!!!

The client is probably wondering why you've never increased the fee!

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By mrme89
28th Oct 2014 11:22

Whilst the costs of running your practice may have remained static, or in fact decreased, the cost of living simply hasn't. We are in business to make a living.

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By ShirleyM
28th Oct 2014 12:54

Dissing ...

First we were considered to be 'mercenaries' and now we are ... what? Are we being compared to someone who flogs worthless kit for a fortune?

It's making comparisons to something wholly unrelated (eg. electronics) that annoys people, and does your credibility no favours.

If you, and your employees, are happy with with your earnings, then that's all that matters, isn't it? If you want to explain why you do it, then fair enough, but there's no reason to diss people for having different views.

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By Maslins
28th Oct 2014 13:41

I never called anyone mercenaries...I said some mercenary-like folk might recommend people increase fees even where costs have gone down...and they wouldn't necessarily be wrong, but we haven't chosen to follow that path.

Electronics - of course, my point is simply that "inflation" is not this fixed concept that impacts everything in the same way.  If your business costs plummet (as they typically do for electronics) it's rarely a good idea to increase prices.  The comparison isn't even particularly daft, as our business costs in percentage terms relative to turnover have dropped, and it's largely down to improvements in the use of technology.

As Mark Howard suggested above, petrol and postage have increased significantly in price recently...so what?  It doesn't impact either of our businesses much because we don't drive many places or post things.  I do some personal car journeys and very occasionally post a letter...but that doesn't mean Maslins prices should increase just because the impact of those have meant the headline inflation figure has gone up.

The main thing frustrating me is it appears many posters above think the only way to increase profits is to increase prices.  It's not.  I've repeatedly said people should do what's right for their business, just challenging the concept that a blanket inflationary increase is the way to go.

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Replying to Wilson Philips:
By mrme89
28th Oct 2014 14:05

You are missing the overall picture

Maslins wrote:

I never called anyone mercenaries...I said some mercenary-like folk might recommend people increase fees even where costs have gone down...and they wouldn't necessarily be wrong, but we haven't chosen to follow that path.

Electronics - of course, my point is simply that "inflation" is not this fixed concept that impacts everything in the same way.  If your business costs plummet (as they typically do for electronics) it's rarely a good idea to increase prices.  The comparison isn't even particularly daft, as our business costs in percentage terms relative to turnover have dropped, and it's largely down to improvements in the use of technology.

As Mark Howard suggested above, petrol and postage have increased significantly in price recently...so what?  It doesn't impact either of our businesses much because we don't drive many places or post things.  I do some personal car journeys and very occasionally post a letter...but that doesn't mean Maslins prices should increase just because the impact of those have meant the headline inflation figure has gone up.

The main thing frustrating me is it appears many posters above think the only way to increase profits is to increase prices.  It's not.  I've repeatedly said people should do what's right for their business, just challenging the concept that a blanket inflationary increase is the way to go.

 

If living costs go up, it would be fair to say that in order maintain your current lifestyle, you would need to extract more funds from the business. So whether directly or indirectly, inflation does affect your business.

 

Your view is that the best way to increase profits is to increase client numbers - I don't disagree with that. In fact, I think it's a ground breaking idea! However, if you don't take into account economical factors such as inflation, despite rising profits, your profit expressed as a % will decline.

 

Nobody has said that the only way to increase profits is to introduce blanket fee increases. What has been said, is that it is a way to maintain your profit %

 

 

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Replying to lionofludesch:
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By Maslins
28th Oct 2014 15:03

What am I missing?!

mrme89 wrote:

If living costs go up, it would be fair to say that in order maintain your current lifestyle, you would need to extract more funds from the business. So whether directly or indirectly, inflation does affect your business.

Yes to the first sentence, but I do think the only affect on my business from that is that to maintain exactly the same lifestyle I would need to withdraw a little more.  I think that's a completely separate issue to how should I maximise profits.  If headline inflation was negative, I can't imagine many business owners saying "I'm going to decrease my profits because I don't need as much".  Surely people should try to maximise profits irrespective of what inflation is up to?

mrme89 wrote:

Your view is that the best way to increase profits is to increase client numbers - I don't disagree with that. In fact, I think it's a ground breaking idea! However, if you don't take into account economical factors such as inflation, despite rising profits, your profit expressed as a % will decline.

Best?  Not necessarily my view.  For those who offer a very bespoke service it might not be the way to go...or at least it'll be harder.

I don't really understand your second sentence.  I think it's fair to say that in my business decisions I've completely ignored inflation.  Profits have risen and amounts I've withdrawn have too despite that.  Profit expressed as a % of what will decline?  Turnover?  If so, not necessarily true, and indeed isn't for my business, as many costs are fixed/stepped.

Possibly you're implying that I'd become a busy fool, working longer and longer hours for little extra cash.  Whilst I appreciate easier said than done, getting staffing at the right levels and using software where appropriate can prevent this.  In no way saying I've perfected everything...far from it, but I think some of your assumptions are incorrect.

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By ShirleyM
28th Oct 2014 15:13

The logic intrigues me

I can see that no price increases, while ever the client remains a client, could be appealing to some, especially the price sensitive clients. However, if you rarely lose clients other than retirements, etc. (which I am sure is also true for most decent accountants, as it is for us) then surely you must have the majority of clients on the fees that were set many years ago.

Could this mean that newer clients are subsidising the long-standing clients, as the fees for newer clients go up more than would have been necessary if fees were slightly increased all round?

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Replying to Steve Howell:
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By Maslins
28th Oct 2014 15:35

I think that's the wrong way round.

ShirleyM wrote:

Could this mean that newer clients are subsidising the long-standing clients, as the fees for newer clients go up more than would have been necessary if fees were slightly increased all round?

Clients are always more work in year 1 for a variety of reasons already outlined.  Assuming no major change in the business, year 2 they're quite a bit less work, and year 3 onwards should be plain sailing.

Presumably for most accountants the main "cost" is time (whether that's the business owner or paid staff) so if the job takes longer, it costs more.  Therefore it makes sense to me that old clients don't get charged as much as new ones.

I think if anything, if someone who's been with you 5 years gets charged the same as an identical client taken on just now, the old one is subsidising the new one.

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Replying to Steve Howell:
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By Ken Howard
28th Oct 2014 15:46

Loyalty reward or long standing customer discount?

ShirleyM wrote:
Could this mean that newer clients are subsidising the long-standing clients, as the fees for newer clients go up more than would have been necessary if fees were slightly increased all round?

Or you could look at, as I do, as a mix between a loyalty reward and a discount for being a long standing customer?

I charge new clients what I consider to be a fair price, somewhere near the current market rate at that time.  You seem to infer that perhaps I charge them too much, but on what grounds?  Yes, they can get a cheaper accountant elsewhere, as can everyone (- I've seen adverts on people per hour offering to do year end accounts and corporation tax return for £50!), but they'd also find plenty of firms happy to quote them double or treble my charges.  If I found that new prospects stopped signing up, then clearly I've over-stepped the mark with my quote, but as long as they keep signing up for a price I'm happy to do the work for, then what's the problem?

Also in my case, as I said in my post, I spend a lot more time in the first year or two for a new client, which will almost certainly diminish as the years pass by and the client doesn't need quite so much hand-holding or advice, etc.  I work on monthly retainer standing order payments, so I don't charge more for the first few more intense years, so I view it as even-ing itself out over the average life of a client, which I find is usually 5-10 years on average.  If I recorded my time (which I don't)  it would probably be a loss for years 1 and 2, then profits for remaining years with the exception of the closure year when again it would be loss due to the extra time spent to wind it up, and maybe in the middle somewhere if they were thinking of changing something and needed a little more advice on a one-off basis.

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Man of Kent
By Kent accountant
28th Oct 2014 15:25

Last year's fee + or - a bit, nothing about inflation though.

Standard increase each year? No.

I would never try to justify a fee increase by reference to inflation, but an increase in overheads, amount of work done, quality of client records - yes.

I usually review each client when finalising the accounts and if an increase is needed I communicate it to them then.

I've even reduced a few fees where the work has decreased.

There's also some where the fee doesn't change every year.

 

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By ShirleyM
28th Oct 2014 15:49

We have a different way of coping with that ...

If a new client hasn't prepared the records in a satisfactory way, then we would expect to be paid to bring the records up to the required standard (or they take the records back and prepare the records to the agreed standard themselves).

In following years, if they have done the bank rec., kept the VAT workings and VAT100's, etc. then they would get the lower fee, and if they don't want to do all that, then they pay us to do it.

Our fees are based on the services received and the quality of their records, which means the fee can go up, or down, and is pretty much the same for each of our clients.

What happens with referrals? Do potential clients come to you expecting similar fees to their mates who have been with you for years?

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