Inflation and fees

Inflation and fees

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I increase fees marginally each year and it seems standard practice to do so.  Now with below zero inflation are other accountancy firms still doing the same and will this be challenged by clients?

I suppose it depends on whether our suppliers increase their prices and other factors, such as growing businesses, level of work required etc.

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Man of Kent
By Kent accountant
19th May 2015 22:06

Fee reduction?

Prices are going down, so perhaps you should be reducing your fees?

I don't have inflationary increases, I increase (or decrease) fees based on the amount of work required and adjust fees if necessary once the previous years accounts and tax returns have been signed off.

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By Ken Howard
20th May 2015 08:39

Standard practice?

It may have been standard practice in the old days of typical old fashioned time-based town centre practices.

But, these days with fixed fees becoming the norm, I don't think annual inflationary price increases are the norm any more.

I've certainly not imposed any "inflationary" increases for several years.  Some clients I took on when I started 15 years ago still pay the same rate as they did back then.

I increase/decrease fees according to the expansion/contraction of the client's business and the resultant increase/decrease in the scope of our services.  Eg if a client becomes VAT registered or starts employing people, then the fee will increase in view of the extra work.

New clients will be paying more for the same services as clients who joined me 5/10/15 years ago.  If my standard monthly fee was £75 back in 2000, the clients who still have similar needs today will still pay £75 but a new client through the door will be paying £100 for the same.

Likewise, I pay the same for my broadband - it's not gone up in the last 10 years, yet the speed and data usage limits have increased.  Software subscriptions have barely increased over the years either (VT, Moneysoft etc).  When I do my own year end accounts, my overheads in total certainly aren't increasing, in fact there are reductions in many areas, such as postage, computer equipment, insurance, etc which have generally been falling.  Add in to the mix the efficiencies in practice these days from software and systems, we have far less non-productive time too.  So why increase client charges at all?

Automatic inflationary price increases are something that really irritate me, and I expect they'd irritate the client too, which is why I don't do it.  Of course, if we ever went back to the days of high inflation, then it's something we'd have to do.

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Replying to Wilson Philips:
By williams lester accountants
20th May 2015 08:54

Increases

Ken Howard wrote:

Likewise, I pay the same for my broadband - it's not gone up in the last 10 years, yet the speed and data usage limits have increased.  Software subscriptions have barely increased over the years either (VT, Moneysoft etc).  When I do my own year end accounts, my overheads in total certainly aren't increasing, in fact there are reductions in many areas, such as postage, computer equipment, insurance, etc which have generally been falling.  Add in to the mix the efficiencies in practice these days from software and systems, we have far less non-productive time too.  So why increase client charges at all?

 

You may have picked the items which stay more or less the same....but what about rent, business rates, utilities, wages? All these have seen significant year on year increases since we started 6 years ago, so, whilst we try not to use inflationary increases, we do have to take into account our relative cost for producing the same work.

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Replying to Wilson Philips:
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By Maslins
20th May 2015 09:54

Don't do it for the sake of it

Ken Howard wrote:

Automatic inflationary price increases are something that really irritate me, and I expect they'd irritate the client too, which is why I don't do it.

This.  Not saying nobody should ever increase their fees, but increasing them ~3% per year "just because" seems daft to me.

Especially with something like accountancy at the moment, technology is constantly improving, meaning we can do more for clients without costs increasing our end.  Don't see why we should increase fees.  Some hard nosed businesspeople would say we should if the market will bear it...but long term clients are great clients, and I'd hate to risk losing some of them by bumping up our fees a few quid a month.

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By justsotax
20th May 2015 09:41

zero inflation....

a closer loo at the basket of goods they measure that by may change your mind on whether there is actual no inflation for the ordinary man (or business) in the street)

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By JCresswellTax
20th May 2015 10:04

I think

Inflationary increases are old fashioned and out-dated.

The fee should be increased if there is extra work to merit it, or if your overheads increase and you need a general fee increase across your client base to cover this.

 

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By johngroganjga
20th May 2015 11:51

Old fashioned?
Adjusting fees for inflation is not old fashioned. I can promise you that it will soon become the height of fashion if we ever have double digit inflation again. It's just that we live in a time of low or negative inflation and therefore the impact of inflation on our fees is negligible.

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By JCresswellTax
20th May 2015 12:00

Yeah

Exactly, we no longer have inflation, so, by default, inflationary increases are old fashioned ;)

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By nogammonsinanundoubledgame
20th May 2015 12:22

I suppose ...

... you could go down the British Gas route, and do an inflationary increase this year as with other years, to smooth out variations in rate of inflation from year to year.

Anyway, accountants' overheads need not follow the national index in rates of inflation.

Personally I shall be looking for a 5% pay rise this year whatever happens to the price of cereal crops.  May not get it, mind.

With kind regards

Clint Westwood

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By mcarey25
20th May 2015 12:54

Increase of fees depends on how much extra work we take on, otherwise very rare we apply this.

 

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By Ken Howard
20th May 2015 12:59

Profits rising anyway

My profits are rising year on year anyway, without imposing unjustified fee increases on loyal long term clients, so why would I risk losing clients by annoying them in this way?

I improve efficiency by doing things better and getting rid of the poor quality clients.  Online filing of accounts and tax returns has massively reduced unproductive admin time dealing with post and paper.  RTI saves a massive amount of time at the year end - I've been lost again this year in April as I'm so accustomed to the massive time the P35s etc used to take.  We've virtually got all clients on online bookkeeping platforms now which likewise massively reduces the year end and quarterly VAT return time compared with error-ridden desktop systems, spreadsheets or hand written ledgers.  I got rid of my D list clients years ago, then my C list and now I've few B list clients left - I'll have to redefine my criteria once I'm down to A list only as the lower standard of those will then have to go to make way for new quality clients.

Inflationary increases are just papering over the cracks of inefficiency when our industry is being revolutionised by technology.

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By ireallyshouldknowthisbut
20th May 2015 13:37

.

Must say I agree about fee increases. I have not increased our basic tariffs which make up our fixed fees for 4-5 years and the profits have only gone up as time per client has gone down slightly year on year. There are small savings across the board. The only thing I have done in that time is bring most (but not all) clients on our old tariffs gently up to the new ones so broadly the old ones pay the same as the new ones. 

We pick up a lot of work from medium sized firms who put them up year on year with no justification. 

This is party why I get annoyed when the big software vendors stick up their fees. 

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By Matrix
20th May 2015 13:52

Thanks for the replies.  After attending an ICAEW workshop and reading some threads on here after my first year, I thought it was the consensus to increase each year.  Now the general view appears to be no increases unless other factors (inflation being one of them).  This helps as I quite like my round number fee structure and clients do not want to have to change standing orders for a few pounds, I just had thought it was commercial.

This may have been the thread:

https://www.accountingweb.co.uk/anyanswers/question/increasing-fees

FreeAgent are just about to increase their fees but I do not know if it only affects new clients of theirs or new clients of accounting partners.

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By pauljohnston
22nd May 2015 14:41

@williams lester

In my view you have hit the problem on the head.  Our costs rise year on year for staff, postage and paper to name a few.  Probally better to see what the increase in costs are year on year and increase accordingly.

An accountant that I knew many years ago always added a £100 to the annual cost of the accounts uintil he had a complaint or a client left.  He noted that this was about once every 8ish years

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Replying to Duggimon:
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By Maslins
22nd May 2015 15:05

Flawed logic IMO

pauljohnston wrote:

In my view you have hit the problem on the head.  Our costs rise year on year for staff, postage and paper to name a few.  Probally better to see what the increase in costs are year on year and increase accordingly.

The above assumes nothing else changes.  As others have said, technology improvements are enabling some accountants to do more in less time.  That might not be an underlying "hard" cost that's decreased, but it indirectly should lead to lots of cost per client decreases.

Eg using your examples, our postage/paper costs per client are probably less than 10% what they were in our first couple of years, as we hardly print and post anything these days.  5+ years ago we'd be printing and posting engagement letters, accounts to Companies House, and a few other bits and bobs as well.  That's all stopped.

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By pauljohnston
22nd May 2015 15:13

@maslins

YOur practice is different from others. 

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By Jakarmi
22nd May 2015 15:34

My costs increase = my fees increase

To start I will not increase my fees this year with zero inflation but I have the other six years I've been in practice and I've had one complaint which the client accepted when I explained.

Every cost in life goes up. The latest outcry by me recently was a Wham bar had gone up to 20p (used to be 10p) but things over the years do increase in price. Petrol has gone up about 70% since I started driving, my rates, elec, gas have all increased. Rupert Murdoch seems to make me pay more to watch TV every year and now a rubbish boxing match costs £5 more than they used to.

The point is historically if you don't end up putting your fees up with inflation then you'd end up with less money in your pocket at the end of the month. If you're happy with that then fine but don't call people old fashioned for arguably having more business sense.

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By mrme89
22nd May 2015 15:40

If you didn't bring your fees in line with inflation, you'd still be doing accounts for £20.

 

I used to work for a large transport company. They transformed the way they operated to a much more streamlined service using trunking to get goods shipped to Europe. They saved costs significantly. Did they reduce their prices significantly? No chance. The cost saving was their reward for working in a more efficient way.

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By Maslins
22nd May 2015 16:02

Horses for courses.

"The point is historically if you don't end up putting your fees up with inflation then you'd end up with less money in your pocket at the end of the month. If you're happy with that then fine but don't call people old fashioned for arguably having more business sense."

That's not always true.  More clients, economies of scale, streamlining etc.  I personally haven't, and am not calling anyone old fashioned...but I can confirm that despite us not increasing our fees, our bottom line profit has increased year on year.

More generally I just think pricing shouldn't necessarily follow a "cost plus" basis.  It's not wrong, but it's not the only way either.

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By andy.partridge
22nd May 2015 16:50

No increases for the last three years. I have no proof but I hope it helps strengthen the relationship.

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By robobhoy
23rd May 2015 11:38

Annual rate increases?

What on earth is an 'annual rate increase'???

Can anyone explain to me this concept?

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Replying to DJKL:
By mrme89
23rd May 2015 11:49

Concept

robobhoy wrote:

What on earth is an 'annual rate increase'???

Can anyone explain to me this concept?

 

A rate that goes up (not down) yearly.

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By robobhoy
23rd May 2015 12:55

Sarcasim

Really?

Humpfff............#facepalm.

And how does one apply these in a competitive marketplace?

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By johngroganjga
23rd May 2015 17:33

With great difficulty in times of low inflation. Have you not been reading the above thread?

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