Annual Fee Increase

Annual Fee Increase

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Hello, I have been in practice for 7 years and so far I have not increased our annual fees. The key reason for this is simple fear of clients moving to competition. 

Do you increase your fees on an annual or a regular basis? If so, how do you justify to your clients? How do you inform your clients?  Do clients move on? 

My justification for  fees increase would  be inflation. I think in real terms my fees have reduced over a 7 year period.

Replies (73)

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By johngroganjga
11th Jun 2015 08:06

Yes of course you need increases to keep pace with inflation, but in times of low or zero inflation that means no increase in most years.

Of course that assumes that everything else stays the same - size of client, quality of information, scope of work etc.

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By petersaxton
11th Jun 2015 08:15

7 years!

I think you agree fees in advance. Different people have different ways of setting fees. If you think the only problem is inflation then I think it would be best to set out a calculation showing inflation for each year. You then would use the relevant part of the calculation and say that you'd been trying to keep fees down but you now have to accept the effects of inflation. If people are happy with your service the fear of going to somebody who might do a worse job is usually greater than any increase in fees.

Another way of looking at it is that, given inflation has been low, then you can usually be more efficient each year and you may be just as well off as previously.

You can also combine any change of fees with a review of your clients and change your fees depending on how profitable your jobs are and how much you enjoy working with them.

I don't agree fees in advance although I have set fees for different work but I do change the fee if more work is needed because of what I have to work with, eg. overdrawn director's current account requiring extra analysis and disclosure and interest charged on balance.

 

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By cheekychappy
11th Jun 2015 08:19

Other options

Alternatively you could reduce costs by taking on more economic slaves, sorry, I mean unpaid interns. 

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Universe
By SteveOH
11th Jun 2015 08:23

Annually

You should have definitely increased your fees during those 7 years. If your clients are going to move due to price, so be it. In actual fact, I am confident that you would not lose any clients.

I review my clients' fees on an annual basis; in the month of their financial year end. If the increase for the following 12 months (I charge by monthly direct debit in advance) is small, I just tell them that I have had to increase the fees slightly. I do not give any further explanation. Where there is gong to be a large increase, then I will give a fairly detailed explanation. I can honestly say that I have never lost a client because of an increase in fees.

In fact, I recently had to double a client's fee who was only in their 2nd year with me. For the first year, my charge for the payroll work was underestimated. They had several changes of employees etc. I thought, when I quoted the new fee, that they would move somewhere else. However, they just said "That's ok, I know that there is a lot of work involved".

So have confidence in the work that you do. If you provide an A1 service, you will find that people are prepared to pay for it.

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Locutus of Borg
By Locutus
11th Jun 2015 09:18

Do it regularly
Who seriously would change their provider for anything JUST because they increased their prices by 2% or 3% in one year. Not many.

Alternatively, rolling up 7 years of inflationary increases (assuming the client has lasted that long) can be difficult to 'sell' to a client, particularly if inflation was high in that period.

Just do it regularly and save yourself a lot of pain down the road.

This, of course, might also help in being able to pay your workforce in the future.

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Teignmouth
By Paul Scholes
11th Jun 2015 10:01

Shirley beat me to it (thank goodness)

As John says, things change, do you really do the same stuff, in the same way, now that you did for them 7 years ago? Are they robots?

So fees will rise and fall and, in my case, fees for some work plummets and other, more valuable work, replaces it, either with the same client or other/new clients.

If, between one year & the next, nothing changes on a client then yes, why wouldn't you look at an inflationary increase (or decrease!) how else are your going to afford the £5K pa you now pay Xero??

Just as I would never keep a client whose prime concern was the level of my fees, rather than the quality of my work, neither would I do "cheap" just to keep a client.  It's not a phrase I use often but "race to the bottom" springs to mind.

I've, yet again, just wasted my time on stuff that I'm sure you can see repeated in the links Shirley gives above.

 

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Replying to Maslins:
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By qad999
12th Jun 2015 00:29

pay £5k to zero ?

why would anyone want to do this  ? I think you should charge them

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FT
By FirstTab
11th Jun 2015 10:13

Links

Thank you Shirley for the links. Indeed, I have asked the question before and I will again. Something triggers in me to change fees and then for some reason I don't

Also opinions change over a period of time. 

They will be more repeated subjects from me. I have do doubt the every helpful Shirley will provide the links.

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Replying to Cheshire:
By ShirleyM
11th Jun 2015 10:18

You should read them

FirstTab wrote:

Thank you Shirley for the links. Indeed, I have asked the question before and I will again. Something triggers in me to change fees and then for some reason I don't

Also opinions change over a period of time. 

They will be more repeated subjects from me. I have do doubt the every helpful Shirley will provide the links.

People have posted lots of advice in those threads, and not all the questions are yours, they are just in the order that the AWeb search engine brought up.

However, thanks for reminding why I shouldn't bother trying to help. It's a total waste of my time.

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Replying to Cheshire:
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By darrenwilliams
11th Jun 2015 10:29

Why

FirstTab wrote:

Thank you Shirley for the links. Indeed, I have asked the question before and I will again. Something triggers in me to change fees and then for some reason I don't

Also opinions change over a period of time. 

They will be more repeated subjects from me. I have do doubt the every helpful Shirley will provide the links.

 

Fees should be reviews annually, to reflect more OR less work done. Also to reflect inflation increases.

 

I do not see why opinions would change over time in this respect that requires multiple posts by you over? Why do you think they would in this respect?

 

Could you also be kinder to people who post in reply to your requests, as I think your tone is rude and not professional. :OOPS:

 

This is on a public forum.

 

Anyway all the best.

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By andy.partridge
11th Jun 2015 10:13

Theory

Assuming you have a good relationship with your clients, if you double your fees you will lose less than half of them.

Worth thinking about, isn't it?

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By cheekychappy
11th Jun 2015 10:24

I have one opinion that won't change over a period of time; you are a tool. 

 

You acknowledge that you ask the same questions with little (if any) intention of changing anything. Do you do this purposely to waste peoples time? Or is it just to try and [***] people off?

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FT
By FirstTab
11th Jun 2015 10:32

Fair Point

Shirley you made a fair point. Thank you for the links.

I am sorry for my earlier response.  

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By Jekyll and Hyde
11th Jun 2015 10:45

For me the question is the wrong one

It is more the question of am I still getting the right return for the work undertaken for each client and adjust accordingly. I do not put inflation increased price increases in, I review my charge out rates and look at the time taken per year.

Over the last 7 years we have seen too many changes in our scope of work to simply put inflation increasing price rises in to the fees quoted 7 years ago. With some clients the work is getting easier, with some it is getting more difficult and time consuming.

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By Maslins
11th Jun 2015 12:02

As others have suggested, this gets raised pretty regularly, and sometimes leads to heated debate.  Me, I'm in the "there's no good reason to have a default annual increase" camp.

One specific comment above, from Locutus "Who seriously would change their provider for anything JUST because they increased their prices by 2% or 3% in one year. Not many."  You are of course correct, if otherwise everything is great, your clients won't leave en masse due to a trivial % increase.  However, I'm sure we all have clients who are just about satisfied with how we do things but not delighted.  Lethargy means they can't be bothered to move.  Whilst a price increase might only be a couple of %, it's another little reminder that we're a supplier they're not happy with, a reminder to check out other options.

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Nichola Ross Martin
By Nichola Ross Martin
11th Jun 2015 14:15

Have your costs increased though?

I note that our software and subscriptions goes up each year often far in excess of inflation, therefore it is not ideal not to increase fees in some way to compensate for that.

Don't forget too the extra costs of auto enrolment if you have staff.

I increase my cleaner's pay for them because they never increase it for fear of losing clients and it seems to me rather sad that they are caught in that mindset. 

 

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Kieran Phelan
By KPEM online
11th Jun 2015 21:09

automatic increases
In this day and age automatic increases dont sit well with clients. Look at how you deliver services to get efficiencies maximised so your profits can grow. Or aim to deliver your pricing differently so that your service offering is more appealing and gets a better return

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Replying to Truthsayer:
Teignmouth
By Paul Scholes
12th Jun 2015 10:39

Good point

KPEM online wrote:
In this day and age automatic increases dont sit well with clients. Look at how you deliver services to get efficiencies maximised so your profits can grow. Or aim to deliver your pricing differently so that your service offering is more appealing and gets a better return

As an Iris user I know how this feels from the other side and so I usually identify a handful of clients where perhaps things have not gone great over the past year where, when quoting for the year ahead, I mention that there's no inflationary increase this year.

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By 68fw
12th Jun 2015 12:06

fee increases

Similarly, I have not increased my firm's fees since 2008... yet I calculate I have lost approximately 1/3 of my small provincial client base through the depression to 2015 and I suspect, beyond..

I am aware that (local) larger firms have made the usual "twilight" round of redundancies whilst continuing to "talk the market up" with their usual multi-partner larger firm hypocrisy.

The pressure now, to increase fees is unavoidable for smaller firms such as mine, who tell it as it is... ymmv. 

 

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By pauljohnston
12th Jun 2015 12:08

Many years ago

I was advised to increase my fees by 10% across the board.  I used Firsttab's statment that I would or may loose clients.

However was then asked how many clients would I loose to be worse off if I increased the fee.  Needless to say in a rash moment the fees went up 10% and...........  no one left.

So my advice is to do the same .  As other posters have pointed out if a client leaves for such a small increase he or she can not value your service.

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Man of Kent
By Kent accountant
12th Jun 2015 12:26

Presentation

How you present your price increases with affect the response.

The majority of my clients pay in monthly instalments, therefore I quote price increases in this way.

A £20 a month price increase sound a lot less than a £240 a year increase.

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By petersaxton
12th Jun 2015 12:40

Monthly price

I always multiply by 12 when I get a monthly price.

Some marketing quotes prices at a daily rate. Soon it will be hourly.

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Replying to tom123:
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By jaybee661
13th Jun 2015 16:52

@petersaxton

petersaxton wrote:

I always multiply by 12 when I get a monthly price.

Some marketing quotes prices at a daily rate. Soon it will be hourly.

I have to disagree with you on this one as I ALWAYS quote a monthly price - after all, to a client, £50 a month sounds a lot cheaper than £600 a year - and £49 a month sounds even cheaper...

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By pwainewright
12th Jun 2015 14:41

Automation and value

I'm not an accountant and in fact I normally only read AWeb out of interest so this is probably my first ever comment. However I am horrified by the complacency of just bumping up fees for no better reason than being able to get away with it.

I cannot see how an increase in prices can be justified over a period where not only inflation has been very low but also the efficiencies available from taking advantage of low-priced cloud software to streamline administrative work have been growing year by year. 

Of course if you can genuinely demonstrate extra value delivered then do put up your prices but don't just bump them up for doing the same old thing year after year while others are actually taking advantage of today's technology to streamline their operations and do more with less. 

As to the argument that a third of your clients have left, therefore you have to charge the rest more in order to sustain your income, I suggest that instead you invest in some sales and marketing effort to grow your client base. Try out higher pricing on your prospects and see if there's a market for what you offer at the price you want to charge. 

 

 

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Replying to Ben McLintock:
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By andy.partridge
12th Jun 2015 15:16

3rd

pwainewright wrote:

I'm not an accountant and in fact I normally only read AWeb out of interest so this is probably my first ever comment.

It's actually your 3rd comment. Accountants generally don't have the luxury of getting numbers that wrong.
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Replying to Ben McLintock:
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By pwainewright
12th Jun 2015 16:25

Probably ...

andy.partridge wrote:

pwainewright wrote:

I'm not an accountant and in fact I normally only read AWeb out of interest so this is probably my first ever comment.

It's actually your 3rd comment. Accountants generally don't have the luxury of getting numbers that wrong.

My apologies, I had forgotten that I did comment twice in 2012, having joined the site in 2008. Thank goodness I put that 'probably' in otherwise my credibility would have been totally shot ...

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Replying to BirdnCo:
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By andy.partridge
12th Jun 2015 16:39

No need to apologise

pwainewright wrote:

andy.partridge wrote:

pwainewright wrote:

I'm not an accountant and in fact I normally only read AWeb out of interest so this is probably my first ever comment.

It's actually your 3rd comment. Accountants generally don't have the luxury of getting numbers that wrong.

My apologies, I had forgotten that I did comment twice in 2012, having joined the site in 2008. Thank goodness I put that 'probably' in otherwise my credibility would have been totally shot ...


But why guess? It took me all of 5 seconds to check.
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Replying to Ben McLintock:
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By andy.partridge
12th Jun 2015 15:25

I disagree in part

pwainewright wrote:

I cannot see how an increase in prices can be justified over a period where not only inflation has been very low but also the efficiencies available from taking advantage of low-priced cloud software to streamline administrative work have been growing year by year. 

There is some unrecognised value in doing what you call 'the same old thing year after year'. In many cases, the relationship is strengthened, the accountant knows the client and their business better, making the advice sharper, there is greater trust on the part of the client that the accountant is credible and offers good value for money.

Compare that with taking a chance on a new firm that you have no connection with, who doesn't know your business, you don't know the way they work or if you will like it. Are you really saying you would prefer the new firm that might charge a few pounds less? I don't think so for most clients.

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Replying to Ben McLintock:
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By Gone Sailing
12th Jun 2015 16:49

Clearly Not !

pwainewright wrote:

I'm not an accountant and in fact I normally only read AWeb out of interest so this is probably my first ever comment. However I am horrified by the complacency of just bumping up fees for no better reason than being able to get away with it.

Oh that we could charge the headline rate by the hour!

We quote a rate / annual fee. Then when it comes to the bill - it's unsustainable. The first year "set up" write off is at least one year's fee.

After all the phone calls / emails / draft revisions / extra tax advice / reworking / reminders, we're well under our headline rate.

At least I am.

So if the fee goes up, it's an attempt to recoup on the above extra time given.

Anyway for what it's worth, it's best to operate a 'no surprises' policy, on the first quote, suggest a 2 or 3 year review, and carry on likewise. It takes the sting out of the "dare I ?"

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By Phi
12th Jun 2015 14:46

Give a written quote with built in increase

I always give my clients a fixed fee quote when I take them on and in the quote I advise that the quoted fee will increase by the greater of 5% or inflation, whichever is the greater. I also advise that the fee will be reviewed if turnover increases by more than 15%, and I also say that any increase over and above the figures quoted will be advised to them in writing before starting work on the accounts.

I can only think of one client who has left as a result of the increases.

 

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By petersaxton
12th Jun 2015 14:59

pwainewright

You seem wrong on just about everything.

“this is probably my first ever comment.”

It’s not

“However I am horrified by the complacency of just bumping up fees for no better reason than being able to get away with it.”

Who said that? Can you indicate the quote you are referring to?

“I cannot see how an increase in prices can be justified over a period where not only inflation has been very low but also the efficiencies available from taking advantage of low-priced cloud software to streamline administrative work have been growing year by year.”

The suggestion was to increase prices by inflation. Some prices can be reduced due to efficiencies but some people are rubbish doing any kind of bookkeeping or administrative tasks.

“don't just bump them up for doing the same old thing year after year”

Nobody is suggesting that.

“As to the argument that a third of your clients have left, therefore you have to charge the rest more in order to sustain your income, I suggest that instead you invest in some sales and marketing effort to grow your client base. Try out higher pricing on your prospects and see if there's a market for what you offer at the price you want to charge.”

The person who suggested that was talking about inflation increases.

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By Alan Davies
12th Jun 2015 15:29

pwainewright

Following from Peters point here is a slightly different arguement.

Accountants are running a business too.  They do this in order to make money for themselves.  Why would they voluntarily choose to allow their clients to make more money by reducing their own ability to earn?  The service that accountants provide should be priced at the appropriate level for their market, inflation indicates that this level should be on an upward trend.   This is basic economics and common sense.

 

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Kieran Phelan
By KPEM online
12th Jun 2015 16:12

Pricing

I don't ever look at pricing in terms of how much either myself or my clients will earn or save out of the fee. I look at the value we bring to our clients' businesses and price accordingly, bearing in mind the value they can bring to our business too (nice to deal with, referrals).

The market does not dictate price in my opinion. The service and relationship does.

If anything, the market will kill your price!

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By Maslins
12th Jun 2015 16:29

I really don't understand why those who do increase prices each year get so agitated by those who don't.

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Replying to Justin Bryant:
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By andy.partridge
12th Jun 2015 16:36

Agree with this

Maslins wrote:

I really don't understand why those who do increase prices each year get so agitated by those who don't.


The 'those who don't' camp tend to worry about what their clients will think of them and worry they might leave.

The 'those who do' camp seem to suffer no such ill-effects.

It would be interesting to hear from an accountant who put their fees up by inflation and faced a mass protest (with or without placards) outside their premises. Or even one who genuinely felt that their income suffered as a result.

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By cheekychappy
12th Jun 2015 16:33

Opportunist

I don’t increase my fees every year.

 

For a new client I will have a minimum price in my head that the job is worth to me. If after looking at their accounts I know I will get away with charging more, I do. That’s business.

 

I review work every year. If there are any that need to be increased, I increase it. I explain to the client why there’s an increase … usually that they haven’t done what they have said they were going to do or have been difficult to communicate with.

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By ShirleyM
12th Jun 2015 17:28

My view

If I'm getting a decent profit on a client, then I won't increase the fee, or only make a small increase, ie. roughly in line with inflation. Obviously, a change in requirements will always trigger a price increase or decrease.

If I was short of clients, then I may do it differently. If you have plenty of work and plenty of long term clients then it's a good indication that you are good value for money.

I always remember the old mantra ... if nobody thinks you are too expensive, then you are definitely too cheap!

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Teignmouth
By Paul Scholes
13th Jun 2015 11:03

What inflation rate?

For years now I have used the headline rate to judge whether an increase is worth it but, in the past, where I had staff, and where wage inflation was probably 2% over the headline rate, and we were spending a big chunk amount with IRIS, with 6-7% annual increases, we did feel justified in using a "wage rate" of inflation. 

As others have said though, this is where all other things are equal in terms of the work and how we do it.  It's interesting to note that through the Cloud efficiencies mentioned by pwainewright, and a move to home working, my core annual quote for clients is probably less than half what it was 5 years ago.

It's also interesting to note how few people these days make reference to hourly rates, again a huge change from 5 years ago.

Gone Sailing did however and regarding:

"We quote a rate / annual fee. Then when it comes to the bill - it's unsustainable. The first year "set up" write off is at least one year's fee".

Why don't you charge extra in year one for setup?  We've done this for as far back as I remember and it has never been queried or moaned about.  You are right, there is a huge amount of setup these days and whilst, if I was to base it on an hourly rate, we might only charge 50% of the "cost" it reflects an investment in the relationship that should be shared.

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Mark Wickersham
By Mark Wickersham
13th Jun 2015 17:29

So much sense

@Jaybee661 talks so much sense.  In fact research by behavioural economists supports this.  People perceive 12 payments of £50 to be less than £600.  It's not that people are stupid... they know that comparing £50 and £600 isn't an accurate comparison.  But that's irrelevant; research by Tridib Muzumdar, S P Raj & Indrajit Sinha published in 2005 demonstrates that people usually compare reference prices subconsciously.

And it works for accountants incredibly we.  For example, accounting firms that charge a fee for acting as a companies Registered Office typically charge £100 per annum.  In a recent research study of 725 UK accounting firms this price point was both the median and modal price.  And yet firms I work with are regularly getting prices of between £480 and £960 per annum for this very same service.  Much of this pricing success is down to this concept known as "don't reveal the headline price".

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Kieran Phelan
By KPEM online
13th Jun 2015 17:57

@Mark
Couldn't agree more Mark. Not only is it about pricing technique, but its about pricing the customer, knowing the value of your own service, getting your customer to see and understand that value, and of course delivering on service and customer relationship!

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By ShirleyM
13th Jun 2015 18:08

Question for the 'monthly pricers'

What do you do if a new client comes along just before their year end?

Do you:

quote a one-off annual fee, and then say it will be £x per month for the following year,give them several months free credit so they still pay £x for 12 months, mostly in arrearsprovide full annual services for a reduced fee of £x per month for the shortened period, ie. 2-3 monthsor something else

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Replying to Peter613:
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By MattCTS
13th Jun 2015 18:21

Spreading payments

ShirleyM wrote:

What do you do if a new client comes along just before their year end?

Do you:

quote a one-off annual fee, and then say it will be £x per month for the following year,give them several months free credit so they still pay £x for 12 months, mostly in arrearsprovide full annual services for a reduced fee of £x per month for the shortened period, ie. 2-3 monthsor something else

I give the option of either settling the year end as a one off fee and then moving onto the monthly basis. Alternatively, add the previous years fee into the monthly payment instalment. The second has the benefit of the price then falling once the previous years fees have been collected. You have given interest free credit but you've also got the current years fees in advance too.

Also use a system like Gocardless to collect the payments by DD, once it's set up it takes the pain out of chasing up fees.

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Replying to Cheshire:
By petersaxton
13th Jun 2015 19:12

Defeating the object

MattCTS wrote:

ShirleyM wrote:

What do you do if a new client comes along just before their year end?

Do you:

quote a one-off annual fee, and then say it will be £x per month for the following year,give them several months free credit so they still pay £x for 12 months, mostly in arrearsprovide full annual services for a reduced fee of £x per month for the shortened period, ie. 2-3 monthsor something else

I give the option of either settling the year end as a one off fee and then moving onto the monthly basis. Alternatively, add the previous years fee into the monthly payment instalment. The second has the benefit of the price then falling once the previous years fees have been collected. You have given interest free credit but you've also got the current years fees in advance too.

Also use a system like Gocardless to collect the payments by DD, once it's set up it takes the pain out of chasing up fees.

So you are going against the "advantage" that quoting a monthly figure appears to be cheaper than quoting a yearly figure.

Adding the previous years fee to the current years fee will obviously seem cheaper when you charge for next year but would two years in one put off some potential clients?

I prefer: "I will charge you £XXX for A and £YYY for B. It's up front and transparent rather than playing around with numbers.

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Replying to Peter613:
Mark Wickersham
By Mark Wickersham
13th Jun 2015 18:40

Great question Shirley

This short video on YouTube should help you with this question, https://youtu.be/noHRo_dzxDQ

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By MattCTS
13th Jun 2015 18:13

Annual Price Increase

Surely it's not about whether there's been inflation or not, it's all about value we bring to our clients? For example say you review a set of accounts and it takes two hours at say £100/hour. The first hour is spent identifying £10k of tax savings the second hour spending on admin binding accounts, drafting letter etc.

Which hour has the more value to the client? Yet by simply basing in on time you're undervaluing the tax saving work and overvaluing the admin. How about using the value of the tax saving as a basis of the fee for example 15% of the saving - fee of £1.5k for two hours work? The other side of this is that you take the risk should your tax planning not work out the client doesn't pay anything. I think this will make the profession far more proactive in bringing value to our clients rather than just treating them as part of a "sausage machine" process.

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Kieran Phelan
By KPEM online
13th Jun 2015 18:15

@Shirley
I have this quite often. I always get client on DD going forward in advance. For the year end just past, they pay for that now, at least 50% upfront, balance on completion.

I don't see why we should extend credit for work due now over a long period. Most other service industries don't.

Plus it confuses the client in terms of their ongoing costs on occasions.

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By jaybee661
13th Jun 2015 18:20

@ShirleyM

... pretty much the same as the others Shirley, my fees are paid by GoCardless DURING the actual accounting year - for example for the year ended 31st March 2015 I would get the 12th payment in March 2015 - so the client has then paid in full for that year.

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By ShirleyM
13th Jun 2015 18:24

It sort of defeats the object though

If they are paying the first year end in one, or two lump sums, then it defeats the object of quoting a 'monthly fee' as they are still being given an annual fee.

Just quoting a monthly fee will only work best when the client can make 12 payments before the annual services are completed.

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By petersaxton
13th Jun 2015 18:42

I don't care

if somebody quotes me a monthly fee I multiply by 12 and then consider it. I'm not saying that what I do is what everybody else does.

I suppose it would only work if people actually pay monthly otherwise by the arguments above people would be better of quoting per week, per day, per hour, etc. .... wait, maybe they don't because it's obvious what they are doing.

I'm not saying I'm extra clever about this but I think I am sensible. If somebody offers to charge me £20 per month I would calculate it is £240 per year and then consider it. If somebody quoted £230 per year for the same level of service I would understand it is cheaper no matter what the "research" says.

 

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