How to negotiate higher fees
Mark Lee interviews Derek Arden who shares invaluable tips to help accountants negotiate higher fees
There are many crucial business skills that many of us learn through experience. As such we are tempted to assume that it’s all down to common sense. That common sense often comes from experience so it can be tough the first few times you need to work out what to do to resolve a challenging situation.
For example, over time many accountants develop their own techniques to negotiate the fees they want and deserve from their clients.
I thought I'd ask an expert on the subject to see what tips he might share for readers of AccountingWEB.
ML: Derek, you're known as Mr Negotiator; what are the fundamental issues to keep in mind when seeking to reach agreement with clients over fees?
DA: These days, accountants, in common with many other service providers are faced with clients who do not like to be quoted hourly rates. Clients consider these to be arbitrary and depend on too many factors outside the client’s control. So ensuring that the client understands the value that they are getting and the work involved, goes a long way to getting a sensibly negotiated win win fee.
ML: Often a prospective client will be comparing one accountant’s fee with another. Presumably it’s important to ensure that they are comparing like with like?
DA: Absolutely. One way of doing this is to give them a choice of service levels and let them choose.
ML: Makes sense. I know a lot of accountants who do this.
DA: I recommend three options – you might call them the gold, silver and bronze options.
This utilises the power of three, which of course means the client has a choice of which service he uses. And the contrast principle will come into play, which makes the silver option look much better value compared to the more expensive gold.
Gold – this would be the all embracing service for business owners including a number of meetings and advice across the year.
Silver – this might be the standard added value service with a once a year meeting etc
Bronze – just completing the basic paperwork and filings with no advice or meetings.
ML: Many accountants may only be offering the equivalent of a ‘bronze’ level service so this can help to show the difference and why some charge higher or lower fees. There will also be clients who only want that basic service.
DA: The other important thing to do is to evidence the value of the additional elements involved in the service and gold offerings.
ML: What about when the accountant simply proposes a fee and the prospective client baulks at the sum quoted?
DA: I call the term ‘flinching’ in “Win Win” and it’s handling the flinch with a justification, which is important. That is when you go into overdrive telling the client what they are getting and why it is good value for all the value added services and how they will benefit from these.
ML. Thanks Derek. Now what about when a client disputes a fee that’s either higher than they expected or they simply don’t want to pay the outstanding balance over and above any monthly instalments?
DA: In 2015 you might expect some flinching from some of your client. It’s only to be expected. You basically have three choices (and don’t forget, when you are negotiating it’s a good plan to work out what the three choices are to clear your thinking)
- Play hardball and insist on being paid
- Explain the issues and give a small discount as a one off
- Concede the amount for relationship reasons.
The best option is the middle one in year one; if you think preserving a “win win” relationship with this client is a good idea. Make sure you signpost the charges so it doesn’t happen again. However remember some people think negotiating is a game and will always try it on to get more off. Year two it’s much easier to stand firm and remind the client what you did for them in year one
ML: On a related point, I know many clients are hesitant to raise their fees each year. Once a few years have passed the increase they really want will have become a more significant figure. Any suggestions as to how they could address this with clients?
DA: I think it is better to raise your fees annually in line with inflation, as everyone understands that. If you leave your fees the same for too long your clients may assume that costs have come down in your profession – or that your fees were out of line in the first place. When the fee hike comes there is bound to be trouble. Little and often, less is more, is better!
ML: Finally Derek, please can you share your top 3 tips accountants can use for power negotiating with their clients?
DA: Yes of course Mark
Tip one – Refer to a higher authority whenever practical. The tactic enable you to link it to good guy/ bad guy and often keeps conflict out of the relationship.
Let me give you an example “I would love to agree to your request Mark BUT I have agreed with my colleagues we won’t discount our prices beyond what we are doing for you – so sadly I am unable to go any further”
Tip 2 – Is have three options, as above. And if you do walk away, what is the alternative position OR as the Harvard negotiating project called it, what is your BATNA? (Best Alternative To A Negotiated Agreement). This is especially relevant when negotiating with one of your bigger clients, whom you earn good fees from. If the service and the extras you provide is really good, perhaps you can get nearer to your best position (your dream position), than you think.
By starting high and sign posting that you might be able to come down, you may achieve more than if you just start low. You can use word softeners like, “for this piece of work” and “for all we do for you” (spelt out) our “normal” fee would be. See how they react to this; if they’re likely to flinch consider in advance how much you might be prepared to move. But do not volunteer to do so until they flinch.
Tip 3 – If you quote a fixed fee, beware of scope creep. Where you do extra for the client outside of the agreed arrangement. It is always more difficult to agree a fee for extra work after the event. Flag extras at the time and be clear what you are doing and doing for the fee.
ML: Many thanks Derek. I'm sure our readers will find that very helpful.
Derek Arden is the author of 3 books on negotiating skills. His newest is Win:Win – How to get a winning result from persuasive negotiating – published by Pearson July 2015. He can be contacted via email at [email protected] - or call him on 07980 241185
Mark is consultant practice editor of AccountingWEB and a speaker at conferences and in-house events, helping accountants who want to STAND OUT from the pack. He also facilitates The Inner Circle group for accountants and is chairman of the Tax Advice Network of independent tax specialists who provide support to smaller practices.
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