Low balling trend squeezes firms’ fees
Judging by a number of similar Any Answers questions from practitioners evaluating their prices, a worrying trend of undercutting on quotes is emerging from the profession.
“Do our prices seem unreasonable for a practice based in North London?”, AccountingWEB member uknick wrote in one of the many recent posts from accountants on Any Answers questioning their own fee level.
Content seriesView full content series
The London-based firm had quoted a £1m turnover SME around the £4,500 per year bracket. This quote included final accounts and VAT returns (£1,500), payroll for around 20 staff (£1,500), processing about 400 purchase invoices per month (£1,200) and tax returns for three directors (£450).
It was a bid many community members deemed reasonable. In fact, AccountingWEB member marks said it “seems really cheap for London”. But the prospective client disagreed; they claimed uknick’s bid was four times more expensive than their preferred bid.
Another recent thread mirrored this predicament when AccountingWEB member OC was told £600 for accounts and CT600 was too high.
A worrying trend
“This is a worrying trend,” AccountingWEB regular Glennzy surmised later in the thread. “This question is asked almost every week now, with the responses generally supporting the opinion that the fees quoted are either fair or on the low side.”
So what is causing this? The natural assumption is that clients are trying to run fees down. As uknick theorised, “this is some form of ham-fisted negotiation technique”.
OC’s loss of pricing faith came from “going in low” when starting out to attract clients, hoping that price would organically grow. As the relationship develops, low fee clients could facilitate referrals – as the member knows all too well how competitive practices can be.
This would be the simple answer, but there are other factors that could prove troublesome for accountants and support Glennzy’s low balling trend theory.
The Big Four disruption
While uknick was not privy to what the other firms quoted, the prospective client did reveal that they received a quote from KPMG’s small business accounting service. "I find it hard to believe all the work can be done by a local company for about £1k," the member said. "KPMG, on the other hand, could well bid very low at the start."
The Big Four’s attempted disruption of the small business market, in some cases driven by partnerships with leading software houses, prompted concern over three years ago from some accountants who feared clients may be tempted by having KPMG, PwC, or Deloitte at a relatively low cost.
Industry insightsView more
However, evidence from Any Answers seems to suggest that the threat from the Big Four moving into small business has failed to dent smaller firms’ client numbers. Rather than losing clients, some members have reported picking up clients from KPMG.
AccountingWEB member NLB said the clients they picked up who were unhappy with the Big Four’s small business service complained about “their level of knowledge of their business, mistakes being made and the churn of client account managers who seem to have changed every six months”.
Is automation to blame?
When big firms have developed successful business models where many of their services are automated, their fee levels will naturally fall.
And there’s the rub for a lot of practitioners - automation was thought to free accountants’ time to offer added value services. But as DJKL added to the Any Answers thread, this trend suggests that technology could erode any added value and pricing will continue to drop.
However, there is not just one simple answer to why some members are seeing this trend. Looking from another perspective, accounting platform Silverfin believes these digital tools will have the opposite effect for fees: “If accounting automation is going to take over the data input aspect of day-to-day accounting, accountants will need to provide context and meaning from data.”
So, rather take a ‘can’t beat them, join them” approach towards fees, Kent Accountant takes the “if you build it, they will come” method. “I find that offering a more personal, rounded service that price is rarely an issue,” he said. “Sometimes I get comments like 'that's more than I'm paying at the moment but I can see that you'll be doing more'.”
Echoing this, Marks wrote “there is always someone who will be willing to do it cheaper than you whatever price you give…. We don’t compete on price but compete on value.”
The more things change, the more they stay the same
And that at the heart of this trend is the age old battle between price and value.
As author and coach Steven Briginshaw said: “There's always the chance that the prospective client may just be 'playing the game' and want you to reduce your price, but if that's the case you are better off without them. Value needs to work both ways.”
Briginshaw steers practitioners away from selling their services short on price. When the price-sensitive client finds a cheaper option they will be out of the door. The way to avoid these pricing conversations is through communicating your value: “This builds from the message in your marketing,” he said.
“You need to be able to explain how you add value, from the client’s perspective, and why they should choose your firm. Your sales meeting can be set up to learn this from them just before you pitch for the work. Once value is understood, price almost becomes irrelevant.”
And to do this takes clarity in your marketing. “Your marketing should self-select out the wrong clients leaving just the right ones,” Briginshaw said. “To get that to happen you need to be crystal clear and very specific on who you want to work with.”
Are you getting challenged on price? What do you think is the cause of this, and how are you dealing with it?