Low balling trend squeezes firms’ fees

Squeezing money
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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.

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. 

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?  

About Richard Hattersley

Richard is AccountingWEB's practice correspondent. If you have any comments or suggestions for us get in touch.

Replies

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29th Aug 2017 10:12

Let them learn the hard way. The client that picks the lowest fee hasn't got a clue what they are doing. They will expect instant service and will be the first to moan when they have not listened. There is a price where the job cannot be done properly and that unfortunately is where the low fees sit. If HMRC managed to work that one out they would increase the tax take considerably.

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By mkowl
29th Aug 2017 10:14

Interesting points raised there, I subscribe to the value over price scenario. I simply tell clients that we aren't the cheapest equally we aren't the most expensive. If the 3rd question or sooner from a prospective new client is "what are your fees" I tend to lose interest or over quote. Because that is their motivation and in 12 months time they will probably be doing the rounds again.

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29th Aug 2017 10:20

You pay peanuts, you get monkeys!

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29th Aug 2017 10:33

Personal service is key. If you provide a personal service and get to know your client's business and understand them, they will pay what you ask. If you operate a 'fee mill' then expect high turnover of clients as they discover what you promised in the one time they ever spoke to you before being passed off to some fresh faced junior isn't at all what they deliver.

I experience little to no fee pressure. One of my new clients recently accepted a tripling over his current fee to become my client, so fed up was he with dealing with a faceless organisation who didn't care about him at all, just wanted his money.

We will see an increasing trend towards bespoke service at the top end and bucket shop at the bottom. Position yourselves and choose which you want to offer!

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29th Aug 2017 11:03

You can use a raft from Argos to travel from London to New York. Is not cheaper? Why do you still pay for plane tickets?
Client needs to understand what we (accountants) do. The best way to do it is not to use Jargon to bore them. Sometimes baby talk is the best way to get to them.

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29th Aug 2017 11:37

I have found that providing you supply a good service to your client, they will stay with you. I tend to try and make systems as efficient and convenient as possible and to give back better quality advice for the same price. Taking advantage of more automation is key e.g. using online products. I do not agree with using sub-contract companies who farm work out to India etc even though it would cost me £11 an hour. Neither do I under quote and then try to up the ante as the relationship develops.
Flaky customers who are continually shopping around - well let them go.
Roy Price FCCA

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29th Aug 2017 11:43

If you're in the game of undercutting and charging less, then you're playing a game you're going to lose.

The big boys will drive the prices into the ground and already clients can get end of year accounts completed WITH QBO software, for less than £20 a month.

You have to stop competing and start dominating, and the only way you can do that is be looking at the value you can bring to your clients, clearly communicating that value and then finding the clients who are prepared to pay more. What you'll find is that...

Some will.
Some won't.
So what?
Someone's waiting.

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to JamesAshford
29th Aug 2017 20:38

The big boys?

The non-quals of this forum who are seeing their £100 a day fees poached by £50 a day non-quals are just grateful to not have to put in a shift at the local Maccys for their daily benefits top up.

The big boys aren't interested in their dippy Arbonne clients! ;)

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By mkowl
29th Aug 2017 11:55

The more interesting scenario is where I have had a recommendation to quote for work, done it blind ie not knowing the previous figure, come in at 50% but think its fair for the work involved then at the first accounts meeting been told this was 50% more value to them. There is still a lot of very decent clients being overcharged and they don't realise

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29th Aug 2017 14:21

clearly costs are going to be reviewed by any sensible business owner in the next few years

they are already facing a massive hike in expenses that are forced upon them - NMW increases, workplace pensions, insurance, business rates, to name just a few

its only natural that somewhere along the line, these business owners will review the costs that they do have control over and change suppliers accordingly.....sadly accountants will be in this bracket.

there will always be someone cheaper, whilst many on here (myself included) think the job cant be done properly for less, will the client understand this? probably not, or not until its gone Pete Tong and they have an enquiry on their hands

Sadly i do think that a lot of accountants greatly over estimate the loyalty of clients, we are a commodity, there is another one just around the corner, waiting with open arms to take your client away

I do agree with mkowl, a lot of clients at bigger firms are being overcharged and also receiving a poor level of service at the same time

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29th Aug 2017 18:47

When we have HMRC saying 'Tax shouldn't be taxing' and suggesting that cash accounting is an easy option for small businesses, clients may be tempted to go on the internet for the cheapest. We have to respond and remind clients of our added value.

Six reasons clients need us are:

1.Income tax has recently become so complicated HMRC itself is finding it so taxing it's had to reprogram its system mid-year :) We can spot the errors and deal with it.

2.We can always rely on politicians to fiddle around to make policy points. We know whether it's a real change or a headline.

3. Accountants can give business advice based on their valuable experience from seeing the finances of lots of businesses. Clients love this.

4. Cash accounting has many limitations such as giving a retailer a false picture of his/her profits.

5. The Big 4 (I was there once) can never compete because they can't provide an experienced, quality, qualified person for that fee.

6. 100% reliance on software doesn't make sense. All software is a tool which needs checking and interpreting.

We'll have to continue to make our case all day every day. The more often I do this, the easier it gets. And it works!

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By Reado
30th Aug 2017 11:25

Whilst some firms do deliberately low ball to ensure they get a potential new client, there is definitely a lot of firms that grossly overcharge there loyal clients. I have picked up clients over the years and after completing their accounts I have no idea how the previous accountants justified the fees charged. I would say coming in with an aggressive quote represents a intelligent business model and that most clients leaving their current accountants are doing so because either the fees were over the top or that service was less than satisfactory. Our business has been steadily growing for years (we tend to give aggressive quotes to existing businesses) and our client retention rates are the best I've seen in my 20 years in practice, this is because we charge clients fair fee's and provide a great service. All this about not being able to do a proper job without charging exorbitant fee's is nonsense to justify over the top fee's in my opinion.

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30th Aug 2017 11:45

Accountancy is not valued. Hence you have to give them service which they do value then fees are no issue.

Yes KPMG and the like can quote cheap because they do automate which we small fry cannot afford but service is non-existent. So if a client wants a low fee with no service just a process then yes KPMG and the like will get the business. Till they get bored with the hassle maybe.

I have my fee structure and refuse to work for less than what the plumber charges me. If that is too much, so be it. But then I am at the end of my accountancy life so no kids and no mortgage.

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30th Aug 2017 13:38

We all encounter the 'Wrong Clients' for our practice from time to time. We need to identify them as soon as possible and then 'recommend' them to a more appropriate practitioner who will be able to attempt to meet their needs. Our practice has been fortunate enough to attract 1 new client every working day since the 2008 financial crisis. We have a professional marketing machine that tries very hard to attract more of the 'Right Clients' to the practice. It is also necessary to highlight the value of your services to clients which does help to avoid misunderstandings and creates a value-added approach to fees rather than a cost driven mentality. Now and again we also get it wrong but if you are a modern accounting practice - adding significant value to the clients' business and personal lives, you must ignore the wrong clients comments, stick to your high value services and strengthen your resolve to attract more of the 'Right Type of Clients' for your practice.

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31st Aug 2017 13:29

Personally I do not think we have much to fear from KPMG and the likes and their small business. They seem to focus on Tech Businesses looking for the next "Unicorn" but probably burn loads of time on jobs that go pop after 6 months. They cannot give the personal service we give and I have no worries about clients being drawn by the badge they carry.

The low fees given in examples are more likely where people have just got it wrong.

I was guilty in my early days of quoting low to get work but learnt my lesson from it. If a client had a quote of say £1000 I would maybe go in at £800 to £850 to get the work I wouldn't be offering to do it for £300 which is how extreme some of the quotes are.

I had a contact the other day from a Nurse working via a Limited company she was looking to move as her current accountant had charged her £600. It turns out she only wants to pay £300 (as thats what he friends pay). I would be at £1000 for the work so told her good luck.

I cannot see how anyone would work for so little and cannot see how they would deal with AML, Submission of accounts for so little money, they must be either employed people doing work on the side using client logins and HMRC tools, or the agency does them in house as they have all the information already and just use a stock expenses claim for everyone.

You just have to try and rise above it and stick to your guns on your fees and not get too upset when you dont get every proposal you issue.

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By NH
to Glennzy
31st Aug 2017 13:57

Interesting to be able to talk about a specific example here, ie your Nurse Ltd.
If we take a year, probably has around 48 weekly amounts of income coming into the bank, minimal expenses, probably no VAT, a one person payroll, no AE, a simple SA.
Be honest how long is that job going to take over the year? I agree £300 is very low, but I can see why someone working from home with very little overheads would happily do that for £300, and give a great personal service too.

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01st Sep 2017 10:25

Land and expand

This is a term used by one of the Big 4, an initial bargain is offered, the rewards come down the line when lots more services are offered and taken up by potential customers.

I am aware how difficult it is when starting a business, but stick to your guns regarding fees, once clients start dictating fees, you are batting on a very sticky wicket, in what other service or profession could this happen, I am going to Sainsburys later, I will try some haggling down there, wish me luck.

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