Do you increase your fees every year?by
With everything else going up in price, is it only right that accountants also increase their fees? Or as inflation continues to bite, should firms hold off from the arbitrary hike?
Fees have always been a thorny issue. It’s one of those fraught client conversations that practitioners like to put off, but broaching the subject has only become more difficult as the spiralling economic upheaval has added further pressure to the bank balances of small businesses.
If the rising costs of day-to-day essentials aren’t leaving pockets empty enough, the Bank of England is poised this week to increase interest rates for the 14th consecutive time. The likely headlines of interest rates hitting the 2008 high of 5.25% are only going to make fee conversations trickier.
Decade without an increase
Often lost in these fears is the fact that accountants are running a business too. Unsurprisingly then, when a viewer on a recent episode of AccountingWEB’s Any Answers Live said they haven’t increased their fees for around 10 years, their admission was met with gasps from the panel.
The viewer had shied away from increasing fees mainly due to wanting to avoid confrontation with clients.
However, panellist Lucy Cohen, the co-founder of Mazuma, encouraged the viewer to push through any fears of upsetting clients. “Everything is getting more expensive: national minimum wage and national living wage goes up every year and software licences go up every year,” she said. “Fees have to go up every year.”
Cohen had a manager who shared the same reluctance as the commenter. The firm would take a temperature test on what the rest of the sector was charging, look at their percentages and pick the fee based on that. When the email was sent to the clients, the manager would always worry that “it’s hard out there” and “people are not going to like it”.
Cohen maintained that they don’t ask to put fees up; it’s part of their terms and conditions and their letter of engagement that fees will go up every year and clients will be given plenty of notice. “We have had thousands and thousands of clients over the past 17 years and I have never had somebody leave because our fees went up,” the firm owner said on Any Answers Live. “You’ll put your fees up and nothing will change, except you’ll get more money.”
Fellow panellist Sharon Baker, the founder of Kinder Digital Accountants, echoed Cohen’s approach, arguing that incremental price rises are better than the shock of an almighty hike.
“What is hard though, is if you don’t put them up, and then you suddenly need to because maybe the business has grown so much, or they’ve had extra services that you haven’t picked up on. If there’s then a jump, that’s when they’ll leave because they won’t understand it,” said Baker.
Learning from the mistakes of Covid
The conversation around regularly increasing fees is in stark contrast to the anguish many firms faced during the pandemic when overworked accountants wrote off hours of billable time to support small businesses with additional advice and file their furlough claims.
The charitable firms didn’t feel right in sending an invoice as the virus intensified and businesses buckled under the uncertainty, but the extra support did little for firms’ cashflow and financial position, let alone their bargaining power in increasing fees.
Baker was one of those firms that went above and beyond for clients during Covid – and even picked up an Accounting Excellence Award for her efforts – and as a result the firm didn’t increase fees for a couple of years with some clients when they should have done.
When it came to increasing fees for those clients, they were not aware of the internal discussions about keeping fees down to help them, so the announcement was met with surprise.
Baker called this a “big learning” experience. “If you decide for some reason, you’re not going to increase fees, then communicate that you’re not going to do it.”
Don’t leave it any longer
The main message from the Any Answers Live panellists to the viewer was to not leave it any longer because they have a problem of having 10 years’ worth of fee increase, if reviewed properly, and this could cause people to leave.
Baker advised the viewer against massively hiking the fees, but instead to stagger the increase. “We’ve had a couple of clients where their business has grown so we’re staggering the fee increase over six to 12 months,” said Baker.
Against the arbitrary hike
But for a profession that is steeped in rules and regulations, fees are often subjected to a finger-in-the-air methodology and every firm has a different approach.
Paul Meissner, chief compliance officer at 5ways group chartered accountants and host of the From the Trenches podcast, has not increased his prices in 14 years for “consistent services to consistent clients”.
Instead, Meissner said every job is properly priced and these prices grow over time. “I feel there is merit in talking about the pricing of different services differently. Recurring vs ad hoc services can and should have a different price fluctuation profile.
“In my opinion the ‘my costs have gone up so my clients should automatically pay more’ strategy is flawed.”
Chris Maslin, the founder of Maslins chartered tax advisers, also doesn’t agree with the logic of increasing fees every year as a default. “Consider the market and your costs, not just some arbitrary path,” he said.
As such the firm’s headline price has remained consistent for eight years. “While inflation was running at 2–3%, this was counteracted by improvements in tech/efficiencies and economies of scale for us,” he said. Adding that changing prices is “an admin pain in itself!”
Maslin’s story should come as a relief for the viewer that hasn’t increased fees in a decade, however. He said the firm finally increased fees a year ago by approximately 20%. “On the whole, clients didn’t bat an eyelid,” said Maslin.
“Hopefully general inflation will come back under control, and productivity will continue to slowly improve, so we won’t feel the need to hike them again any time soon.”
Do you increase your fees every year? Or is a yearly increase too arbitrary? When you do decide to hike fees, how do you broach the topic with clients? Tell us below.
You can watch this episode of Any Answers Live now on demand. In addition to discussing fees, Sharon Baker and Lucy Cohen share stories of clients behaving badly and their tips on setting boundaries and keeping them in line.