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.”
Annual increase
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.
Replies (17)
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I've never put my fees up since starting on my own in 2016. When inflation was low it wasn't really noticeable, but now with high inflation I'm increasing by 10% for most.
I want to tell clients about this before I commence the work so both parties are in agreement before I go ahead. Trouble is I keep forgetting! Oh well, will have to add it on next year instead. If I remember.
Thanks (1)Yes. After years of keeping prices the same, this year's high inflation meant that I couldn't put this off any longer. I have re-issued every client with a new engagement letter with (a) the new price (a 10% increase from last year's fee) and (b) a new clause stating that fees will now continue to rise with inflation each year. The engagement letters were emailed to clients with an email stating that I am sorry to be increasing fees but times are hard etc. This is the truth, I didn't really want to increase fees but I also didn't want to be working for a pittance.
The response has been great. Not a single client has kicked back and some even went as far as to say that they had been expecting me to put me fees up earlier than I did. I'm not sure how they will feel after several years of increases but, if these are no more than inflation, I don't see why anyone would be offended.
Needless to say (a) my fees won't rise above inflation as I resent it when my software suppliers inflict similar increases on me each year and (b) all new client's engagement letters will automatically contain the inflationary increase clauses from now on.
Thanks (2)I would never put the amount of the fee in an engagement letter! That is an almighty task to re-issue every time the fee changes.
Thanks (1)My initial one is in there for ltd cos (for SA its the same document for everyone), but then it permits both inflationary increases, hourly charges and "anything else as notified".
Generally next years fees go in this years letter.
Thanks (0)It is an almighty task but it pays for itself later. Clients are billed monthly. Cash flow is improved, bad debts reduced and billing queries are answered by "this is what our contract states". It has proved difficult this year but I am pleased we are reaping the benefits and will continue to do so.
The most challenging aspect is how to deal with changes due to new services being added / removed. However, as an overall concept, I like the fact that our price is clear and agreed by both parties before work commences.
Perhaps this works better for small, well established practices where not much changes. I think the last new client I took on was in January. I no longer have a website and the focus is very much on client retention rather than growth. I accept this may be a long way from what other company's aspire to.
Thanks (0)My firm has always tended to increase fees each year, although only by a nominal 2-3% in the recent low inflation period. So, when inflation hit 10%, we felt able to tell clients (in most cases) that we were limiting increases to a below inflation 7-8%, to which, by and large, clients responded very positively.
Thanks (3)No, we started 4 years ago and unless the client took out another service (like us doing the bookkeeping etc) or they have grown significantly then the price remained the same.
However last year we assessed all of our clients and the ones where we thought "oh they get that a bit cheap" we increased to what we thought was fair, then everyone else across the board gave them a pretty much blanket 10%, as they are really happy nobody batted an eyelid.
Thanks (1)I've heard of some adding 15% this year, on top of 10% last year
Thanks (0)not every year, but we do review and increase every 2-3 years depending upon the client and how their needs have changed. like everyone else' we've been hit with higher costs for software, prof fees etc etc so that has to be factored in at some point
we tend to do fixed fees, but keep a timesheet for all jobs, so its easy to identify which clients fee's need increasing based on the work involved
new clients coming on board are generally paying more than older clients, some of which would baulk at a large increase
Thanks (0)By not increasing fees each year albeit only slightly is a mugs game, low inflation days 2% and now ball park 5%. People realise that costs have increased and so the burden will need to be passed on.
Tech and efficiencies come at a price (thinking about the software hikes in recent years) although economies of scale is not really a consideration for the one man desk jockey. At this level efficiencies will not come into play so much here either.
Have always tried to be reasonable with fees as well as forebearance to the few that are struggling too. Not exactly large fees for starters compared with many and if the punters do not like it, there is the open market out there. More than happy for them to move on based on moral grounds and good luck to them.
Just be fair and reasonable at the end of the day because you are not a charity and you need a life too.
Thanks (2)If you don’t increase fees by at least inflation every year, how do you justify to yourself and your family that you are worth less than you used to be?
Thanks (1)What is arbitrary about putting inflationary increases through?
Clients don't want a 10% worse job, and increases in prices need to be paid for somehow...
If you are afraid of putting through inflationary increases, you are afraid your clients will leave you...So what else are you letting slide to keep them happy....???
Thanks (2)Personally, I've always strongly disliked dealing with suppliers who consistently increase charges year in / year out, particularly as (in the years of low inflation over the past 20 years or so) an inflation increase of say 2% would be a bit mickey mouse so the "inflation" argument was often just a cover for well-above-inflation rises.
I've therefore never increased fees on an annual basis and I'm glad to see many others haven't either. That, however, was the position pre-covid and pre soaring inflation. Covid happened at a bad time in my cycle as I was nearing the end of the typical 4 or 5 year gap before I hit most clients with an inflationary rise. I didn't have the heart to sting my clients for an increase then (even though a lot actually did very well out of the pandemic) and that meant I had to ask for a lot of significantly increased fees last year. I haven't increased fees again this year but I have put clients on notice that there will be another increase coming next year.
All that said, I do agree with the panellists that fee increases aren't usually a major source of client discontent and that we accountants do tend to be more diffident than we should be in this area. My reluctance to constantly increase fees was partly the faff (minimal increases when inflation was low) and partly a desire to do as you would be done by.
Thanks (1)Dext are more than doubling their price to us today. They are moving to a per client basis rather than per user with unlimited clients (see my thread in Any Answers).
I will be moving all Dext clients to the free offering from QBO so that's a £12k plus vat annual loss to them.
I have been nudging my fee up to clients at around 5 to 7% on a per client basis after holding for many years (unless more services taken) with no complaints. If I doubled them as Dext is doing we would be out of business.
Thanks (0)It is hard to believe that the article and the responses date from 31 July 2023 and not 1923.
Since when were your costs or efficiency gains through technology linked to the fees that you charge?
It is all about the value you deliver and the client is the only arbiter of that value. Once you accept that (and I mean honour it absolutely), you only have one alternative - to deliver world class service and value.
Remember you always have more to offer the client than they have to offer you.
Therefore the answer to the question put is unequivocally "no". The problem is the question itself because it is predicated on irrelevant issues (to clients, that is) such as your costs, NMW and inflation.
Should we be increasing the value each year - unequivocally "yes" - and by the way, your fees and net income will increase automatically, and still leave plenty of room for compassion as circumstances dictate.
Thanks (0)You are absolutely correct and I would add that my experience (hard won) is that a whinger will always whinge and should be booted out of the practice to make room for those who live in the real world and understand that there is no free lunch and that cost escalation at the level of inflation is perfectly reasonable.
Thanks (0)I always increase fees every year, for CPI / RPI. Even 2.5% pa for 5 years is 10%.
I state annual 'inflation' increases in my engagement letters. Never had a problem with clients.
What I cannot understand, or justify, is the telephone companies making 3.9% + RPI annual increases. How can then justify that basis?
Thanks (1)