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Fee discussion with prospects: Preparation and nerve is all it takes

Norman Younger explains how a steady nerve is all it takes when negotiating a new client’s fees.

12th Oct 2020
Director Maximiti Limited
Columnist
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A businessman greets a business woman.
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Last time we looked at a scenario where a new client’s fees were hastily agreed and both parties signalled that they were satisfied, initially at least.

This time we’ll see how the accountant could have taken a different approach to the deal, which is what it is – let us not lose sight of this fundamental fact when approaching a seminal fee discussion.

Client’s expectations

When I negotiate I like to scope out the other side early on to gauge their expectations.

In our example, the fee to the previous accountant is clear on the accounts and a request to have sight of the letter of engagement or maybe asking the client, will tell us what was done to earn that fee.

We also know that the client seeks to move because she is unhappy, and unhappy people are usually not shy in telling us the reasons why.

So far, so good. We are in control of the conversation, but the next stage is critical.

What are her expectations of a replacement accountant?

Actually, is a simple replacement sought or is she after a new style of accountant?

  1. Proactive with tax saving ideas, perhaps?
  2. More easily reached by phone, maybe?
  3. Available out of hours and weekends possibly?
  4. Business insight newsletters, per chance?

The list could go on and on, so it’s best to ask her what she feels was missing previously.

The fee

Once you let her know that you can address these gaps, assuming of course that you actually can, it is time to head towards the fee that will be charged.

We know that £1,450 is our point of reference so the question is how much value does your prospect attach to the list of improvements you can offer.

Let’s say that all four of the above points can be addressed by you, and in addition you have bi-monthly round table (virtually maybe) client events where ideas and business cards can be exchanged – a fifth offering.

Items 4 and 5 are all “part of the service” and have a minimal marginal cost to you but are valuable to clients as it shows you are up to date and care for clients in a proactive manner.

Items 2 and 3 are a bit more of an unknown as you don’t want to end up with “the client from hell”, although you can get rid of her next year by a big fee jump if you are taken advantage of. It’s a calculated risk and can be mitigated within the letter of engagement. This reassurance is probably worth a lot to a client and you calculate that it in normal circumstances it is 2 or 3 hours of your leisure time in the year. You charge £175 per hour so this is worth a premium price of £275 per hours.

That leaves item 1 – this does take time but the potential savings for the client are easy to demonstrate and quantify even if not always tangible unless you specialise in tax refunds. You’ll have a fairly good idea of the nature of what is expected and the time it will take to accomplish.

Roll of the drums, dimmed lights please. The fee you quote is £2,250.

Client makes their decision

As you deliver the news will have written down what you offer, come out with the figure and smiled benignly - no coughing, shifting in your seat or apologising. You wait for the response.

She knew it will be above £1,450 but had no idea it would romp through the £2,000 barrier! Now her mind is focused. The following are possible outcomes:

  • She signs up immediately and you accept warmly, reassuring her that it is a sound decision and you’d love to get cracking on her finances immediately.
  • She advises you that she has to go away and discuss it with somebody, at which you will sagely agree is a wise move.
  • She asks what you can do to reduce it or counteroffers you £1,750. You explain that you would have to reduce your out of hour’s availability and attendance at the client networking events would be reduced to once a year. Even so, the best you can offer with these changes is £1,900.

Having come this far she really does want to use your firm, which is why she is sat in front of you. She will most likely ask if she can have full access to the events or some level of out of hours attention for the £1,900.

Your response should be that you can agree to the events access if the onboarding can be completed by the end of the week, especially as you thrown in a sweetener that while not available out of hours she is welcome to leave a message for a response on the next working morning. A win-win all round.

All it takes is planning and a steady nerve, admittedly the latter is not for everybody, but surely it’s worth a try?

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Replies (5)

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blue sheep
By NH
12th Oct 2020 16:35

I didn't get to the end of this as I had to rush off to teach an elderly relative how to suck an egg

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Replying to NH:
Red Leader
By Red Leader
12th Oct 2020 17:43

I disagree. I think a lot of practitioners are bad at this sort of thing.

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By meadowsaw227
14th Oct 2020 10:19

It sounds a bit like a double glazing sales technique ? .

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Replying to meadowsaw227:
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By Martin Schneider
14th Oct 2020 15:15

I agree. Whenever I hear the word "sweetener" I run a mile.

But, to be fair, there's so many ways to price, fair play to AW for putting one idea out there.

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By Lahtac
16th Oct 2020 00:40

Good clients refer good prospects as they often tend to be in the same social and work networks. Messers refer messers as they mix together. A referral is a reference point. The only pricing risk is from new inquiries that don't have a referral. I definitely scope new clients as to what they want in terms of service and partner access. . We expect new clients to be on the cloud (other than private clients) and expect a monthly standing order payment (existing clients are being educated on these points). If there is push back on the cloud or standing orders you know you've got a problem. I also tell clients that we spend a lot of time on training and keeping upto date and this is reflected in fees, if we have lower fees we cant spend time keeping upto date unless we reduce our net income and the quality of service will be reduced. Our limiting factor is hours in the year and therefore we seek a reasonable return on those man hours. As we add new clients, does it make sense to get a lower marginal return on available man hours on each new client by low balling. Also after overheads a good chunk of the fee goes in tax so where is the residual?

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