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Fees increase unavoidable as inflation bites

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As the UK economy battles with surging inflation, accountants have no option other than to finally increase their fees.

11th Jul 2022
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The Covid pandemic forced many accountants to hold off on reviewing their fees, with many admitting that they actually ended up writing off hours of billable time to support small businesses. This charitable act combined with inflationary pressures kicking in has created a perfect storm which has left accountants without any other option but to increase their fees. 

A recent episode of Any Answers Live found out how accountants are managing the tough economic landscape and how the unavoidable need to review their pricing structures has led to a boom in new service lines like virtual finance director.   

Fee increase was unavoidable

So what happened? As coach and mentor Reza Hooda explained on the AccountingWEB Live show: “There's certainly been a realisation and an awareness from practice owners that they need to look at their pricing, because many of them have realised that they're underpriced and ended up doing a lot more work for clients during the pandemic without charging for it. They can't sustain those levels of fees those clients were on.”

Kieran Phelan, the founder of Satori Accounting, was one of those firms that didn’t revisit their fee structure during the pandemic. 

Speaking on Any Answers Live, he said, “For the first 12 months of the pandemic, it never felt right, to be going back to clients to [increase fees], and then there was the challenge of doing bits of work as a freebie during the early period of the lockdown.”

But as inflation is expected to peak at 11% this October, Phelan realised that it’s time accountants addressed their own business. “We're probably advising some of our clients to look at their pricing structures and we probably need to actually lead the way on that as well.”

Phelan’s experiences are in step with the experiences of the Any Answers Live viewers. Over half of the audience (52%) said that with inflationary pressures they have had no choice but to increase fees, while 39% said that while they haven’t put their fees up yet, they’re considering it. 

Virtual finance leads pricing boom

Some firms, though, made an early start in increasing fees. Hooda explained that while some struggled, other practices thrived during the pandemic and transitioned this success into overhauling their pricing structure and service offering. “They are now doing the things that small business owners have been crying out for for years.”

He said firms had become “complacent with a recurring fee model” but those that had unshackled from this model are now delivering an outsourced finance department service - which is akin to having a finance team on demand. 

Even during the pandemic, Hooda said accountants that adopted this pricing structure have been regularly getting fees from £5-10k up to £50 - 60k.

“The new model is now working very much in tandem with the client. And the way you get higher fees for that is by reframing the value of that to the client and the service they’ll receive compared to their last accountant who just did the year-end accounts,” said Hooda. 

MTD effect

As practitioners start preparing their practices for the roll out of MTD ITSA in 2024, Hooda thinks a silver lining will be the opportunity for more accountants to digitalise and add value to clients, and offer services like becoming a virtual finance director, which then flows through into the pricing model. 

“This is where we can really add value to clients when we're actually dealing with real time numbers rather than just reporting on history,” he said. “The old school pricing model of pricing by the hour or pricing per job is outdated,” he said. “We need to move towards a pricing model that really takes into account the value that we deliver to clients.” 

Cheapest firm

With the majority of firms increasing fees, there is the temptation to move in the opposite direction and grow your practice through cutting fees instead. “That is a model that can work,” said Hooda, but he warned, “Remember, there isn't much room for many players in that marketplace.”

“There are essentially two kinds of models to make profit: there is low cost leadership and high value differentiation.” However, “There's no strategic benefit in being the second cheapest in the marketplace. So you're either going to be the cheapest or you go for high-value differentiation, otherwise you're going to get lost in that mushy middle and you're not going to make any money.”

Steps to pricing success

Hooda said the first step for firms that haven't reviewed their fees yet is to shift away from billing annually. “You are insuring your clients against the risk of them not knowing the answer to something, the risk of them having to call HMRC, the risk of them having to go to a specialist to answer a tax question,” he explained. 

To do this, he advised Any Answers Live viewers to move to a value or monthly billing model. “That will automatically help you to increase your price because that £1,000 a year that you were charging, you can easily then change that to £120 to £550 a month and get an increase just because you are quoting monthly.” 

This, he said, would bring more efficiencies and also creates more ‘touch points’ with the client which then leads to charging for additional services.  

“We can take on the bookkeeping for a client, and that has value because they don't have to do it and it's done properly. And then taking a step ahead from that is, if the client wants some meaningful reports to make better business decisions then we can start doing management accounts for those clients and becoming more involved in the finance process.”

But ultimately, and arguably the most important step in order to make these pricing changes, firms must understand their value. “You need to understand the value you're creating, and take a share of that value through your pricing. Because that's all pricing is: it's taking a share of the value we create. It's not in the minutes or the hours that you're spending on your clients affairs.”

You can now catch up with this episode of Any Answers Live on demand. Kieran and Reza answer viewers questions on increasing fees and further expand on how you can price new services. 

Replies (22)

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By lynescraig
12th Jul 2022 01:07

What planet do these people live on?
I quote - “That will automatically help you to increase your price because that £1,000 a year that you were charging, you can easily then change that to £120 to £550 a month and get an increase just because you are quoting monthly.”
£1,000 to £6,600 per year!!!
I'm sure the client won't notice the extra £5,600 that they are paying because they are paying it monthly!
I had to check the date on my calendar to make sure it wasn't the 1st of April!

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Replying to lynescraig:
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By Open all hours
12th Jul 2022 06:56

Thank you. I was intending to write much the same but I thought it must be the heat which had caused such nonsense to be written. In the cool of this morning the article is still there and it alone has raised my temperature.

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Replying to Open all hours:
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By Hugo Fair
12th Jul 2022 10:37

The 'solutions' are just soundbites that don't bear close inspection.

"Because that's all pricing is: it's taking a share of the value we create" = the classic method of stating the obvious as if that on its own solved anything.
But whose version of value (client's or yours) and how do you quantify it let alone agree it?

It's actually ar$e-about-face ... common sense tells you that the correct order is:
* Ask clients (or prospects) what they don't get but need and value;
* Work out if that's something you want to offer (not just costs come into this);
* Check whether such an offering will please both parties' sense of value.

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Replying to lynescraig:
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By Tom 7000
12th Jul 2022 13:14

I was just thinking the same thing, but hey what do I know, our practice is tiny, only 2.5 clients

Tom

ps all numbers on this post are measurements in '000s

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Replying to Tom 7000:
paddle steamer
By DJKL
12th Jul 2022 16:03

So Tom 7,000,000 it is.

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By Open all hours
12th Jul 2022 07:06

We are accountants. Some of us are clinging to what we were raised to believe were professional standards.
The ‘land and expand’ approach works well for management consultants and software companies who care less about their reputations.
Where we can add value I’m sure we will do so but the primary purpose should always be to ensure the clients financial health.
If I smell profiteering I tend to run away from it and advise my clients to do the same.

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By Winnie Wiggleroom
12th Jul 2022 07:31

Back in the real world, I guess we are a fairly typical firm - for the last 20 years if we have seen that we can offer something extra to a client that will be useful to them we have quoted for it and they have either chosen to use that service or not. Does that make us a "Virtual FD", or are we making huge profits from "advisory", no, we have just done our job as accountants.

And is anyone still billing annually anymore? we introduced monthly over 10 years ago.

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Replying to Winnie Wiggleroom:
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By Geoff56
12th Jul 2022 09:35

"is anyone still billing annually anymore?"

Well, yes.

For those clients where I just complete a tax return plus, possibly, their accounts, it is the most appropriate way to invoice someone. It seems so to me anyway; although I fully accept that many others don't see it that way.

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By Barkster
12th Jul 2022 09:26

"But as inflation is expected to peak at 11% this October, Phelan realised that it’s time accountants addressed their own business"
So lets just add more fuel to that particular fire, shall we ?

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By Crouchy
12th Jul 2022 09:42

I think the premise of the article is correct, accountants do need to raise their fees, they have costs like every other business and those are rising - staff costs, software, insurance, prof subs, have all increased and will continue to do so.......whether the ways suggested are good is another matter

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By Ian McTernan CTA
12th Jul 2022 09:59

Accountants will need to raise fees- not least because MTDIT will incur huge amounts of extra costs.

The question is then: do I raise prices by inflation this year (and how many of my clients can afford it) or do I really hit them hard when MTDIT hits.

I'll be raising my monthly fees on 1 February next year, probably by 10%. But then I've never been c heap so I'll factor in if someone is struggling rather than just push them away. I also don't have staff so can afford the luxury of waiting- many others will need to push up prices to fund the staff pay increases that will be demanded.

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By LJCASE
12th Jul 2022 10:44

I tried to get my non VAT return clients on monthly billing from April this year..... VAT clients are billed quarterly.

3 replied 'yes' to monthly payments - the rest didnt reply to the offer.

New clients = yes - they are OK with monthly. The current/more long standing clients = no.

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Replying to LJCASE:
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By Geoff56
12th Jul 2022 11:05

"I tried to get my non VAT return clients on monthly billing from April this year"

Monthly billing, or a fixed monthly payment?

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By DJKL
12th Jul 2022 11:06

Not sure the profession is the one that should offer this virtual FD service.

I effectively do two FD roles for two entities, one three days a week (property investment group) the other about 80 hours a year (commercial property agents). I get paid for both via payroll. If I were inclined I might take on another couple of roles, there are people out there who would bite (though I do have to watch my non competition clause in my main contract)

The two are in related fields, I have industry experience in the property industry over the last 25 years, there is the rub, unless the party offering the FD service has something value added to offer what is his/her purpose? Platitudes about cashflows/management accounts are all well and good but really that is not where an FD adds value, value is more added in the boardroom when evaluating projects/investments etc and often that value arises from genuine hands on experience, effectively knowing the right questions to ask.

Practice might offer an FD service in niche industries where they really understand that business but frankly if they scatter their offering over myriad industries, where they have little relevant experience, then really not sure what they actually bring to the table.

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By indomitable
12th Jul 2022 11:14

“There's certainly been a realisation and an awareness from practice owners that they need to look at their pricing, because many of them have realised that they're underpriced and ended up doing a lot more work for clients during the pandemic without charging for it. They can't sustain those levels of fees those clients were on.”

That's nothing to do with underpricing that's doing work for FREE!! Those practices should have charged. No practice can continue working for FREE but this has nothing to do with underpricing your services.

"To do this, he advised Any Answers Live viewers to move to a value or monthly billing model. “That will automatically help you to increase your price because that £1,000 a year that you were charging, you can easily then change that to £120 to £550 a month and get an increase just because you are quoting monthly.”

Complete nonsense in my view!

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By GHarr497688
12th Jul 2022 13:08

Having been in the game for 40 years I would say that hiking the price suddenly will mean a high risk of losing a client. The article is written like we just get one Fee and that's it. No allowance is made for the fact the work comes back year after year and over time a relationship develop and looking greedy at a time of inflation does not sit well with clients. Also often you offer extra value by suggesting tax planning and management accounts etc. general feeling is the client assumes you are trying to get an extra Fee. Cautious fee increases is the way to do it.

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Replying to GHarr497688:
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By Winnie Wiggleroom
12th Jul 2022 13:33

I agree, our approach has always been to increase annually according to inflation, this year we will send out something like this "Although it is normally our policy to increase according to the rates of inflation, this year is exceptional. Although you will have seen alarmist predictions of 11% we have not yet seen that in our own costs and therefore we are taking a cautious approach and increasing this year by 5%"

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By HLB
12th Jul 2022 13:11

A shortage of experienced people, together with inflation, have seen staff costs increase across the profession. We are not alone in this as many industries are experiencing the same.

Combine this with other rising costs such as power, fuel, software etc then fee increases are inevitable if the proprietor's income is to remain the same, even if workflow efficiencies are improved. I doubt if efficiencies can cope with a 11% inflation rate, even in the poorest run practice.

If your own income suffers due to lack of action I question whether giving businesses advice is appropriate.

With regard to offering additional services and increasing fees my 30 years experience of practice has taught me that clients' are not stupid. They won't pay for anything they don't want. That doesn't mean you cannot increase fees by giving them something that do do see value in. Giving them the choice is the key but also explaining to them the benefits they will get, because that is what is most important to them. It could be more money for them or more time. Don't assume that they won't buy from you, which is a mistake I made for quite a few years. In fact, I learnt a while ago that many clients (not all) rely on recommendations made. We are the experts in the field which is why the come to us in the first place.

It's all common sense really!

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Glenn Martin
By Glenn Martin
12th Jul 2022 17:00

There is also the actual issue of what happens when you get the fees up to £50k to £60k they quickly take the work in house or poach your staff to work in house and you are left with a £60k whole to fill after creating a good client for someone else.

I find with the virtual FD role you need an upper cap on what you do as typically when clients ask "can you just do this" you are effectively an employee.

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Replying to Glennzy:
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By DJKL
13th Jul 2022 10:13

True- I am in my current role as in 1997 my current employer's in house accountant retired, he suggested me to the directors (he used to phone me with technical questions, we were their auditors) and the firm I was with then sold my services for a day a week. Roll on to 1999 and that was up to 2.5 days a week, the fee being charged each month was by then far more than my employment cost at which point I got headhunted as an employee and the rest is history.

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Glenn Martin
By Glenn Martin
12th Jul 2022 17:00

There is also the actual issue of what happens when you get the fees up to £50k to £60k they quickly take the work in house or poach your staff to work in house and you are left with a £60k whole to fill after creating a good client for someone else.

I find with the virtual FD role you need an upper cap on what you do as typically when clients ask "can you just do this" you are effectively an employee.

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By justsotax
13th Jul 2022 13:30

the change to 'subscription' culture....slowly but surely tying down people so they can't escape (see IRIS), that's not about value, for some we still like to think we offer a service befitting the clients requirements.....

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