Practitioners squeezed on fees
After hearing several downbeat comments, AccountingWEB editor John Stokdyk tried to find out whether accountants were being pushed to reduce their fees, and how they were reacting to such requests.
When you first hear a new piece of information, its significance can pass you by. The second time you encounter it, your ears might prick up in recognition. By the third time you hear the same thing, you are justified in thinking you have encountered a bona fide trend.
After a hint in January, the suggestion that accountants were coming under pressure to reduce their fees resurfaced in June. Mark Hill of Woking-based Ashfield Accounting told me at Accountex that an automated bookkeeping system based on bank feed data from BankLink helped support client retention and acquisition by keeping their fees down.
A week later, at the CCH Conference Philip Woodgate from Goodman Jones commented: “We’re getting lots of pressure on price, just because our clients’ margins are going down. Clients are coming forward and asking for fee reductions, but they want to continue with the firm.” Online bookkeeping software from Twinfield helped the firm keep its fees down, he added.
To establish whether accountancy fees are under threat, we put out feelers in Any Answers and our LinkedIn group asking whether other members had experienced similar pressure.
The Any Answers fee squeeze thread attracted 80 comments that spilled over into arguments about time billing versus value pricing and whether or not accountants were entitled to a comfortable standard of living (with £40,000 set as the rough threshold for debate). Among those participating in the debate, roughly the same number had received such requests from clients as those who had not. The split was 65%-23% among the voters in our LinkedIn poll, but 42% of those taking part reported that “very few” clients asked them to lower their fees (see results, right).
AccountingWEB member paulgrca.net was one of several whose clients had asked for fee reductions and accepted the situation as a “sign of the tough times we are in”. With client businesses struggling to maintain turnover levels, firms in his region (Devon & Cornwall) were quoting ridiculously low fees to drum up work and taking on small fee clients they wouldn’t have touched a few years ago.
Mid-fee level clients with larger firms are often stuck with higher accountancy fees than they would like and start looking at smaller practices that provide a better service for less. Fortunately for Paul’s firm, “We have picked up a number of these types of clients.”
Young ronaldo was in a similar boat and said competitive pressures depended on where you pitched your firm in the market. “I have picked up a lot of clients from largeish practices in a small town lately charging £4k for a service that a competent accountant who is happy to earn £40k per year could readily service for less than £2k. Practices offering average service to small businesses at £50+ per hour will (and should) feel the squeeze.”
Jimess has not had clients asking for fee reductions, but did lose a couple who defected to rival firms quoting fees of £500-£600 for “the whole shebang of accounts, payroll, tax returns, P11Ds, hand holding, bookkeeping and generally sorting them out when things don't balance”.
While the weak economy will continue to encourage price-cutting, Jimess will not drop his fees to that level because he could not complete the work without sacrificing his standards. “We are service providers not processing monkeys and as long as I can sell that service for a price that suits both the client and me then I will be in business,” he wrote.
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What fee pressure?
Although a higher proportion of voters in our LinkedIn poll had some experience of price pressure, those who commented on the thread were more bullish.
“Hasn’t happened with us, bar the odd exception with someone wanting a fixed fee package,” said Andy Stopps FCCA ATT. “We put fees up 5% in April and had no resistance. People still appear to be willing to pay fees, as long as they are getting good value and good service levels.”
On AccountingWEB, Ken Howard also reported, “We've not had so much as a grumble about fees since 2005 when a client moved to a non-qualified firm because they thought £600pa was too much for a three-person partnership accounts prep and tax returns from poor records! Since then, nothing.”
How do you react?
Some practitioners have escaped the recessionary pressure on their fees, but a majority have probably have had some requests for reductions. How do they deal with the situation? From the conversations that took place, four basic options emerged:
- Take it on the chin - AccountingWEB member sarah douglas, for example, has reduced her workload for some clients because times are hard. “They have to make cuts all round, including a lot of directors who have cut their salaries so not to let anyone go.” Clients are usually good about letting her know about cutbacks and the situation can often change if they win a big contract: “When things get better they are always quick to increase our time for them.”
- Accept reductions, but work more efficiently to protect your margins - as Goodman Jones and Ashfield Accounting have done.
- Hold firm and get clients to change - for example by taking on the bookkeeping themselves. A typical exponent of this approach was Morgani, who was happy to discuss “the usual points about reducing our workload and therefore reducing the fees”.
- The final option is to reject a drop and use the opportunity to educate clients about the value of the services provided, or let the low-rent clients go.
Sumit Agarwal on LinkedIn uses a mix of options three and four. The firm constantly monitors clients’ turnover from their quarterly VAT returns and has devised a pricing structure linked to turnover and who does the bookkeeping. But when the firm’s fees are challenged, “We see this as opportunity and have good document explaining them our USP and why we deserve. Most of the time it works.”
You can’t buck the market
Margaret Thatcher famously liked to say that you can’t buck the market, but the fee squeeze is more complex than that, particularly for smaller practitioners, as it hinges on the interplay between market forces and individual self-worth, motivation and pride. During sometimes heated exchanges, different members spoke about what they expect to get in return for the effort they put into their profession.
Zarathrustra was one of the few who admitted they came into the accountancy to “earn decent bunce” and argued that the overriding factor in market prices was what practitioners were prepared to take home. “If everyone who took home 40K demanded 70K, prices would go up,” the prophetic one argued.
The hold firm tendency was the most strongly represented among those participating in the debate- and many were willing to see clients walk away rather than compromise on fees.
Paulgrca.net still held to a simple market-driven measure suggested to him when he first started out: “If I had no complaints then I was not charging enough - common sense really but I think it still holds good today.”
Petersaxton opted for a similar, if slightly more blunt philosophy: “If you don't like a client you either get rid of them or put up your price until it brings a smile to your face.”
There is another factor to counteract market forces: inertia and fear of disruption. Switching something as deeply rooted in the business as the accountant carries significant risks - for example of ending up with a dodgy practitioner - and can create a lot of extra work for business owners and managers.
When it comes to fees, accountants such as frustratedwithhmrc are willing to call clients’ bluff. Having had the fee discussion with some clients, frustratedwithhmrc is happy to explore how they can reduce the hours required to prepare their annual accounts, but is not prepared to reduce the hourly charge. He asks clients who persist to consider their position and gives some a client disengagement letter.
“It is surprising how few are prepared to sign.”
AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.