One of the most difficult decisions that anyone working in our profession faces is how to maximise the amount of net revenue that they generate from clients, without killing the golden goose.
A number of different approaches have been tried over the years and there is no perfect answer.
Some firms believe in maximising short-term profits. For example, they may sell tax schemes that are flavour of the month but might well eventually prove to be unacceptable to HMRC. In the short term, they will be able to charge very high fees but the clients involved are likely to disappear as soon as they realise that schemes were ill-conceived. Even worse, they may also seek to take legal action against the practice.
Increasing fees can have a similar consequence. Up to a certain point, clients will probably pay because they appreciate the service and, more significantly, cannot be bothered to go to the trouble of a long tender process. However, eventually they will be pushed over the edge and move on. Inevitably, this will happen immediately before some major piece of work would have fallen into your lap.
At the other end of the scale, we sometimes work far too hard to accommodate clients, reducing fees to a point where practices effectively losing money on the work as a means to retain the client. In the short term, this might be sensible in a market where it is difficult to bring in new clients who will be any more profitable. However, working for the benefit of a client rather than your own practice makes no sense at all.
A different approach is to look at the cost end of the equation. Moving compliance services to India has been a popular route in recent years but the general impression is that this has rarely been quite as easy and profitable as originally anticipated.
Changing methodologies to standardise procedures; for example, developing banks of letters to deal with specific low-level tax matters or reducing audit work can also cut costs and increase profitability.
Using a similar principle on a rather more grandiose scale, if you find a fantastic means of helping clients to save money, typically in the tax arena but possibly in other areas of the practice, cloning these for other clients can bring in substantial fees at relatively low cost.
Ultimately, perhaps the best way to really boost profits is to find clients who are rather bigger than the average. They will generally have a different approach to fees, which can be refreshing.
As an example, any company that has been dealing with the Big Four is likely to be used to paying through the nose for services that are solid but unexciting.
If your firm’s charge-out rates are 50% or even 75% lower, then if it can attract what many clients might regard as a relatively small project and do it well, they will be delighted at getting a bargain and you will be over the moon with the rare opportunity to achieve a 100% recovery rate.
This should lead to the dream scenario of a very happy client who has paid through the nose for your wonderful services and is desperate to come back for more. In the dream scenario, they might even tell their friends about your wonderful practice.