5 mistakes you make when quoting fees to new clients

Twice in the last week I have been asked my view on fee quotes sent out by accountants I am mentoring. They are not alone. I know from my webinars and round table meetings that plenty of sole practitioners are frustrated by the same issue.
In each of the most recent cases I noted that the accountants had made the same mistakes. I was able to offer constructive advice that I am sure this will enable them to win more of the work they quote for in future.
Here are the 5 common mistakes:
1 – Focusing on the fee payable rather than on the value the client will receive (and expressing this in a way that relate to the value as required and perceived by the prospective client).
2 – Keeping the fee quote email/letter short and sweet. If you don’t spell things out you are reliant on the prospect’s past experiences and expectations.
3 – Failing to clarify the prospect’s reason for seeking a new accountant and what they want. If you don’t know what they value you are unlikely to make a ‘connection’ or to be able to relate your fee quote to vale (as perceived by the prospect)
4 – Assuming that all that matters is price. That’s rarely true unless your marketing only attracts people looking for a cheaper accountant. Which means they’ll be off somewhere (even) cheaper next year.
5 – Omitting to identify what you will do that many other accountants don’t do. At the headline level what you do might be the same but you are unique – with distinct experiences and stories you can tell about other clients you have helped in the past.
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What can you do if your fees are too low?

Let’s start with a truism. No accountants complain that their clients are paying them too much. Conversely there are five main reasons why accountants think their clients are paying too little:

1. They haven’t put the basic fee up to a commercial level;
2. They don’t charge more during their busiest period;
3. They haven’t asked their clients to pay for ‘extras’;
4. They think their clients would struggle to find the money;
5. Their clients won’t pay higher fees or for ‘extras’ even when asked

If your basic fees are too low, don’t put off raising this with your clients. All you really need to do is plan your approach and remember that this could be different for different clients.

One accountant I mentor uses me as a sounding board to test his approach to having these difficult conversations with clients. He reports that his confidence is always higher afterwards and he doesn’t lose that many clients when he advises them of his new fee rates.

If your clients are struggling with cashflow you have a choice as to whether you increase your fees or continue to act as a charity or credit agency. With very few exceptions I would rather stop working for people who cannot afford to pay my fees – and to ensure I don’t end up having worked for free (eg: if they go into liquidation).

Much better to ensure all clients are paying fair fees and that those who cannot afford to do so move to another supplier who can provide the level of help they need at a lower fee. What you want to avoid is hanging onto such clients and then suffering bad debts (which includes building up work in progress that cannot be billed because the client has gone out of business).

You’ll need to think this through before you start approaching clients to start work on this year’s tax returns.

I suggest you book a chunk of time in your diary to plan how you will do this and maybe to brainstorm some ideas that will work for your practice and your client base. In my experience whilst there are plenty of issues that are common to many firms, everyone is different so what works well in one firm is not automatically right for another.

I normally suggest that accountants start by focusing on how much they want to earn from their practice. Then you can determine what they will need to do to achieve that ambition. Only you can decide what you want and how you’re going to get it.

When your fees go up you will invariably lose some clients but even if you do, overall you are likely to end up with more fees and more time – a win-win situation. And if you also make a reciprocal fee arrangement with a smaller accountant to whom you refer your ‘lower value’ clients you can ensure that everyone is happy.

 

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Is it better to have lots of small clients or a smaller number of larger clients?

The question I was recently asked by an accountant was actually: “Is it better to have 500 small clients paying me £500 pa or 50 larger clients paying £5,000 pa?”

A little background from the accountant concerned:

“The reason behind this question is that I have been running my practise for many years looking after clients that perhaps most others accountants wouldn’t entertain. However, these small clients are always polite and pay on time even though they can be quite messy i.e. Shoe box or carrier bag type book keeping. But I do enjoy preparing their VAT, payroll and accounts, and they are always appreciative. I also have a few much larger clients where fees are £3k – £5K but find these clients are typically very demanding and often impose strict deadlines for when their work needs to be delivered. They rarely say thank you, even when we deliver before the deadline.”

My reply picked up on the following:

The answer as to what type of practice is best depends on a number of factors including:
  • what work do you enjoy?
  • what client base do you currently have?
  • how easy do you find it to win new clients (and what type of clients)?
  • how much effort do you want to put into winning new clients?
  • where do you want your practice to be in a few years time (taking account of regulatory changes and your own plans)?
  • how do you want to make your money?

You also need to consider where and how you will find the larger new clients. Inevitably they are tougher to win than are the smaller and less demanding clients. Some accountants are happy to only go for the larger fees. Others prefer to take on up all-comers – some of whom may grow into larger clients in the future. You need a very different strategy to win larger clients than smaller ones; also different marketing messages and a different approach to sales. It suits some people, but not everyone.

I do not believe there is one perfect solution that is ‘best’ across the board. The grass often seems greener on the other side.  At meetings of The Inner Circle for Accountants the members often note that they each run their practices in different ways and that no one approach is perfect.

One member said his practice is on course to reach: 5 clients paying £25k pa and ten clients paying £5k pa.  He says he won’t take on a new client that pays less than £3,000 for recurring compliance work. And he doesn’t do any bookkeeping for clients.
Most other members have much lower average fees and minimum annual fees ranging from £250 to £1,600. Some want to grow their average site here. Others want to grow their numbers and like to play the volume game, passing over any extra advisory work to specialists. That way the accountant can just focus on doing what he does best.

 

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Can you choose your clients?

An accountant I know inherited his practice from his father and still acts for many of the same clients. He feels he owes them some loyalty and support even though they do not fit the profile of the practice he has been building.

He described his ideal clients – of which he seems to have a quite a few. Those old legacy clients do not fit but he doesn’t want to let them go. I understand the dilemma.

Then he told me that those legacy clients tend to be the ones who quibble about fees, sometimes even after they’ve been agreed. The accountant feels conflicted. On the one hand he understands the theory behind pricing by value. On the other hand he would rather get paid promptly even if that means accepting he has to agree a discount.

I said I would understand this attitude better if the fees in question were thousands of pounds.Then there would be understandable fear of having to replace the fees if the client goes elsewhere.  But the example this accountant gave me was of a fee for just a few hundred pounds. I suggested that he decide upfront what is his BATNA in such cases.

BATNA means: Best Alternative To a Negotiated Agreement.  If a client won’t play ball and you don’t want to reduce your fee, what’s your best alternative? Are you going to sue? To let them go? To introduce them to another cheaper accountant? To refuse to act for them any more? There are numerous options.  We generally find negotiations easier if we are clear on our stance at the outset.

Another option might be to seek something else from the client in consideration of you agreeing the lower fee.

I mentioned that one accountant I mentor started to call me to give him a boost before he starts or concludes tough fee negotiations. When we started working together he generally backed down and gave in to all clients who queried fees or fee quotes. Now he has the confidence to quote higher than before, secures agreement and gets paid with less hassle – in most cases.  He says I give him the courage to be firmer than before. All that matters to me is that it works and he feels more successful.

Going back to the question in the title to this piece: Can you choose your clients? Yes and it’s probably a good idea to choose only those who will pay you a fair fee for the work you do. Otherwise, what’s the point?

 

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Lessons for accountants from…. hairdressers

The question of how to set professional fees is an old one. I’ve talked before about easyjet pricing and referenced the way that we pay upfront for most forms of transport and holidays.  But we are not used to doing this when we are engaging someone to provide a personal service – such as hairdressing.

Nevertheless some entrepreneurial hairdressers do operate pricing policies that could be adapted by accountants. Many accountants already replicate the concept of a menu of services and extras – in the same way as these are set out whenever you visit a hairdresser.

Some hairdressers also offer special rates for senior citizens and other favoured categories of customer. I’d like to think this is sometimes simply due to a willingness to help people who cannot afford the hairdresser’s normal rates.  But even then these rates are generally only available at times that suit the hairdresser. And this will typically be when they aren’t otherwise expecting to be busy. If you want your hair cut during the busiest time of the week you’ll have to pay the normal rate.

By offering the special rate the hairdresser gets to move some of their trade to days/times that are less busy. They might not be able to get their normal rates but overall they generate more money than if they charged the same rate to everyone, every day of the week.

Do you offer special rates to new clients who are willing to let you do their accounts/tax during your quiet season?  I say ‘new’ clients as moving existing clients to a lower fee scale would reduce your income so may not have any appeal.

Another variation on this idea is to offer a ‘Stand-by’ service.  I saw a sign offering this facility outside a local hairdresser recently.  It said terms and conditions apply. But the inference was that if you were prepared to take your chances re how long you waited, you could have your hair done at half the usual price.

I suspect that plenty of accountants could offer a stand-by service. You would need to ensure that clients who opt for this appreciate the difference from your usual service. It won’t be much help if you already only service clients in the strict sequence in which you receive their paperwork. Turning this around, you could offer a premium service whereby clients can book in and pay extra for for a special speedy service at certain times of the year.

As I have long pointed out, there is no legal or other obligation to charge all clients on the same basis. Experiment and find what works for you.  I suspect that’s what hairdressers do. Why not accountants too?

 

 

 

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The end of accountants?

In early 2013 Professor Richard Susskind published a new book, ‘Tomorrow’s lawyers’. This included some updated observations of the views expressed in his previous book, published in 2008: The End of Lawyers? Rethinking the Nature of Legal Services.

As I share many of Professor Susskind’s views I thought I would pick out one theme for this blog. He has been suggesting that technology and standardisation would make lawyers less important. Even five years ago, in 2008, he felt that this was already having a major impact on the structure and future of law firms. Professor Susskind was clear that he thought the same principles would also apply to other service professionals. Could the same be true of accountants and tax advisers for example?

Professor Susskind effectively urges readers to ask yourself, with your hand on your heart, what elements of your current workload could be undertaken differently – more quickly, cheaply, efficiently, or to a higher quality – using alternative methods of working? The challenge we face is to identify what distinctive skills, talents and capabilities you possess that cannot, crudely, be replaced by advanced systems or by less costly workers supported by technology or standard processes, or by lay people armed with online self-help tools.

Professor Susskind’s view is that the market is unlikely to tolerate expensive advice that can be better provided through automation, low cost online facilities and the support of modern systems and techniques. I would agree. He also suggested that the legal profession will be driven by two forces in the coming decade:

  1. by a market pull towards the commoditisation of legal services, and
  2. by the pervasive development and uptake of new and disruptive legal technologies.

Again, similar changes have been impacting the accounting profession over the last five years. However I don’t think the changes have yet been as dramatic as Professor Susskind was predicting. But in essence I am sure he was right and that there lessons here for ambitious accountants.  I’m not sure that ‘technology and standardisation’ are making accountants less important but the role is evolving – in much the way that some accountancy commentators have been predicting for a lot more than five years.

As I have long maintained, most accountants evolve and change only when they absolutely need to do so. This often means that the extent of the changes are only obvious when we look back and think how different things were even just a few years ago. If you don’t think much has changed then perhaps your memory is playing tricks on you. Or are you resisting the impact of ‘technology and standardisation’? How much longer is that approach sustainable I wonder?

I am relieved that Professor Susskind believes that there will continue to be a market for bespoke advice and that many people will continue to be willing to pay for expert judgment, intuition and the application and communication of complex expertise. I was relieved to hear that in 2008 and I think it is still true now. After all, that’s just what the Tax Advice Network is all about!

Like this post? You can now obtain my ebook containing loads of valuable insights, short-cuts, tips and advice for accountants who want to STANDOUT and speed up their success. You can buy the book or download a summary for free here>>>

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The only six ways accountants can increase their own profits

Over the years I have been refining my presentation (now called) “Make more profits from your smaller clients (without fancy schemes)”*

It seems that I have yet to include on this blog the opening summary in which I share what seem to me to be the only six ways in which accountants can make more money from their smaller clients:

You can:

  1. Increase your charges for doing the same work (which often means increasing the perceived value of what you do);
  2. Speed up the collection of your fees (this includes adopting more commercial billing strategies);
  3. Reduce the time you spend doing the work but keep the fees the same;
  4. Provide more services and charge accordingly for these;
  5. Encourage existing (good) clients to introduce new prospects (just like them);
  6. Sack the duff D-list clients who get in the way.

Of course this advice can be adapted to help clients make more profits in their businesses too. But it would be a shame to do this before applying the advice to one’s own practice wouldn’t it?

 * Variations on the same talk can be presented under a variety of titles, either in-house, at conferences or seminars, as required.

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Are your fees high enough?

Let’s start with a truism. No accountants complain that their clients are paying them too much. Conversely there are four main reasons why accountants think their clients are paying too little:

1. They haven’t put the basic fee up to a commercial level;
2. They don’t charge more during their busiest period;
3. They haven’t asked their clients to pay for ‘extras’;
4. Their clients won’t pay higher fees or for ‘extras’ even when asked

If your basic fees are too low then now is the time to consider how to break this to your clients. And you need to decide whether this is necessary as regards all or just some of your clients.

In an uncertain economic climate you would be forgiven for thinking about again holding your fees at the same level as last year. And that may be the right decision for some of your clients. Only you know your clients well enough to know if that will make sense and whether you need to adopt the same position for all of your clients – even the ones who are more of a problem than a pleasure to deal with.

When things are tough the chances are that you will lose some clients – and those that you can’t afford to spend time with are probably most at risk. Either they pay you more or they should move to someone else who can provide the level of help they need at a lower fee. What you want to avoid is hanging onto such clients and then suffering bad debts (which would include building up work in progress that cannot be billed because the client has gone out of business).

I suggest you book a chunk of time in your diary to plan how you will do this and maybe to brainstorm some ideas that will work for your practice and your client base. In my experience whilst there are plenty of issues that are common to many firms, everyone is different so what works well in one firm is not automatically right for another.

I normally suggest that accountants start by focusing on how much they want to earn from their practice. Then you can determine what they will need to do to achieve that ambition. If it’s more than you currently earn you will probably need to consider a mix of increasing the fees paid by  existing clients, increasing the services you provide to existing clients and charging extra for these and generating new fees from new clients. Only you can decide what you want and how you’re going to get it.

When your fees go up you will invariably lose some existing clients but even if you do, overall you are likely to end up with more fees and more time – a win-win situation. And if you also make a reciprocal fee arrangement with a smaller accountant to whom you refer your ‘lower value’ clients you can ensure that everyone is happy.

I’ve addressed related points in many previous blog posts including:

Are you charging enough?

Clients will pay high fees for good advice

What is a fair fee?

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How do you bill for extras over a fixed fee?

We’ve all done it haven’t we? Estimated a fee (or maybe even quoted a fixed fee) for a specific piece of work and then the scope of the work has changed slightly. And then a bit more. Perhaps we’ve delegated the work and have not kept in touch with how much extra time the ‘tweaks’ have involved.

And then we see the WIP reports and realise that the cost over-runs are more than we anticipated and certainly more than the client might have expected.  So what do we do? Swallow the ‘loss’? Promise ourselves to be more on top of things next time? Or do we write a bit off and then approach the client with what we consider to be a reasonable amount to bill them on top of the expected fee.

If we’ve taken the coward’s route we await the dreaded phone call or letter; and if we hear nothing for a few days we relax. We got away with it!  We can bill the extra and we’ll get paid.  Of course we still don’t know the client’s reaction. They may be fuming and bad-mouthing us all over the place. We promised one fee and then charged a higher one. It’s not good PR.

I’ll admit that, in the dim and distant past, I pursued that approach.  I later learned that although a letter/email may be a good way to broach the subject it is critical to proactively follow up with a prompt phone call. Much better than simply to just wait for a reaction.

I recently found myself on the other end of such an arrangement. As a result I am now more convinced than ever before as to how important is that timely follow up call.

If you’ve underestimated a fee and want to increase your prospect of recovering more than the expected amount you MUST take the initiative. Set out your justification and plan your approach to the client. Don’t just send the bill. Don’t even send the bill if you hear nothing back after sending the client a note of the proposed additional fee. Even if it gets paid you cannot assume the client is happy. They may well be looking for a new accountant.

You will only know what your client thinks if you SPEAK to them – and you trust them to tell you the truth!

How do you deal with such situations in practice?

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Apparently this is one of the Top 30 accounting and finance blogs

Last month I received what appears to be a genuine endorsement of all my work to make this blog useful, relevant, commercial and valuable to ambitious accountants.Best Accounting and Finance Blogs 2012

I was initially a tad cynical but this blog really is the fourth in a list of the Top 30 Accounting and Finance Blogs of 2012.

The note I received last week from Tina Ray, editor of BestAccountingSchools.net, said that:

“Of the hundreds of blogs we reviewed, yours was selected as being among the most helpful and offering the sharpest insight.”

If you scroll down you will note that I am now proudly displaying the award badge on the right hand side of this blog.

For the record, Best Accounting Schools’ mission is:

“To help you in your quest to become an Accountant or advance in your career in Accounting. We do this by providing high quality resources about how to get started in this field, along with information about the best accounting schools and degree programs available.”

It is an American focused resource which is ironic as my focus is UK based accountants.

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