Wednesday, March 17, 2010

Successful Strategies For Raising Fees

In previous posts I have offered several reasons supporting why I believe it is a poor choice to raise fees in today’s economic environment. I have also written about tactics you can employ to maintain fee levels in the face of client pressure to reduce them.

But, what if there really is a strong reason (or even a need) to raise fees? For example, you may have a long time client who is paying you below market level and after an analysis you realize you are literally losing money with the client. Their fees need to be raised. Or, you realize your charge rates are below the market and to arrest your eroding profitability you need to raise your fees. Or, you acquire additional/upgraded capability (personnel, space, computers, etc.) and you want to not only cover these new costs, but you want your rates to reflect your practice’s higher service level.

There is a source we can draw from that tells us in clear terms the best strategies for raising your rates. That source is the group comprised of tens of thousands of sales people who sell goods to America’s businesses. The underlying challenge facing an accounting practice and the owner of a manufacturer of swimming pool sweepers, is exactly the same. Neither has a client/customer base wishing to pay more; both will encounter resistance, both want to reduce the number of lost clients/customers to the absolute minimum, and both want to implement the increase with a minimum of disruption. These “best practices” have been hard won, because poor technique offers up the potential for lost business, unhappy clients/customers and a very negative experience.

A) Understand the reason(s). First of all, ensure you really clarify to yourself why you need the price increase. What’s the rationale? What factors are relevant? This sounds self-evident, but you may be challenged by a client, e.g. “Maria, you say you wouldn’t do this unless you had to, but what does that really mean? Why do you have to?” In this instance you should be prepared to respond without stumbling around, sounding unsure and lacking conviction. As a general statement, you want to avoid talking specifics, i.e. “Our pretax profit percentage is down to only 17% and all the partners have had to reduce their annual bonus.” That’s too much information and doesn’t help anything.

B) Leverage your status as an owner and/or partner. You are a professional accountant and your client is well aware you understand numbers. Take the position that the increase is necessary (why else would you do it in today’s troubled economic times?) and is a final decision reached after much deliberation and analysis. Convey that it is final; the decision won’t be rescinded.

C) Discuss and offer suggestions how the blow can be softened. In industrial sales it is common to tell a client, “Arthur, the price of 24” rolled .060” steel is going up 9% in July. That gives you three months to place an order at the present price.” The idea is that it both generates an immediate sale and gives the customer a means to soften the impact and defer the increase’s effect. In an accounting world this may come out something like, “Victoria, for reasons I’ll explain in detail if you wish, we’ve concluded we have to increase our rates. Now, this won’t occur until July 1st. We have a couple of ways we can soften the impact of this. The first is that we can get your next quarterly filing accomplished at the lower rate. I’ll make sure that happens. Also, you also talked about doing a cost study analyzing the feasibility of opening the new sales office. If we can get going on that before July I can freeze that at today’s lower rate.”

D) Don’t surprise your best clients. It is overly impersonal and just bad form to send out invoices with previously unannounced higher rates. While a letter sent to all clients is OK as far as it goes, you will get far better results if you personally contact at least the top 20% - 25% of your clients. Face-to-face is best. If you have been proactive about maintaining contact with your “A” level clients (meetings, lunch, conversation when you see each other at the Elks, etc.) and there is an actual relationship, they expect this from you and will react much more positively.

E) Be empathetic. If your client gets angry or annoyed, let them do so. Don’t debate or argue (if you do, it may carry the suggestion that the increase is rescindable or negotiable). And, don’t, in effect, tell them they are wrong for being upset. After all, you’re telling them you’re your services are going to cost them more. When things settle down and you can continue your discussion, an effective approach is to talk about how you and your partners agonized for months about this; that it is necessary to maintain services, acquire key resources, etc. In other words, it was unavoidable. The idea is to give the client a plausible, believable rationale. That it makes business sense and gives them confidence that your decision was considered, sound and not capricious.

F) You might offer a delayed date of effectiveness. In addition to the techniques described above designed to soften the impact of the price increase, you also have the option of simply delaying the effective date in some instances. For example, you might compromise with a good client by agreeing to do their compliance work at the old price for the rest of the year, but the projections and P&L/balance sheet work will have to be at the higher rate.

G) Finally, your staff should know about the increase(s), when they become effective and how you would like them to react should a client broach the subject to them.

The foregoing best practices won’t guarantee your clients will openly embrace your upwardly revised fee structure, but will go a long way to ensuring the angst and potential loss of clients is kept to a minimum.

1 comment:

Craig said...

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