Friday, March 26, 2010

Successful Strategies For Raising Fees – Part 2

In Part 1 we talked about how the “best practices” employed by professional sales people can be of value when you are raising your fees while at the same time maximizing the probability of maintaining good relations with your clients.

I received some feedback on the subject from readers you may find both interesting and humorous.

Eric in Tennessee has a long time client/semi-friend whose billing rate hadn’t been increased for many years and needed a significant jump to be in step with 2010. The client is a painting contractor and Eric had recently engaged him to paint the exterior of his house, so he thought that would soften the blow. He was wrong. The client became absolutely apoplectic, got red in the face, began yelling and carrying on like this was the worst thing that had ever happened to him. The meeting ended badly. Still distressed by the experience, when Eric got home he plopped down dejectedly and told his wife about the confrontation. She listened politely, excused herself and he headed to the liquor cabinet to make himself a stiff one.

His wife returned a couple of minutes later with a file. She showed him how much they had been charged by the same client when he painted their house in 1995 and then what the price was in 2009. It was two and a half times as much! Armed with the evidence, Eric drove to the client’s office in the morning, put on his angry face, and stormed in waving the painting contracts, demanding to know how it is that he’s expected to pay more when the contractor’s costs go up, but Eric’s cost increases somehow don’t count. He continued his rant and the client finally held his hands up in submission, called it even and agreed to pay the new rates. Two weeks later they had a beer together and laughed about the experience. Eric is still shaking his head.

Janice, in Phoenix, has a neighbor Marco who is also a client. The client owns an insurance agency and does very well. Once again, a great deal of time had gone by and the rates hadn’t kept up with costs. Marco has a big personality and is, as Janice puts it, intellectually aggressive. She had a strong sense of trepidation about approaching him to talk about the increase.

She made an appointment and met the client at his office. Laying out her case, she began explaining the reasons for the increase. Marco interrupted her and asked, in effect, “Are you telling me you’re going to charge me more money for doing my accounting?” Not knowing what would happen next, Janice nodded yes. He said nothing further, so she continued.

After a few minutes he interrupted her and said he had a great idea. He began explaining how this was a perfect opportunity for a quid pro quo – a tit for tat – he would consider paying the higher rates if she would consider expanding the coverages of the insurance she carried through his agency. Marco launched into an explanation of the advantages the upgrades he envisioned for her would bring, noting the risks covered, the reduced deductibles, the greater peace of mind, etc. Janice couldn’t get a word in edge-wise and realized very quickly that he’d turned the tables on her and now she was being pitched to add revenue to his agency instead of the other way around.

Taken completely out of her game plan, and feeling the situation slipping away, apparently Janice’s facial expression revealed the distress she was feeling. Marco paused, and then began chuckling. He reached across the table, patted her hand and apologized for upsetting her. He explained that he’s a sales guy; that he couldn’t help himself when faced with the temptation to, as he put it, “play around a little bit.” He told her he had been expecting an increase for the past couple of years and that she shouldn’t be concerned because he was OK with the change. Like Eric, Janice is probably still shaking her head.

Ray, whose practice is in Northwestern Florida, talked on the phone with one of several clients whose rates he was determined to increase. The client listened and then asked if he could get back to Ray. About a week later the client phoned and said that he’d obtained several bids for his accounting work and began naming some of the firms off and the rates they had quoted.

Now, we all know there are any number of questions related to what is included in “accounting services” and what is extra, and that if someone claims their rates are “low” you need to check into exactly what you will be getting for that price. Ray’s client didn’t do that. Instead, he simply obtained hourly charge rates, not the number of hours to perform any particular set of services. And, of course, this is meaningless for comparative purposes.

Nevertheless, the client pressed on, saying that he intended to conduct an “auction” for his business; that he’d select the most competitive firm to do his work. He was going to “accept email bids between the hours of 10:00 a.m. and noon” on the appointed day, etc. etc. Then, he’d take two days to evaluate the offers, and notify the winning bidder no later than, etc. etc.

Ray pointed out to me that his client owns a landscape maintenance business that is neither large nor especially profitable. He was only charging the guy about $2600 a year and wanted to raise him to approx. $3000. Ray decided he didn’t want to play and didn’t send a bid in. Three days later a competitor whom Ray considers to be a bottom feeder called and asked Ray to send over some of the client’s documents, to which Ray agreed. Later the same day the (former) client called over to boast about how he was now only paying $115 (!) per hour for his accounting work and how glad he was to have discovered Ray had been overcharging him all along.

Ray is very glad he decided not to bid. Some clients really shouldn’t be clients. Maybe you have a couple like that?

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