Pressure To Lower Fees – Part 2

Thanks for your comment and emails. Based upon the interest shown, I’ll continue further with this subject.

Gail, whose firm is in Miami, spoke about having a bottom line. She has experienced some fee pressure from clients and initially was uncertain about how to approach these discussions. She found she was more confident once she had decided upon a go-no-lower minimum fee amount. A subset of that decision was to accept the fact that a client might walk away and to let that happen if necessary. She reports that she feels she is conducting these discussions more competently now that she has established solid negotiating parameters.

Matthew, whose practice is in Australia, said that he’d lost a client who had fallen for a very well-worn sales “trick.” The competitor who wooed the client away has a rate structure the same as Matthew’s firm but quoted the client a lower fee based upon including less in the way of services. In other words, the extras the client received from Matthew on an “all-in” basis would now be charged separately which, of course, will result in little, if any, difference in the overall expenditures for accounting services. Matthew has mixed feelings about taking the client back should they change their mind.

A point several of you mentioned is to have a face-to-face meeting with the complaining client whenever possible. The human connection is important when engaging in a difficult discussion and the telephone, let alone email, is a poor substitute. In the meeting you want to ensure the client really understands what you do for them. Remember Matthew’s experience: Enumerate whatever it is you do and ensure the competitor who is romancing the client offers the same level of service, i.e. is this really an apples-to-apples competition?

Asking for something in return is the best way to build a win-win renegotiation of fees. This is the flip side of Matthew’s situation. For example, when your client comes to you with the goal of lowering your fees, you can respond with something like, “Helen, I understand your concerns. I can see from your latest P&L your business is dealing with a period of declining margins, profit and cash. Since we began working together we’ve been sending Jennifer over each month to collect and massage your raw data into a more manageable form. The reason for this is it allows us to do your accounting work in fewer hours. What I propose is to have Jennifer train your bookkeeper, Thomas, how to do her functions. This would save you approximately $400 dollars a month, which is close to $5000 a year. This will reduce your annual accounting costs about 1/3rd and make an immediate, positive monthly contribution to your bottom line. Does this sound like a workable idea?”

Greg, from Los Angeles, has taken an inspired approach in his response to clients who have talked about reducing fees. I have not personally met Greg, but by all accounts his practice has grown by leaps and bounds. If this is indicative of his business development creativity, I’m not surprised. What he has done is proactively approach selected clients and essentially made the following pitch: “Howard, I’ve noticed that over the past two quarters your financial results have slipped. While this may be due to the overall economic situation and not necessarily reflective of any problems with your company’s operation, I’m sure you are not pleased with the direction of things. The reason I requested a meeting is because I have what I think is a win-win proposition. Here’s what I propose: As I was studying your results and thinking about how you might cut costs, one obvious thought I had is that I can reduce the fees I charge. This would give you some immediate relief and we could raise them back to present levels when your profitability improves. The problem is, it has the opposite effect on my business and, to put it bluntly, the recession is hurting me too.”

“Thinking it through a bit further, a solution presented itself that I think is perfect for us both. Here it is in a nutshell: If you will refer and/or introduce me to some of your counterparts who also own production companies, and if I can sign one of them up as a client, I’ll reduce your fees while we’re both being affected by the current downturn. I get a new, significant client and you save some cash each month. Is this something we can do together?”

Les, on Long Island, offers an added service, e.g. “Rhonda, we’re under some pressure too, so I’d like to propose an alternative to your request for a fee reduction. At the present the only services we are providing is preparing your company’s quarterly filings and corporate taxes. I have a great deal of experience advising businesses and providing consulting services. Because I believe you are a client with growth potential, I propose to offer you three hours of personal consulting time each month without charge. That is the equivalent of $1050. My involvement should, based upon my experience with other clients, help your company improve its results. For now, we keep your rates where they are and then, in the future when the profitability is there, we’ll start billing for my ongoing advice and consulting efforts.” (This is a clever way to get your nose under the tent for consulting services. Nice move, Les.)

Terry, from Iowa, said she has had a couple of instances where clients demanded lower fees or they’d walk. In both instances she agreed to a compromised, but still reduced fee structure. However, in the spirit of quid pro quo, she received a return concession where the clients agreed, in writing, that they would pay her bill in 15 days from receipt. If they don’t, the fee is at the old rate. To emphasize the point, she sends the invoice out with the historic fee structure and then shows the reduced amount if they pay in 15 days. She has already decided that if either client is even a couple of days late she will fire them. As she phrased it, “A girl's got to have her standards.”

Good stuff, all. Thanks for the input, and I hope one or more of these ideas resonate with you.