As CPAs, we continually face pressure from clients to keep fees “reasonable.” We tend to think that means “low.” Pricing our services too low inhibits our growth and ability to add services that would provide added value to clients and denigrates the significant value we do provide. It also puts us in a position where many of us might spend inordinate energy looking for newer clients that are more likely to pay us more “reasonable” fees. This doesn’t serve us—or our clients—well.
What Jason Ackerman is suggesting is something that I have done since the late 1970s. At that time, my partners and I had a fast-growing practice, but we felt we weren’t earning what we should. We measured this by what we believed we would earn had we been employed by another firm performing comparable services. We analyzed (isn’t that what CPAs like to do?) where we stood, and the services and value we provided to our clients and determined what we felt was the proper fee. Our target was to earn at least a third more than what our salaries would be if we were employed elsewhere. We further added to that the profits we needed to grow our practice and infrastructure. This analysis came up with a client-by-client fee increase in the 40–50% range, which is similar to Jason Ackerman’s suggestion. We then went over each client and reviewed the fee and the value delivered, and we determined a targeted amount that we would need to increase each fee. Our fees were generally fixed and bundled.
The process was scary, but we felt we had no choice. If we could not earn what we needed to, we might as well pack it in and get other jobs. Perhaps we were wrong in believing we were cut out to be business owners. We also truly believed that we provided great value to our clients, much greater than the fees we were charging and the fees we needed to charge. We resolved to see it through. My two partners and I each picked our two largest clients and we rehearsed what we were going to say. This was not a seat-of-the-pants process, but rather a do-or-die situation that we wanted to succeed. We wanted to stay in business.
The first client I met with was paying us $10,500 a year, up 5% from the previous year. I knew I could increase his fee 5% to $11,000, but we needed $15,000. I met with him, and after a series of meetings we received the increase, retroactive to when I first approached him. He remained a client until he died about 30 years later, when his fee was substantially greater. This process was repeated with all our clients; virtually none of our business clients left us. Two years later when we needed to do some culling of our client base, we dropped some smaller clients. But none left or were dropped because of fees.
We found out two very valuable lessons from this. The first was that our clients wanted to retain the relationship as much as we did. It wasn’t a one-sided situation. It also highlighted the importance of the value of our interactions with and availability to the client. The second lesson was that our competition was not based on prices charged but on value delivered. That made us much more aware of making efforts to provide exceptional value at every interaction, which we did.
We never had to repeat this process en masse with our clients, but we have done it selectively when scope creep led to substantially added services that weren’t factored into our initial pricing structure and were executed successfully.
Jason Ackerman’s column provides advice that I know works and that should be considered by all CPAs. It is, plain and simple, great advice.
