Bracing Clients for Fee Increases

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“Hi Mr. Jones, I know I have charged you $500 for the last 10 years to prepare your taxes, and I also know your income and complication has increased 10X. As such, your fee next year is going to be $1500.”

This is the email I want to send to clients. This is the email I cannot send. This is the email that gets clients pissed off enough to call me on the actual telephone. While this email feels easy and concise, it is the worst way to handle a change with a client. Unless you want the client to fire you, I do not recommend sending this email. And if that’s the case, it’s probably easier to just fire the client first and make a recommendation for another tax firm better suited to them. They will respect you a whole lot more than if you price them out.

What do we know about psychology and pricing? First, change is difficult for clients. You have set a certain base level of expectations. If your base level prices have stayed the same for the last 10 years, the client not only expects the same price in the future, but they also expect that you will not be increasing your prices. You have set a precedent and psychologically speaking, changing that precedent is difficult for clients to accept. There is a great way to position the change and get them used to your new standards.

Communicate EARLY

“Hi Mr. Jones. Thank you for being a long-time client of the firm! We have sincerely appreciated working with you over the last 10 years. As a firm, our costs have increased significantly with more compliance nuances that we need to learn, increased software and filing costs, as well as inflation and cost of living increases. As such, we are going to be increasing fees for 2021 and then 5% annually moving forward, to keep on top of all of the changes. Your 2021 tax return will be $700. This will allow us to ensure we maintain our high quality service and take care of you in the long-term.”

This email should go out at least 6 months before the price increase on an annual tax return. If you are increasing monthly services, 3 months is a good time frame. Over communicate the changes! If you are doing this across the board, write a blog article to reference on your website. Send personalize emails to each client. And, send a reminder in a newsletter. If you don’t have a newsletter, call the client and remind them after sending them the changes in writing. From a psychological standpoint, clients will be less resistant to change if you do it early.

Make it very CLEAR

In the email, you may have noticed that I very specifically stated the 2021 prices, and then set the expectation that it will be increased annually. We can add specific language for the 5% annual increases to the engagement letters as well. There may be a time when you do not have to use that increase, but you have the option. Clients will be expecting the increases and they will be pleasantly surprised if you don’t increase, instead of being disappointed or frustrated.

Be CONSISTENT

There may be reasons to change different client prices in different years (who else had people sell multiple rentals this year?) and that’s okay. Send the bill that has the increased complexity. However, if nothing changed from last year, but you are still undercharging, focus on creating a plan to increase fees consistently. It is also better to do it across the board. Clients will occasionally know each other and talk. The last thing you want is for one client to brag about never having fee increases (because you love them) to the other client getting fee increases annually! It’s not fair. And they will call you out on it. It is absolutely okay to level set prices on each return based on complexity and then apply a pricing increase annually.

Clients will get used to what works for you. They will hire you because you are valuable and give them great advice. They won’t get upset over fees unless you change things abruptly and they are caught off guard. This is your reminder to plan for fee increases early, plan for the communication, overcommunicate, and then do it consistently in the future.

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Liz Mason
Liz Mason is a serial entrepreneur, a giant nerd, and an involved accounting vanguard. She is the Founder of High Rock Accounting, Rebel Rock Accounting, TheDepartment.Tax, and a few other related brands. Liz speaks on a national stage, guests stars on podcasts, publishes a YouTube show (The Hot Accounts), and writes frequently. To further her passion for the advancement of the accounting profession, Liz currently serves as a Xero National Ambassador and as the Content Strategist for Tax Practice News. Liz started her career in tax at Grant Thornton (at 20) and automated a portion of her job landing her in the national tax practice. She spent a decade in large public accounting firms working on highly technical tax consulting before branching off on her own. Liz utilizes her creativity and passion at her company to uproot traditional practices and replace them with innovative concepts. She finds joy in efficient technology and her core belief is that everyone and everything can continuously improve (she says "be better" too often). When Liz isn't planning world domination in accounting, she is a die-hard skier, down for any adventure, plays the ukulele, reads everything, and has a good sense of humor. If you're looking for her, you can find her traveling the world and enjoying new food and cultures with her husband and young son. Follow Liz and High Rock Accounting on Twitter at @LizzyNorMa and @HighRockCPAs.