clients who complain aren’t walking away, just haggling.
by ed mendlowitz
202 questions and answers: managing an accounting practice
question: i haven’t raised my fees in three years. how do i suddenly go about it now and how much should i raise them?
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also, i have many business clients where the individual returns are done as part of the yearly service with extra billing. how can i start charging for this?
response: because you haven’t increased your fees in three years, you have to be losing ground financially. i suggest you increase every fee by at least 5 percent.
the only exceptions i would make would be for clients barely hanging on. when you increase the fee, do it for the exact amount, not rounded. for example, if a client is paying $425.00 per month, the increase should be $21.25, making the new fee $446.25. bringing it up to a round number will make the increase greater than 5 percent. rounding it down will cost you current revenue and will reduce the future base that increases will work off of.
if clients complain, they really won’t be seriously considering dropping you, but will want to try to get the increase waived. a simple understandable response is that you were falling behind and needed to raise everyone 5 percent, and could not have any exceptions. this works, and the reality is that you are falling behind and this small increase per client will help you balance out this year’s increased costs. you lost out on recouping your previous years’ increased costs, but you shouldn’t forgo this anymore.
you can print the following notation on the bottom of each bill sent out for the first time with the increase. “due to increased costs, your monthly fee has been increased 5 percent effective with this bill.” alternatively, send a form letter indicating that your fees will be increased 5 percent with the new year/season.
as to the 1040s you don’t charge for, a suggestion is to tell clients that it is becoming increasingly difficult to justify to the irs when there is an audit, of not charging separately for the owner’s individual tax returns. the irs will impute part of the fee to the owner’s tax return and it will end up costing them additional tax because the tax preparation fee would fall into the “non-deductible” 2 percent threshold on their personal tax returns. accordingly, you will start charging for this tax season a nominal fee of $150 or $200, or whatever you think is appropriate for the individual returns you do. keep in mind that if a client has three children living at home and they all get returns, and two of them have income from three different states, your costs are substantial for that client. this fee arrangement will reduce your “losses” on this. note: adjust this fact pattern to each client separately.