Fee increase - How and when to briefly inform clients?

Hi all,

I'm implementing a fee increase of about 10%, or as an example on a $300 return a $35 increase and on a $500 return a $50 increase.

For the most part my clients seem to respond much better when I give them a brief clarification as to reason for a fee increase.

What are your thoughts on the below verbiage example:

"I'm anticipating there to be more time involved this year due to the new tax changes and tax forms and in addition my costs have also gone up. Therefore I do need to bump up your fee by $50 to $550. Thank you in advance for understanding"

Also, what are your thoughts on when this message should be delivered? I'm leaning towards when each client reaches out to me for the first time that's when I will inform them during our initial communication. So far the first few clients have handled the fee increase well.

Fyi, I'm not in favor of a general mass email. I prefer to do it on a client by client basis. The personal touch seems to ease the blow for them and I also feel by explaining the reason behind the increase it's received much better.

The last reason I like to do it this way is if a client is very resistant to the increase as perhaps they are in a tough financial position I don't want to lose a client altogether over a fee increase. In these cases I would keep the fee the same if it means not losing a client over the fee increase.

As always, your feed back is greatly appreciated!

I am behind in sending out organizers and letters, but I intend on including a general notice with them. It is impossible for me to determine at this point how each client will be affected, and if their fees will change beyond my normal increase each year, or significantly higher because of TCJA. The general notice briefly discusses the TCJA, new 1040, and that I will do my best to explain why someone may be facing higher fee increases for 2018 than in prior years.

We put a general heads up notice in our enegagement letters.

my early feed back on 5 responses are 3 clients who said "ok" to fee increase, 1 who said "okay sounds good" and a 5th who replied "your fee is no longer affordable I will find someone new".

I think preparers who simply state that there will be a 10 or 20 percent fee increase due to TCJA may be risking a pushback from "value" conscious clients. I was referred to a new prospect that received a letter from their CPA that the fees will go up around 20% due to TCJA. This client owns 3 rentals. He called the CPA office and was told by the front desk lady that all clients are getting a fee increase and there is no room to negotiate! I think some shops are taking this opportunity to weed out some unprofitable clients.

I have asked for a copy of the last three year returns to give him a quote.

when a long time client says they are leaving due to a fee increase do you let your emotions come into play or are you able to leave your emotions on the side? for example, part of the reason I havent increased fees like I should is you get to know your clients over the years and then feel some guilt increasing the fee. Even though I know a lot of clients would leave in a heart beat if they thought they had a better option.

when a long time client says they are leaving due to a fee increase do you let your emotions come into play or are you able to leave your emotions on the side?

This is a good question and over the years I have evolved. When I was younger I took it personally when a client left me because they got a better deal elsewhere. It was almost like your GF walking away! Now I look at it as a business arrangement and separate the personal feelings. If they like someone else or get a better deal, fine, just make sure the breakup is professional. All past due bills are paid etc. I do take offence when they try to stiff me!

In a few case I have actually suggested that they find someone else because our "tax philosophies" are out of sync and I am not able to accommodate their "desires" because I know better!

IMHO it is better to weed out clients who either don't respect your professional opinion or you feel it puts too much stress on the business relationship. I guess as you get older you get wiser!

I feel more annoyed than hurt when a client leaves. Generally the reason is nonsense, and given I live in a small area, I often hear through the grapevine that they are not happy with their new choice or are paying more than they were payng me. It is a business, and yes, I do form relationships with my clients, but I am also not going to let that interfere with my ability to earn what I am worth in my area. I like it when some of them later try to crawl back to me--"thanks, but no thanks."

I am not the least expensive, but also not the most expensive. A little higher than "average" is where I am at, and clients are typically ok with it because I always respond and it is difficult for them to find the same level of responsiveness and service at other firms. I always respond within 24 hours, typically same day even if it is late at night when their e-mail arrives.

As I said in another post, I do have one client in mind to fire. It is now dependent on how timely they pay a small invoice I just sent, and if they respond at all to 2018 taxes. If not, given they also have to amend prior year returns prepared by another tax preparer, I am going to send notice of disengagement. Once I get a hint that tax compliance is not a priority, I do not wish to be engaged with such people--nothing but a headache.

Anyone that doesn't increase fees on sch C and E clients plus all business clients are not treating themselves as professionals. You sell your time and knowledge and the time and complexity for all returns is greatly increased this year. Each return will probably take 50% longer this year and that isn't due to you but to the new regulations, new calculations and new forms we are required to file.

Carte blanche I try to increase every return, every year even if it is $10-15, I've never had pushback, I've never had anyone ask. I believe it gives me more leeway when complexity arises and I need to increase it more.

Losing a client is never fun, especially when it is group of returns, bus/pers that represent a lot of revenue. But, if I'm not losing a few clients each year due to my prices, then I'm selling myself short. My father always told me if no one every says "no", you're not charging enough.

I've seen too many CPAs waste their lives away I'm service if their clients for peanuts...they are loved, but they end up physically drained and financially stressed.

I still have work to do with my billing, I was fortunate enough to buy a practice with healthy billing already established, but I'd like to fix some of the lower-priced clients by either pricing them out or selling them off.

At the end of the day, I've realized the more low dollar returns I do, the less time I have to provide services to the clients who truly value my services, and that typically hurts the bottom line.

I have had some push back from folks who normally filed a typical Sch A (RE Tax, Mortgage Interest and some charitable deduction) and now get to take the standard $24,000 MFJ deduction. There has been enough media coverage that these returns are now simplified that they can do it online, so I have decided not to increase their fee because the "unpleasantness" of the conversation is not worth it. I am however increasing fees (by the hour) where QBI may be involved.

Have you looked at state ramifications? Here in NY the old itemized deductions still apply so even though there might not be a federal benefit, there is still a state one.

I have had some push back from folks who normally filed a typical Sch A (RE Tax, Mortgage Interest and some charitable deduction) and now get to take the standard $24,000 MFJ deduction.

This is why I sent out a notice that some clients should expect higher fee increases than usual as a result of TCJA, but it is impossible to determine right now which clients will have average vs. above average, further indicating any returns that have QBI activity will be higher. The ones that no longer itemize will most likely have similar fees to last year, with a slight annual increase. I refuse to get into habit of keeping fees flat (my dad did that, and it bit him in the a** over the years).

Many years ago when the tax law changed we sent out a letter to clients informing them of an increase in the fees.
That tax season we lost at least 15% of our tax preparation business.

What percentage of fee increase did you make?

5% . This is New York everyone watches the dollar -LOL

Yeah, that's rough.

It's a gamble imo to send out letters, all client bases can be very different.

Most reasonable people should not have an "issue" with a $10-$20 fee increase for your run of the mill 1040 return. I am assuming they are paying you in the range of $150 to $250.

I got a chuckle today from a referral who said his previous preparer charged $75 (1040 MFJ). So I asked him to e-mail me the return so that I could give him a "competitive quote". He did and to my surprise it was a TurboTax return that was e-filed with no preparer info! Wait till he gets my quote

5% . This is New York everyone watches the dollar -LOL

I have two thoughts in opposing directions. One, you are in NY...every penny counts with combined tax rates. Second, a client that leaves over 5% increase is likely not a client any CPA should be servicing. $25 increase on a $500 return? Give me a break.

Last year I had 3 clients that have been with me 10 plus years. I increase the fee 3% and they went nuts . These are clients that are worth at least 5 plus million and have income over $750,00,00 . In addition the returns have a lot of action and are not easy returns. Is a rough business when you try to increase clients 25-50 bucks and they complain.

BTW I got an e mail from JH tax service stating that they do Federal Tax returns for free ! -LOL