Raising Fees?

Initially when I started out on my own, I billed myself out for consulting hourly at $X and quoted compliance engagements that would get me near 100% realization at $X per hour.

During summer, I reassessed the value and quality of service I was providing to clients and began starting new clients at $X+50.

I've already planned to go $X+100 for new clients with engagements to start after December 31st...

In two-three years I'd like to be somewhere between 150-250 above X.

The higher bill rate is not affecting organic growth in any kind of material way thus far.

I wasn't "cheap" by any means when I started, but reflecting on it I was way below market for, again, the value and quality of service I was providing.

There's no way the legacy clients will catch up even with fee increases of 10-20% per year. I'm aware many other practitioners have had this problem based on some of what I've read here already.

Any advice? Bring them into parity, or more into parity, with current rates when there is material change in their tax return requiring much more work?

Legacy clients? No such thing really. If they can't afford your fees, they can find someone. I have a handful of clients paying a "little less" but that's it. A handful. Explain to them the cost of insurance, software etc.. and WHY all other firms at your level charge X+200.

I liken it to a Sr Manager at a large form in my city makes 200K more or less. I MUST make 200K net after health insurance AND 15 percent SEP, etc. If a client fee doesn't move the needle in that direction, they are hurting you long term. You will grow to resent them. Not saying 200K is the number, for some it is 300, some it is 125K.

An yearly increase in fees may be justified for any given reasons. The question is by how much? Let me put it this way, when you go to get done by another professional what is your expectation. Would you walk away and go elsewhere if you saw a 20% increase for the same work?

What is "organic" growth?

Organic growth is self-created growth in the customer base.

What is "organic" growth?

All revenue growth not from acquisitions...

An yearly increase in fees may be justified for any given reasons. The question is by how much? Let me put it this way, when you go to get done by another professional what is your expectation. Would you walk away and go elsewhere if you saw a 20% increase for the same work?

Good point ATSMAN. If I was otherwise happy or at least satisfied, no. My first question would be why the fee is increasing.

Every single year, I bump up every single client. I had some dramatic increases in 2018, and am poised to have more dramatic increases in 2020. The way I continue to structure my practice is very efficient and simple for all involved, but it is NOT cheap. Additionally, every year I am worth more as my knowledge, experience, and service offerings expand. I have never had a client leave because of price. If I ever do, it will be OK with me because they were likely a PITA. My client base recognizes there is cost and significant value in how I operate, including being extremely accessible and not running clients through staff. It is also why I only schedule appointments in the afternoons on certain days of the week, which allows me to focus on work the remaining days.

I am also implementing minimums in 2020. If someone incurs only 15 minutes billable time, I am not rolling it forward any longer--they will be billed my minimum fee, so they might as well take advantage of me more frequently to obtain greater value. This will be communicated to clients, whereas I typically do not communicate fee increases.

Of course, I also rarely bill strictly hourly. It may appear that way on invoices, but I am adjusting the time to reflect perceived value of services.

As to ANTSMAN, depends on the the personality of the professional, the value they provide, accessibility, etc. Many factors play a role into whether or not I will accept a price increase. More often than not, I will because I am very picky about who I choose to work with.

Recently I had a colleague refer a client to me he had worked with for years. He has a much larger firm than I, one that he is taking over slowly from his dad. Anyway, make a long story short I agreed to speak with her out of courtesy to my colleague. She did not have a complex return but not a W2 and mortgage statement either - rental in another state, self employed 1099, son in college, etc. I looked over her prior returns and am very glad I did because I think he was charging her around $300. Needless to say my fee would be 3 times that at least so we parted ways amicably, I referred her to another practitioner who has a lower fee high volume practice.

I guess my point is people you need to raise your fees! When I look at returns like that and see the fee he was charging I'm frankly appalled. I understand why the other practitioner referred her to me - she was a PITA and whined when he increased the fee every so slightly (obviously). I don't think it's ever worth competing on price. Those clients "shopping" because their previous tax professional increased their fee won't stay long because they will always be shopping. I would rather send them on their merry way.

At the end of the day my friends it will be decided by what the market will bear

Depends on what market you are targeting..

Depends on what market you are targeting..

Absolutely! That is the case for any product or service. Hence some people chose to get heir returns prepared by a CPA and others go to neighborhood tax preparers.

Depends on what market you are targeting..

Absolutely! That is the case for any product or service. Hence some people chose to get heir returns prepared by a CPA and others go to neighborhood tax preparers.

This is why I do not generally accept new tax clients that have either prepared their own returns, or used a national tax prep company, UNLESS their tax situation has DRAMATICALLY changed and they admit it is now over their head.

If the first thing they ask about is price, I throw out a high number to make them go away. If we talk first and then they ask if I can give an estimated price range, I preface it by saying it is impossible to know without actually seeing everything. I'll throw out what I think is a reasonable range (which could up to 100% more on high end compared to minimum), and make it clear that is not set in stone and is subject to change...subject to change pending finding out their true tax situation, how difficult they are to work with, etc.

I had one client I was a bit concerned about, said he was paying his prior preparer too much (an EA, not CPA). I intentionally billed him for some time I probably would have not otherwise billed for to see how quickly he paid, or if he complained. Turns out he has been paying same or next day upon receiving my invoices.

This approach helps me keep client quality control high, while they also quickly realize the level of service (and value of it) is worth my higher fees.

This is why I do not generally accept new tax clients that have either prepared their own returns, or used a national tax prep company, UNLESS their tax situation has DRAMATICALLY changed and they admit it is now over their head.

I have some friends that follow the same policy. As they say if you regularly and customarily drive a Hyundai you are not going to buy a Mercedes unless you come into some money

Last year, several clients left and several new ones came in. It was more movement than I've had in 10 years. It gave me a window into an element in the tax preparing community.

Not one of the replacement CPAs asked me for information I would have asked for (interest tracing schedules, partnership basis schedules).

One replaced CPA had finished a client's 2017 tax returns without 2 of his loss K-1s. I guess he just wanted to be done.

Another made a huge, huge, mistake on a technical issue. Malpractice.

A third was just sloppy.

These were things I saw simply from reading the tax returns, not even seeing the workpapers. Since two of the clients who left me left because of my billings, this peak into the other world reassured me that it is good that I work carefully and bill accordingly.

Stay true to yourself. If you don't respect yourself, no one else will either. I suggest a nice letter to the legacy clients letting them know that they have enjoyed a significant discount over the years, and now you must bring them up to market. This is your business, not your charity. I think I proposed a letter for Wiles on another thread, at his request. Good luck.

Thank you everyone for taking the time to respond. Very helpful.

I hope everyone is having as good a fall busy season as can be had. Two weeks!

Thank you for your wonderful insights.

How did you determine your market rate right now? Without the risk of going too low.

Not one of the replacement CPAs asked me for information I would have asked for (interest tracing schedules, partnership basis schedules).

One replaced CPA had finished a client's 2017 tax returns without 2 of his loss K-1s. I guess he just wanted to be done.

Another made a huge, huge, mistake on a technical issue. Malpractice.

A third was just sloppy.

It works both ways if you are trying to place a relationship between quality of work and fees. I have certainly experienced numerous times this year, alone. I am not the priciest, but also not the cheapest, by far. My effective rate is now around $300/hr due to my contracts and fee structure. CPAs that have charged far more than I do have created immense headaches for some of my clients, which caused my clients to spend many thousands of dollars with me to resolve. They ultimately become so worn out and want relief with issues that they do not pursue E&O claims, or even with IRS and state. It is unfortunate, but if the clients can afford to work with another professional to resolve the issues, and better spend their time on their businesses, less than stellar EAs, CPAs, etc., are going to keep pushing out lousy work. I have earned a small fortune, especially in the past two years, addressing the errors and sloppiness of other "professionals."

Thank you JAD, very helpful.

I think I proposed a letter for Wiles on another thread, at his request. Good luck.

The thread is here for future readers: viewtopic.php?f=10&t=13719&p=123928