Alternatively, another possible outcome is that the client comes to appreciate the true value of the service the firm is providing, and the relationship improves.įirms who wish to increase revenue and productivity must establish pricing strategies that support these goals. However, there are risks to the strategy as the client may not pay the fee, but still expect the work to be done and it could put additional pressure and stress on employees. One approach for these clients is to increase the fees charged on a progressive basis, so they may come to the conclusion the firm has become too expensive and hence, make the decision to leave on their own. When undertaking a client classification exercise (see the first article), the firm may determine that there are clients that may be a better fit for another firm, unless they are willing to pay a higher fee. The point is, the practice will have the opportunity to be flexible in the thinking and creative in the delivery. Some clients will appreciate, and pay for, first class service. The same thinking can be applied by firms by providing the level of service clients want and appreciate.
It’s the level of service they receive on the journey that makes the difference. Yet the passengers all get to the same destination. Each section provides different levels of service, and the prices for each section differ markedly. They have first class, business class and economy sections. For example, bookkeeping services may be charged out at one rate, but higher-level corporate finance advice would be at a higher rate. It may be useful to consider charging differential charge-out rates for different types of services and perceived value. A simple increase in charge-out rates in tougher economic times can often become a difficult exercise, particularly if the client perceives no corresponding increase in the value they receive. Those firms seeking to increase rates over and above the inflation rate need to be prepared to handle inquiries from their clients as to the reasons for the increase.
The common increase to fee rates is at least the annual rate of inflation. Certain engagements fees are fixed, so charge-out rates may not feed directly into the final fee charged. Care needs to be taken to manage clients’ expectations and they perceive an increase in value with the increase in rate. While this may be a simple process to calculate, it may prove difficult to implement. The most straightforward way to grow the fee base is by increasing charge-out rates. The articles are a result of discussions at recent IFAC’s SMP Committee meetings, which included practitioners from around the world sharing their perspectives and insights on client selection and relationship management. The first part ‘ The Importance of Client Selection and Relationship Management’ features client classification and the importance of engagement letters and the third installment will highlight credit control, collection techniques and dealing with conflict.
CLIENTS AND PROFITS X SERIES
This is the second of a three-part series addressing this critical area and covers approaches to fee increases and value pricing.
CLIENTS AND PROFITS X HOW TO
The IFAC Guide to Practice Management for Small- and Medium-Sized Practices provides comprehensive guidance to SMPs, including detailed material covering firm planning, how to grow, client relationship management and risk management. Nearly half of over 6,000+ small- and medium-sized practices (SMPs) from over 150 countries that responded to the 2018 IFAC Global SMP Survey identified pressure to lower fees as their top significant challenge.
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