It’s not fee compression; it’s value compression
As we head into the new year, a question I keep hearing from CPAs is: “How do I start raising my fees?”
When I hear that my first reaction is: “Great. What are you going to be providing to justify the increase?”
Usually they point to things like their rising overhead and cost of living. And my response is: “The fact that your rent and your sandwiches are costing more doesn’t mean you are delivering more value to your clients.”
The only way you can raise your client fees every year is by delivering more value to your client every year. I’m sorry, but that’s an inconvenient truth of modern life.
Here’s the problem with raising fees when you don’t deliver more value: You’re withdrawing from the “trust account” clients have with you. You can only go so far until the trust account is overdrawn.
Don’t tell me you’ve exhausted all the ways to deliver more value to your clients. Things change constantly today. You’re the most trusted advisor to your clients. They’re looking to you for solutions. The inconvenient truth is that you’re going to have to find a way to drive value if you want to stay in business. Clients aren’t going to give you specific suggestions in most cases. They simply want you to make their lives easier. They want you to free them from financial minutiae and help them make smarter decisions about their money.
Increasing client value without reinventing the wheel
Think long and hard about how you are uniquely positioned to provide value to your best clients.
As I wrote in an earlier article: Four Quadrants to Master for 2018, you and your team need to ask yourselves:
• What are we good at?
• What do we like to do?
• What does our client base look like?
• Which types of clients do we work best with?
• What do our best clients value the most?
If you haven’t done this exercise and don’t know the types of clients you work best with, then it’s pretty hard to know what your clients value the most.
Tip: Before you start listing all the new services you could provide to clients, make sure you’ve tightened up your core offerings. For instance, how quickly are you getting back to clients when they have an urgent question? I bet you could do better.
Response time is pretty heinous at most CPA firms. At most professional service firms you’d be fired if you told a client, “I’ll call you back in six days,” when they have an urgent question or request. One CPA confided to me, “I had a client email the other day about an issue. If it’s really important, they’ll email me again.” Ouch!
You’re no longer the only option clients have to get their taxes done and to keep the IRS off their backs. If you keep operating with that assumption, someone else will be more than happy to take on your clients’ business.
How can we go back to the basics to deliver value to our clients? There are three things we all learned growing up:
1. Show up on time.
|On time means you promptly respond, and you are, like it says, on time. Calling someone 10 minutes late doesn’t mean you’re busy. It means you’re disorganized. |
2. Say “please” and “thank you.”
|When your team interacts with clients, are they creating a friendly, cordial environment? Do they make clients feel comfortable when they arrive at the office? Do they greet clients by name? Do they have personalized information about each client? |
|3. Do what you say you’re going to do. ||This isn’t about slick marketing copy. It’s about making sure you’re really delivering the client experience described on your website and honoring the promises made to clients during meetings. |
Source: L&H CPAs and Advisors 2018
Borrow a page from Apple
When Apple rolls out the new and improved version of its iPhone, does the price ever go down? Of course not. It always goes up. Apple never says, “This phone is pretty much the same as last year’s model, but we’re going to charge you more.” If it was the same phone, they’d have to charge you less. Instead they talk about all the cool new stuff that the new version has and what you can do with it — things you can’t do with the older version.
Apple can keep raising prices (and value) because it keeps making its products better. For instance, if the new phone has enhanced resolution, a better camera and is more water resistant then as a consumer you say to yourself, “OK. Now I get why I’m paying more for the new phone.”
Apple also knows that the value equation works both ways in a competitive marketplace. Since consumer products keep getting better and cheaper over time — including your competitors’ offerings — you can’t just try to charge more for last year’s model (or services). You can’t even charge the same. If there’s nothing new and exciting to talk about, you have to charge less.
If you’re still not sure what your best clients value the most, you’d better ask them ASAP.
Don’t expect them to ask for a better tax organizer, faster client portal or a smoother document collection process. It’s going to be more along the lines of: “How am I going to get better advice to make better financial decisions with less time involved on my side?”
In order for that to happen, you have to know who your best clients are and if you are built to service them. That goes back to what we discussed earlier: Who do you work with and why? Again, see Four Quadrants to Master for 2018.
I know what you’re saying: “On top of all the things I have to keep track of, now I have to start delivering more to clients or they’re going to insist on paying less?” Yep. That’s the inconvenient truth. It’s tempting to look for new software or an algorithm that could make it easier to raise fees for the same work you’ve always done. That’s not the right question. The right question is: “How do we provide more value?”
How do you know if you’ve successfully created more value for clients?
Here’s a clue that your value equation is working. Clients are coming back to you and saying, “Great. What else can you do for me?” They’re starting to see the connection. Fees are going up, but they’re getting a lot more peace of mind for their money.
What most CPAs worry about is that clients are going to ask them to do more, but they’re not going to get paid for it. This new fee structure will require you to articulate clearly what else you’re going to do for them and clearly articulate how much it’s going to cost.
Have one-on-one conversations with your top 20 clients. Tell them: “Here’s feedback that we’re getting from other valued clients. Here’s what we’re thinking of offering and here’s what we plan to charge.” See what they think. You have a great sounding board. Don’t have these conversations during the April 15 and October 15 crunch time. Do it when it’s quiet…like right now!
Even better, if your best clients see you building your business around the feedback they’ve shared with you, they’re going to feel tremendously valued. They’ll be happy to refer you and you’re going to attract more clients just like them.