Raising fees, notifying clients, giving loyalty or other discounts, etc

[JohnH]

You're right. The cost of retaining an existing good customer is pennies when compared to the cost of gaining new customers of unknown loyalty & reliability. Even when you gain new customers, there is still the aggravation of figuring out whether they are worth keeping.

ETA - The above comment by John and those replies below have been moved here from another thread because these points are important and should have their own topic and title. - Judy

Edited November 25, 2013 by jklcpa
see notation within the post

[kcjenkins]

I agree, but I did one small change on that. I always showed everyone the "current" charge, then showed their "discount". I don't think you can just assume that they know they are getting a preference unless you show them that on your bill. Plus, if they do make a referral I don't want to have to explain to the new client why he's being charged more than the person who sent him, if his situation is similar. It also makes it easier to gradually increase the fees for longtime clients, while you still give them the same percentage discount.

[Guest Taxed]

I still struggle with raising my fees for long time clients, who pay me on time and otherwise are a delight to deal with. I have one family where i raised their fee by $20 3 years back and the wife rolled her eyes looking at her husband (she thought i could not see), and the husband says its ok. honey.

[kcjenkins]

My method tends to reduce that, but anytime you see a reaction like that it's a good idea to mention, without directing it at anyone specific, how your costs have increased too.

[Lion EA]

I show my current prices on my invoices and then include a Loyal Client Discount.

[JohnH]

I still struggle with raising my fees for long time clients, who pay me on time and otherwise are a delight to deal with. I have one family where i raised their fee by $20 3 years back and the wife rolled her eyes looking at her husband (she thought i could not see), and the husband says its ok. honey.

There are lots of reasons to postpone raising our fees for long term clients. But when you finally do it, the good ones will usually tell you they understand. Some will even tell you they wondered why you waited so long to do it. These are people who really appreciate your efforts and have a sense of fairness. If any gripe and leave, you're better off without them because they weren't nearly as desirable clients as they appeared. And the end result should be that you are earning more money while doing less work.

I so think it's best to announce the fee increase in the client letter, rather than trying to introduce it when the info comes in or when you present the bill. In the latter two cases you're explaining and maybe tending toward apologizing. In the former case you're giving them a heads up, so the expectation has already been set.

I also think the fee increase should be mentioned in the client letter without comment, other than to say "if you have any questions about the fees, be sure to ask me". Most will intuitively understand. If anyone needs an explanation, or if theirs is a situation which warrants an exception to the fee increase, you can address it one-on-one.

[Guest Taxed]

My problem is that I still can't figure out how they will respond. I can see your point with younger couples but some of my older couples and retired seniors don't respond well. Besides if I do the rest of their family I have to keep that relationship in mind as well. I get 100% of my new business through referrals. I stopped advertising and taking in walk in.

But in general I do agree with you that those who walk away from me after a slight price increase were not meant to be long time clients. Fortunately it has happened rarely.

[JohnH]

I'll make another suggestion about this. Mention a fee increase every year in the client letter. . If you say something to the effect that "fees are increasing 2-7%, with the average being about 4%" for example, then you maintain flexibility while being able to make adjustments for family relationships, etc. I've heard some preparers argue that clients will add up the cumulative increases mentioned each year and complain, but I've never had that happen. (Maybe the chronic complainers left in the second year . )

[michaelmars]

I really agree on showing full prices then a discount. Too many times a long time or favorite client is getting preferred rates and anyone they recommend you too expects those rates too.

[Richcpaman]

My problem is that I still can't figure out how they will respond. I can see your point with younger couples but some of my older couples and retired seniors don't respond well. Besides if I do the rest of their family I have to keep that relationship in mind as well. I get 100% of my new business through referrals. I stopped advertising and taking in walk in.

But in general I do agree with you that those who walk away from me after a slight price increase were not meant to be long time clients. Fortunately it has happened rarely.

Taxed:

This line:"My problem is that I still can't figure out how they will respond."

Its not your problem. Really. If you increased all your rates for all your clients by 5%, or $25 whichever makes sense for you, you end up possibly making 5% more or ($25 x the number of returns you prepare) Now, if you are like me, with 350 returns, that would be anywhere from $6,250 to $8,750 in increased billing for tax season.

I could lose 4-5 clients at $350 a pop and still be well ahead.

Look at it this way: "I have been hired, and I have been fired" Neither of them hurt me....

Rich

[Guest Taxed]

You have a point Richcpaman. If I went up on a run of the mill 1040 return it would be in the ballpark of $20 to $30.

I do have a bunch of client's in mind who have been paying me the same rate I set 5 years back and threw a tantrum when I wanted to go up. I think next season one of us will win!

[JohnH]

This conversation got me thinking about the yeaar-end client letter, so I looked up last year''s letter to refresh my memory. Here's the last paragraph from about 3 years running, which I more or less borrowed from someone else and massaged a little, (so i can't claim originality). If anyone cares to comment on improvements, I'm open to suggestions.

"Fees & charges for basic tax preparation will again increase an average of 6% - 8% this year. Also, some schedules involving more complex tax matters may incur additional charges exceeding the general increase. The type of items most affected are returns reporting rental income, returns reporting multiple transactions involving the sale of stocks or mutual fund investments as noted in the previous paragraph, and returns reporting income from self-employment. I encourage you to ask for an estimate if you have any concerns about what it will cost to complete your return."

[Guest Taxed]

As a matter of fact my year end letter with the questionnaire also has a similar section (without the price increase range) that discusses that Sch C, E, D may require additional charges depending on the complexity and entries required.

If I recall correctly JohnH most of your business comes from mail in and internet clients, right? You do very little face to face returns.

So if a client asks for an estimate, do you have them send all the material first before you provide any estimate?

[JohnH]

As a matter of fact my year end letter with the questionnaire also has a similar section (without the price increase range) that discusses that Sch C, E, D may require additional charges depending on the complexity and entries required.

If I recall correctly JohnH most of your business comes from mail in and internet clients, right? You do very little face to face returns.

So if a client asks for an estimate, do you have them send all the material first before you provide any estimate?

I tell them that it the current year's return is identical to last year, aside from the numbers being different, then their fee will be $xxx. But I qualify that by saying that when i get their info if I see anything different that they forgot to tell me about or that I forgot to ask, I'll let them know before beginning work on the return. That has happened a few times over the years, and in each case the client agreed with me.

From everything you've posted, I think your relationships with your clients are similar to mine. I may be wrong, but I suspect your clients would be much more amenable to price increases than you imagine. But as Rich said, and he said it well, their reaction is secondary to what is in your best business interests.

(Judy: Nice of you to move the thread. I was aware we were digressing far from the original subject but wasn't thinking of how to handle it. Your solution is good.)

[Lion EA]

Congress has built in fee increases for us as they add new forms, revise the intent/use of forms, add more due diligence items, etc. For many of my clients I can point to the new (for instance Schedule D/8949) forms/additional pages from last year to explain a price increase with few words needed from me. (Another reason I print all their worksheets, etc., for the client copy!) If I need to say much, I talk about my increased education, often at the last minute due to Congress delaying, that adds to my costs to provide them knowledgeable and accurate service.

[Guest Taxed]

Good points Lion. That is why I say that I need to charge a bit more for 8949 and EITC checklist.

My clients are mostly middle aged couples with kids in college or out of the home. I don't do as much dependent care as i used to when I first started. Almost 99% of the younger clients and single clients are children or siblings of my older clients.

[Richcpaman]

Let me tell you what I learned at a "Gear UP" Seminar years ago:

The speaker, (I can't recall his name, but he is the baseball card guy...) said that he wanted the "Cringe" reaction when he presented the invoice to the client. If he didn't get a "cringe" from the client, then he didn't bill enough.

Sounds harsh, and I am NOT there, yet....

We can get lots of clients, through referrals or from advertising, and we can decide what we want to bill them. And just becasue you started out with a $200 fee 5 years ago, does not mean you have to *STAY* at a $200 fee.

I had one client, a corp 1120 return, and 1040 each year. Started at about $800 a year. That was in 2002. He is now up to about $1,200. He complained one day. "Rich we agreed to $800..." And I said, "that was before three different like kind exchanges, four rental properties ago, and an expansion in your business...." Things change. So do my prices.

Never heard a word out of him anymore.

Some folks have left becasue the price has gone up. But I can count those clients on one hand. When I look down my list of departed clients, I would say less than 10% left because of fees.

I have used Qbooks since I started the business, and can track the increase for each of my clients. There are very few that are not paying me a least 15-20% more than thier first return prepared by me.. If they have been here since my start date of June 2003, they are probably 30% or more in increase.

I am worth it. Not that I have a "big head" about that, just that *I* wanted to make more money. If I bill more, I make more.

And I am not concerned about losing some clients, if it means I am making more money and working less. (the working less hasn't happened yet, but I have replaced *bad* clients with better ones.)

Rich

[Guest Taxed]

Rich, thank you for sharing that with us. I think I am getting bolder and will try this season on a bunch of my long time clients who were not priced correctly to begin with because I was desperate (starting new).

[Gail in Virginia]

I like the paragraph you include in your letter, John. Thanks for sharing that.

We try not to increase fees every year, but most everything else that I pay for goes up over time so my fees have to as well. A few things, like electronics, have come down but paper has skyrocketed in the last five years. Software is more expensive, especially QuickBooks. Education is expensive, and it seems like I need more of it every year just to stay in the same place. I have a few long term clients whose price has decreased because the complexity of their return has decreased as they got older and simplified things. But I don't think we should apologize for raising fees every year or two. And our best clients will understand that.

I also raise fees a lot more and more often for PITA clients just to make me feel better about doing the return. And if it gets to the point where that isn't enough to make me feel better, I suggest they go elsewhere. We are still trying to grow our business but some clients I just don't need.

Sometimes we just need to remember that we are professionals, and charge accordingly.

[Guest Taxed]

>>> I have a few long term clients whose price has decreased because the complexity of their return has decreased as they got older and simplified things.

Gail you bring up an excellent point. I have a handful of clients in the same situation and I have lowered their price. I have one lady, she and her husband at one point owned 2 Duplexes that she rented, and now she is living on her late husband's pension and social security. So obviously I had to lower her price.

[GeneInAlabama]

I intend to add the following paragraph to my letter this year:

"Please be aware that the IRS is putting more and more responsibility on tax preparers and backing it up with heavy penalties if a preparer is negligent. I may be asking more questions and requiring proof in more cases. I CANNOT ACCEPT ESTIMATED FIGURES. Tax preparers are in a more precarious position than ever before."

I also state in my letter that the better they organize their information, the less time I have to spend on the return and that my fee is based on the approximate time I spend on the return. (I can't bill by the hour because I am a one person office and am continually being interrupted by the phone.)

[Jack from Ohio]

I intend to add the following paragraph to my letter this year:

"Please be aware that the IRS is putting more and more responsibility on tax preparers and backing it up with heavy penalties if a preparer is negligent. I may be asking more questions and requiring proof in more cases. I CANNOT ACCEPT ESTIMATED FIGURES. Tax preparers are in a more precarious position than ever before."

I also state in my letter that the better they organize their information, the less time I have to spend on the return and that my fee is based on the approximate time I spend on the return. (I can't bill by the hour because I am a one person office and am continually being interrupted by the phone.)

May I copy your statement for my letter?

[GeneInAlabama]

You would be most welcome to.

[MsTabbyKats]

I think it's better to stress to the clients that you're being diligent...so they don't have audits, fines and fees.

I don't think many really care about our fines and fees.

I lost a couple last year because I raised my 1040-NR fee...but, to be honest, I really dislike doing them.

[Guest Taxed]

Client's care about THEIR fines and penalties NOT Ours.

We have to cross the "t and dot the i" to keep our nose clean!