Properly pricing your services should be a high priority. Follow these practices for setting and managing fees.
Know the cost of providing services. Determine direct cost, allocate overhead, and targeted firm profits for each client. Divide the fees collected (or collectible) by time charges to get your realization rate. Determine the overall firm realization rate for all clients by dividing total fees collected by total chargeable time. Reviews unprofitable clients and consider cutting them from your practice.
Determine the right fee for the value provided. Except for specialized work. Most service fees can be reasonably estimated. Compare estimates to the value and benefits provided. Specific tax returns priced at $800, when other area accounts charge $500 may not be priced appropriately, like wise for audit priced at $50,000 when other firms charge $30, 000. If the time charges are significantly higher than the “right fee” then maybe you should examine your internal processes or efficiencies.
Decide on the billing method. Tax returns without complications can be priced based upon a fixed fee schedule or a first time audit can be based upon time changes(perhaps with a cap) However, assisting a client in settling their business can be based in upon a minimum retainer with a bonus for the value of these services.
Know the value of the service you are performing. Some services try greater value than others do. Firms should understand from the client's perspective the value of the service.
Assess your client's ability to pay fees. Match service level to client's needs. Don't direct extra service efforts towards clients who cannot afford them. Target clients that will benefit from service extras convey the benefit and show how they can be afford to engage you let those services.
Bill timely. Bill as soon as work is completed the client is less likely to appreciate the value of a service billed a long time after the works is performed. If possible, ask for deposit or a retainer in advance. The service is usually more valuable to the client before you are engaging than alter it is completed.
Don't work for clients that don't pay. Establish an early understanding that the bills must be paid currently. Start a program to help clients catch up on over due amounts while paying current bills as rendered.
Use changes in a client's payment pattern to monitor satisfaction. Some clients may express service dissatisfaction by slowing or holding back payment. Heed payment pattern changes as potential signals. Contact the client to find out what is wrong.
Carefully and professionally, explain reasons for increases. Many fee increases are necessary to pass on increased costs. A 5% or 8% increase offsets higher costs. A 20% increase reflects added charges for increased services or extra work for the client. Be proactive, not passive, or reactive.
Evaluate the threats. Fee increases present a threat of losing the client so be prepared. However, not raising fees also present a threat to your long-term success and business stability. Fewer clients paying higher fees will receive better service than a larger number of time-consuming clients who pay marginal fees. ( See Bill What Your Worth by David W. Cottle, published by the AICPA)
Become your own client. Devote time monthly to focus on billing activities, the realization percentages, reviews of the services performed and their value to the client, potential for additional srvices and ways to eliminate high cost, low realization services.
