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Say what you will about lawyers, I know this much to be true: they are not afraid to bill. When I was an auditor, one of my first jobs as a staff person was to review the legal and professional account for an audit client. I’ll never forget examining one particular invoice. It was a long statement that featured an inordinately high level of detail for each block of time. The very last itemization on the tab said it all: “Preparing this bill—1/2 hour.”
While I’m not suggesting anyone imitate this practice, I do think the illustration makes a powerful point. There is often a sharp contrast in the way other professionals bill and the way accountants typically bill. If you are a good biller, accept my congratulations. You have mastered the art of billing, a skill that requires courage and diplomacy. Unfortunately, I estimate that the majority of firms don’t bill with the confidence they should. Instead, they under-bill. You know who you are.
I believe there are several factors that contribute to the all too familiar under-bill. The biggest reason may be perspective. We accountants tend to be a frugal bunch. I have been accused of being “financially prudent”(or worse) on more than one occasion! As a general life and business rule, the tendency toward thrift is a wise trait. It’s not a good thing, however, when it comes to deciding what our professional services, ably rendered, are worth. It’s human nature to believe that others share our same point of view— whether the issue is professional or personal. If you are a careful spender, you very well may assume that your clients are as well. Let me assure you, the vast majority of them are not. I would argue that in public accounting, price is a relatively unimportant consideration. By and large, clients are not price-sensitive; they are service-sensitive. All of the national client surveys consistently support this finding. “But,” you may respond, “I have clients that complain about my bill every year!” You’re in good company. Every business that serves the public has customers and/or clients that express discontent with price. Don’t expect otherwise.
The problem may be that these vocal clients are distorting your perception of what constitutes acceptable billing. In essence, they could be influencing what you bill all of your clients. It’s a classic case of the tail wagging the dog. If this is a concern for you, then I would challenge you to go through your client list, isolate the vocal minority, and put them in proper perspective.
If you recognize that you are under-billing, why do you continue to do so? Do you doubt the quality of your work? Is the service you offer less than valuable—or less than market value? I bet not. Most of the accountants I come in contact with are enormously skilled, incredibly conscientious, and deliver excellent service to their clients. And, yet, they consistently leave money on the table.
Without question, public accounting as a whole needs to improve its billing practices. To begin, under-billing is preventing people from entering the profession in the first place. Staff salaries are necessarily suppressed by low fees and, as a result, many young graduates launching careers are opting for other fields. Just ask any university accounting professor; they see students making these choices every day. Secondly, this is not an easy line of work. In point of fact, it is a very multi-faceted and demanding profession, requiring substantial training and talent. Whether you hold a bachelor’s, graduate, or terminal degree, you’ve invested significantly in advanced education. Moreover, you’ve likely paid considerable dues (in blood, sweat, and tears) as an entry level staff member.
While accounting and tax may “come easy” for you at this point, for most people, this is foreign—and sometimes frightening—territory. Your ability to help clients navigate financial and legal complexities is an indispensable service that supports their business goals. The question is, do you value your work as highly as they do?
Perhaps the best way to help you answer that is to turn the question inside out. Think about the appreciation you hold for the professional service providers in your life, at the office or at home. Consider your personal physician, for instance. I am always amazed by anyone in the health care field—doctors, nurses, and technicians alike. Their gifts are so different than my own; I simply could not do what they do. Believe it or not, your best clients regard you in a similar light. They do not have your particular expertise and are grateful you’re able to provide them with such a necessary service. They respect your abilities and are perfectly content to pay a reasonable market price for a difficult job done well.
If you’ve determined that you are under-billing but are afraid to do an across-the-board increase, let me suggest you take these specific steps.
• Start small. Randomly select a small set of clients. I recommend that the selection be random because the group needs to include some of the clients you anticipate responding negatively to any increase. Consider choosing five percent of your client base. Develop a plan to go up to market rates on these people. (This exercise assumes you know your market and the prices it will tolerate. If you don’t have that familiarity with comparatives, get it!) Here is the important part. Block out some time to analyze these clients in some depth. Determine what you do to add value to their enterprises, how much time they require, and what more you might be able to offer them in terms of service. Are the fees you are presently charging them commensurate with the service they receive? Record your findings. I suggest you summarize your findings in a simple schedule and let the numbers tell the story.
• Take action. Armed with this fresh awareness, it’s time to act. The tendency for some will be to increase rates incrementally. Please resist this temptation. Go to market value in one step. For many clients, the necessary increases will be very minimal and, therefore, palatable. In these cases, a phone call or a letter may be all that is required to explain the elevated fees. I suspect, however, that modest increases are not even noticed by your clients and no additional communication is necessary.
• Be direct. Those clients who merit more significant increases need to be addressed—in person, with purpose at your next scheduled meeting. This will take some courage. These clients must hear, from you, that you’ve analyzed their account in detail and that the fee will be raised to X next year. Then take time to explain why—in as much detail as necessary. The order of these steps is critical. Under no circumstances should you begin this conversation by offering the client a laundry list of all you do for them and then conclude, hat in hand, with “and, by the way, I’ll need to bill you a little more next year.” Take the leap of faith. Be direct and be assertive. If you begin any other way, you will heighten the client’s anxiety that the conversation is indeed leading to a fee increase, an increase they may imagine is far higher than your proposal. Moreover, if you appear prematurely defensive about the increase, you may give your client pause about whether the hike is truly justified.
• Get creative. Hopefully, your analysis of the client’s business identified potential extra work, services you can sell to the client in the same sitting. You then walk away from the appointment with the billing increase and the new work. And while you’re at it, is there a referral opportunity there? Just go for it and be optimistic. Your client will probably not be fazed, and you will probably be very pleasantly surprised by the reaction you get. Again, lesson learned: it’s not all about price.
• Repeat as necessary.
This is an excerpt from our book, Accountant’s Flight Plan, originally published by CPA Canada and the AICPA. You can download a free chapter here
If you would like some help with a price increase letter, please download your template here.
