7 Steps to Increase Billing Rates at Your Accounting Firm

1. Make sure you’ve provided the required quality

The first prerequisite to increasing the billing rate is to have an adequate quality of accountancy service. As you know, the basics for quality are:

  • Dedicated manager, contractor, and independent controller for each client
  • Written methodology for all services in accordance with international standards, local laws, and rules of the profession
  • Reliable monitoring of deadlines
  • Developing the expertise of staff through continuous training at home and abroad
  • 4 eyes principle
  • Internal system of procedures related to performing services
  • Data protection and security
  • A unique presentation of work results
  • Transparency of work (worked hours are documented)

However, it’s not you who judges the quality – it’s the client. A client survey is always a good practice, and not only for assessing the client’s satisfaction with your services.

When your clients are satisfied, your work on increasing the billing rates is halfway done.

However, you should see the next steps in this not-so-easy endeavor

2. Identify the candidates for a fee increase

Increasing the fees to all clients at one time isn’t a good practice. Clients you’ve identified as candidates for a rate increase should be targeted individually

These are the characteristics of an increased candidate:

  • Most difficult to work with
  • Most demanding
  • Not fee sensitive
  • Unprofitable

3. Define demanding clients

It is very important whether the client is demanding about using your resources.

If the client is very time-consuming, the accountant is left with less time both for personal development and new clients.

Using a simple time tracking tool to log billable hours per client can make the job easier.

On the other hand, a client can be demanding and drain your accountants’ energy.

The client often calls several times a day for few-minute conversations.

So, from the aspect of total time, the engagement can be very small, but the frequency of calls can disrupt your workflow and throw you off track.

4. Understand fee sensitivity per client

It’s a good practice to include a column on fee sensitivity in your client list.

If you have difficult and time-consuming clients, who are also fee-sensitive, the rate increase can be extremely difficult.

The client’s fee sensitivity can be determined through a simple qualitative analysis:

  • Client’s reactions to your initial offer (prior to signing the contract)
  • Observations during work with the client (the accountants’ subjective feeling on whether the client is sensitive or not)
  • Were there earlier attempts at a fee increase, and how did the client react to them

5. Define unprofitable clients

Each accounting firm has some clients who aren’t sufficiently profitable. That is why it’s important to have a report on billing rates per client and make the right decisions regarding less profitable clients.

The most important decision, even though it isn’t the only one, is tied to profit.

If you have a time tracking tool or an advanced Excel model, you can set each accountant’s personal cost rate there. When the accountant logs time for the client, the system will calculate the costs for the client according to the following formula:

Hours x Rates

Revenue is a known variable – it is the amount you’ve invoiced to the client, or the contracted, that is, the expected, fee.

Once you know your income and expenses, it is very easy to calculate profit per client.

If the profit isn’t satisfactory, the client is definitely a candidate for a billing rate increase.

Based on the above, we can create a Fee increase proposal matrix.

Fee increase proposal matrix

6. Define the height of the planned increase

Once you have the cost per client it’s easier to calculate the height of the increase that will contribute to your desired profitability.

Here is an example.

Let’s assume the current price is $1.100 per month, and the costs of performing the service are $1000. this makes the profit $100.

The current margin is 10%

The profit margin you want to achieve is 30%.

So, the price increase will be from $1.100 to $1.300.

7. Communicate the increase to the client

Before communicating a planned price increase, make sure to provide the following arguments:

  • The quality of service you’ve delivered
  • Documented work hours on client per team member and different activities
  • Make sure you can explain your cost (e.g. accountant salary increase)
  • Low actual billing rate
  • The price has not been increased for a long time
  • You can present new methodologies or tools that add value to the services

Talking about pricing is never easy.

Therefore, you should communicate the price increase personally. If you’re working with demanding clients with relevant revenue, a meeting with the client is the best option.

An email announcement of a fee increase is not a good option. This can be done for small clients.

Finally, do not forget to reward your client’s loyalty.

 

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