fees

When Fees Don’t Keep Up With Cost Increases

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Ed Mendlowitz CPA The Practice Doctor Q and AIt’s not too late in the year to make changes.

By Ed Mendlowitz
The CPA Trendlines Practice Doctor

QUESTION: My expenses have crept up greater than my fees. What should I do?

MORE PRACTICE DOCTOR Q&A: Lowballing and Why It (Usually) Doesn’t Work | When Is It Time to Merge? | What Goes in a Client’s Permanent File? | Why the Average Fee Doesn’t Matter | No More Printouts at CPE Programs? | How to Apply Value Pricing to Bundled Services | 6 Ways to Take a Client Beyond Tax Prep | 18 Ways to Blow a Partnership Opportunity | When Experience Doesn’t Add Up | 8 Times When Hourly Billing Trumps Value Pricing | 6 Ways to Know What You Don’t Know | 10 Do’s and Don’ts for Making Small Business Clients Happy | Client’s Difficult Daughter Balks at Bill | 6 Simple Steps to Impress a Prospect

ANSWER: Very important to increase fees at least enough to keep up with your increasing costs. Here is a story I have told dozens of times at speeches. This is one of the things I wrote that I really like. In case you wonder, I have given a copy to Freddie.

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Readers Sound Off: Lowballing Isn’t Worth It

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bullhornWhat do you value most?

In  “Lowballing and Why It (Usually) Doesn’t Work,” Ed Mendlowitz ignited a conversation about getting paid what you’re worth.

It started when two CPAs with successful firms told Ed about clients balking at paying their bills.

Frank Stitely took issue with one of the questioners, who had set a $30,000 price, done what he called $44,000 of work and then tried to send an additional bill for half the difference.

“Lowballing a proposal and then asking for a higher amount after the work is done screams out to a client that you aren’t a very good business person. If you missed an estimate by a significant amount, it’s on you, not the client,” he said. This can be avoided, he noted: “Wildly missing estimates is what happens to people with no time records upon which to base an estimate.”

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Lowballing and Why It (Usually) Doesn’t Work

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Ed Mendlowitz CPA The Practice Doctor Q and APlus some exceptions and how to pull them off.

By Ed Mendlowitz
The CPA Trendlines Practice Doctor

I actually received the same question from two people in one day. These calls were from two CPAs I speak to a lot, have a lot of respect for and who have successful firms with other partners and a good number of staff. 

QUESTION:  (1) I lowballed a fee to get a client ($2,000 a month), got the client and the time was running twice what I charged them ($4,000 a month). I asked for an upward adjustment four months later of halfway between the time and the fee (an additional $1,000 per month). They dropped me and went back to their prior accountant, who was charging less than I was ($1,800 a month), but who didn’t do anything close to what I was doing. I feel the client knew it was a lowball and took advantage of it. What did I do wrong? READ MORE →

Why the Average Fee Doesn’t Matter

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Ed Mendlowitz CPA The Practice Doctor Q and ANot all data is relevant.

By Ed Mendlowitz
The Practice Doctor

Question: What is the average fee that your firm charges for a review? Assume the company is approximately $10 million in sales and $3 million in assets.

Answer: What is the average size suit men wear? This might be nice to know but it is not relevant to any specific situation. READ MORE →

14 Ways to Switch to Value Pricing

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Ed Mendlowitz CPA The Practice Doctor Q and ABy Ed Mendlowitz 

QUESTION: How do I switch to value pricing?

RESPONSE: There are a number of ways. Ron Baker’s books tell how to do this. So does Dave Cottle’s but in a different way. I believe most firms do some sort of value pricing and that is when a fee is determined in advance with the client. I’ve written previously on this and have presented programs for CPA firm management groups, but here is a descriptive checklist to use as a guide: READ MORE →

When Value Pricing Works

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What ECON 101 and inelastic demand curves teach us about billing rates.

rubber band iStock_000009459899SmallBy Frank Stitely, CPA, CVA

Before we turn our hymnal to page 10 and sing that old favorite “We’re Not Selling Time. We’re Selling Knowledge,” let’s consider if clients are buying what we’re selling.

When you go to the grocery store, do you ask, “I’d like to buy the cow milking knowledge of a farmer?” Of course not. You ask for a gallon of milk. Customers buy outcomes, not inputs. READ MORE →

Pricing, Billing, Costing: Don’t Blame Clients

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communication negotiation pricing iStock_000020509177How good communication habits can head off problems.

By Ed Mendlowitz
Implementing Fee Increases

Professional fees are typically billed based on time. Yet, clients want outcomes and place a value on results, which doesn’t necessarily relate to time spent.

Ingrained habits are hard to break away from. For ages, many professionals quoted jobs by providing hourly rates and possibly a range of expected hours. Some projects are open-ended in the sense that no one knows where it will take them and what will be uncovered once work commences. This might include a forensic investigation, litigation where the discovery process becomes acrimonious, unraveling transactions in a complicated bankruptcy, a first-time audit of a multinational corporation or a tax audit for a reasonably sized business.

However, for most work, there is an understanding of what will need to be done and the approximate value to the client. This could include an annual audit, tax return, setting up a cost accounting or internal control system or a transfer price study. READ MORE →

Is the Profit Squeeze Over?

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New trends emerge in net profit margins and accounts receivable.

After years of intensifying and debilitating pressure on bottom lines, profits at tax, accounting and bookkeeping firms appear to be hitting 10-year highs, according to information obtained by CPA Trendlines from Sageworks, the specialist in tracking private-company financials. READ MORE →