Welcome to our exploration of a topic that many tax professionals and licensed practitioners often grapple with: raising fees. Despite the ever-present dynamics of inflation and market forces, numerous professionals find it incredibly challenging to increase their rates. In this post, we’ll dive into several key reasons behind this hesitation and examine how it affects your clients, profits, and overall psyche.
**Existing Clients vs. New Prospects**
One major distinction to keep in mind is the difference between existing clients and new prospects. Generally, it’s easier to raise fees for new clients than for those who have been with you for some time. Let’s start by discussing why increasing fees for existing clients can be so daunting.
**Fear of Losing Long-Term Clients**
The primary concern here is the fear of losing clients. Many professionals worry that a fee increase will drive away loyal long-term clients. This concern, while valid, is often overblown. Most clients understand that fees need to increase over time due to rising costs such as software upgrades, memberships, and staff salaries.
**Practicality and Perspective**
In practical terms, a reasonable fee increase of 3-10% is often barely noticeable to most clients. For example, raising fees by 3-5% annually allowed me to retain 98% of my clients during my 14 years of practice. More importantly, the clients who stayed valued the quality of service even with the increased fees.
**Client Loyalty and Economic Sensitivity**
Another factor is client loyalty. Long-term clients might feel unfairly treated with a fee hike, but the reality is that loyalty is not easily broken by marginal increases. Economic sensitivity is another concern; professionals hesitate to raise fees for fear that clients can’t afford them. However, economic conditions on tax returns don’t always represent the clients’ full financial scenario.
**Valuing Your Services**
Not raising your fees may inadvertently undervalue your services. Lack of confidence in the value you bring can make fee increases seem daunting. Yet, charging higher fees often enhances the perceived value and worth of your services.
**Consistency and Predictability**
While maintaining steady fees provides a predictable experience for clients, small, gradual increases can condition them to expect and accept changes. This method helps avoid larger, more shocking increases down the line.
**Fear of Negative Feedback**
The fear of negative feedback also plays a role. While some clients may complain, the impact is generally minimal if you provide excellent service. Occasionally, you might lose a few clients, but those who stay usually appreciate the quality of service that higher fees subsidize.
**Contracts and Agreements**
For those with existing contracts, plan fee increases around contract renewals. An escalator clause can help automatically adjust fees annually, minimizing the shock of sudden hikes.
**Client Dependency**
Overreliance on a handful of significant clients can stifle your willingness to raise fees. Diversifying your client base and spreading income sources can mitigate the risk and ease your fee adjustment process.
**Ethical Considerations and Self-Worth**
Some professionals feel that increasing fees is unethical. While it’s important to avoid usurious rates, you must realize that your expertise and knowledge have substantial value. A mentor once showed me that recognizing your worth and increasing your fees can lead to better client quality and satisfaction.
**Expanding Client Base**
When building your client base, especially as a new professional, you might shy away from higher fees to attract more clients. But undervaluing your services can hurt your long-term reputation. Starting with competitive rates and gradually increasing them as your credibility grows is a smarter strategy.
**Initial Impressions and Perceived Value**
Initial impressions are crucial. If your fees are too low, potential clients might question the quality of your services. Establishing a strong initial value can help justify higher fees and attract clients who appreciate quality.
**Market Research and Strategy**
Do thorough market research to set your fees strategically. Understand the value you provide and avoid pricing yourself solely based on competitors. Offering premium services can attract clients willing to pay a higher price.
**Reputation and Fear of Rejection**
Worrying about reputation and rejection can hold you back. Clients may perceive higher fees as indicative of professionalism and quality. If executed poorly, fee increases can backfire, so always ensure you substantiate higher rates with excellent service.
Before the next tax season or your next big client, consider incrementally raising your fees. Evaluate what you’re charging, the value you’re providing, and take the leap to adjust your rates. Engage with other tax professionals, mentors, and your client base to understand their perspectives and make informed decisions. Remember, your skills and knowledge are valuable, and your fees should reflect that.
**Feedback and Connection**
I would love to hear your thoughts, challenges, and successes in raising your fees. Let’s learn from each other’s experiences and continue to grow as professionals in this ever-evolving industry.
Have a GREAT day,
Cordially,
Dan
Dan Henn, CPA, CTR™
Managing Member
Tax Pro Academy, LLC
P.S. Want to learn more about the Tax Resolution Academy®, go to https://community.taxresolutionacademy.com.
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Listen to the IRS Whisperer Podcast for a better discussion on this topic.
