It is never easy to talk to clients about raising your rates, even for those CPAs who spend every day going above and beyond to provide the best in customer service. However, it is a conversation that CPAs should approach without fear, says Loren Fogelman, price and profit coach for Business Success Solution. She discusses the reasons why CPAs fear raising their rates, how they can become more confident in having these discussions, and specific steps firms should take when upping fees.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript

As a CPA, you spend each and every day striving to do the best possible job for your clients, going above and beyond to provide the best in customer service, even in incredibly busy times. Yet still, for many CPAs and CPA firms, the thought of talking to clients about a raise in rates is fraught with trepidation. Today, we will be talking to Loren Fogelman, price and profit coach for Business Success Solution, about why CPAs and CPA firms fear raising their rates, how they can become more confident in conducting these discussions with clients, and specific steps you should take when electing to up your fees.

Before we drill into some of the particulars, general question here: What are your overall thoughts when it comes to a value pricing model versus the billable hour?

[Fogelman] Well, most accounting professionals start off charging for their time, and that's because we often, when we were working for somebody else, had our income connected to either an hourly rate that we were earning or else a salary. When we go into our own firm, we just continue with that particular pricing model.

I actually believe that charging for your time is unfair to you and your client, because it puts you at opposite ends of the spectrum. What that means is that your clients want you to be able to get the work done as quickly as possible, because they're watching the costs, they're paying for your time. Whereas you're not actually incentivized to speed things up and be more efficient because, as you gain efficiency, you earn less money. The other thing about charging for your time is that it actually doesn't recognize your professionalism and your years of experience, and even as you gain more experience and add more technology, you're likely to earn less than when you first started out.

Basically, I prefer switching away from the billable hour and focusing on the value of your work, because that sets you up as an investment instead of being seen as a cost or a commodity to your client.

The one other thing that I would love to add to that is that, when you connect your fees to time, you hit what I call an upper-limit challenge. That's where you actually have capped out your earnings potential, just because you don't have any more time to give. As a result of that, it limits what you're able to earn, your bank account, your livelihood. Whereas, once again, if you go over to value pricing and separate your fees from time, you actually don't have that upper-limit challenge.

What are some of the reasons why CPAs and CPA firms fear raising their rates?

[Fogelman] I first want to say that this applies to all firms, whether you're a solo or whether you're part of the Big Four. They all have to really take things into consideration and, a lot of times, they postpone raising their rates before they do that.

Some of the things that happen is really the mindset piece. It's the fears and worries that come up. You might think, "Oh, what if I lose clients? Who am I to charge that much? The firm that I previously worked for didn't charge that much. How can I go ahead and do that?" Or, "I don't want people to think I'm greedy or gouging them." Basically, it's really what we believe about our value, about money, about asking for money, that really gets in the way of raising rates.

What are some of the mistakes CPAs make when they conduct that conversation with their clients about raising the rates?

[Fogelman] I think the first thing to recognize is that our education gave us the skillset to be able to do what we do really, really well. But our education also prepared us to be employed by somebody as opposed to be an employer or self-employed. So, we really don't know how to have these conversations that well. It wasn't taught to us, how to be able to do difficult conversations.

Therefore, some of the mistakes that we might make unknowingly is we, first of all, avoid having the conversation because it's uncomfortable. So instead of that, you might do it by email or you might never raise the prices of your clients and so your legacy clients from years ago are still at their original rates. That's something that is very true for so many accounting professionals.

The other thing that happens, if you do have that conversation, is you might be citing certain reasons as to why you're raising rates, such as increased costs or you haven't done it for quite a while. But, in reality, your clients aren't really that concerned about your bank account and why you need to do it to be able to cover your overhead. They're really more concerned about theirs, because they probably have some of those same realities happening to them also.

The other thing that happens is that you may be positioning your service, once again, as a cost, focusing on the functions that you're doing rather than being seen as an investment helping your clients being able to move forward in some specific way that's important to them.

The last thing that happens is if there's any type of pushback, you might offer a discount. That shows that your rates really aren't firm. They're more like suggestions.

Having covered what not to do there, let's go over some of the tips for doing it effectively. What does it mean to lead with the benefits and how can CPAs best do that?

[Fogelman] Well, I think that before I fully answer that question, I want to talk a little bit about value, because value from your perspective as an accounting professional is actually different than what your clients value. What you really want to do is step into your client's shoes and understand what's important to them and why they want to work with you or hire you. You might realize that what they see as important is different than what you thought was really important.

The first thing is to realize the time, the function, the amount of forms you're doing when doing taxes, the tasks you're performing to be able to achieve a certain outcome for them matter more to you than it does to your clients. That's really the first thing to consider.

Therefore, you want to really start to maybe create some questions or have a conversation that's focused on what is a benefit to them. When you're doing that, something you want to think about is having awareness of what is the problem that you solve for your clients? Because it probably isn't what you think it is. You might gain some insight by talking with one or two of your best clients and asking them that question as to what they see as the problems that you solve for them.

The other thing you want to do is ask them what it is that they want to achieve over the next 12 months and being able to maybe help them identify some of those KPIs, the key performance indicators. Then being able to show them that you're able to actually help them achieve those results by giving them some of the insights regarding their financials in order for them to make better decisions or avoid some costly ones.

Basically, what you want to do is really focus on them. Be able to understand what it is that they want to achieve. Help them see how you might have some insights that will help them to get even a better result than they thought that they could or maybe get it even faster and then realizing that you're able to really remove some pains that they have or help them achieve something that they're working towards.

What you want to realize is that with almost everybody that's working with you, they come to you either because there's a problem or some type of pain that they're dealing with, or that they want to really move forward and that there's some potential that they're striving towards.

When you look at that, 75% of the people reaching out to you are coming because they have some type of pain or headache that they're dealing with and they really need your help with this. Then, the other 25% are really looking at working with you because of something that they're focusing on that has potential and that's future-focused.

What sort of bonuses can a CPA or CPA firm offer to a client to make this transition easier for them?

[Fogelman] I think that, first of all, bonuses are an advanced move because it's actually something that might make the difference with somebody wanting to move forward with you or even be willing to accept that higher rate than what they've been previously paying you.

It's similar to when you are bringing on possibly a new employee or when someone is bringing someone into a larger firm and there's a signing bonus that they have for a new employee. Well, you can do this with your clients also. When you're thinking about bonuses, it doesn't necessarily have to be something that requires a lot of time on your end or is costly on your end.

It could be something that is of high value and maybe it might be a complementary tax-planning meeting or it could be, if this is a new client, setting them up on QBO without any additional charge for getting them transferred from desktop over to QBO.

So think about what are some of the things that your clients might highly value. It doesn't need to be time-intensive, but they really see that as a benefit of continuing to move forward with you.

Maybe it's a little obvious here, but you've got to be confident when you're having these conversations, right? So how do you generate that confidence and what does it communicate to the client?

[Fogelman] I think the first thing is that this conversation can be uncomfortable if you don't like what you see as the quote/unquote “sales part,” or that you're trying to sell someone, so you think you have to pitch them. Then it is uncomfortable because the majority of accounting professionals I know, they don't want to be salesy. They don't want to pressure someone into paying a higher rate or working with them.

But I think what you want to do is, even if you don't have the confidence, then it takes courage to be able to have this type of higher-level conversation with someone who is working with you and you're looking to be able to raise their rates or even someone new coming to work with you.

So the main thing to recognize is that we give off subtle cues even when we don't realize that we're doing that. We do this all the time. In poker, they call this a tell. Something that you do when you're nervous and everybody else can see that and it gives away a lack of confidence. But you might not even realize that you do this when you get a little bit nervous.

So we do give off subtle cues and other people can pick up on that. The other thing to recognize, that you do want to do, is you have to somehow connect with your value before you can expect anybody else to recognize the value that you offer. Therefore, it might be really good for you to write a list of five things that you do to be able to help your clients or how you've made a difference for some of your clients. What they've been able to achieve because of the fact that they've had you as a resource. Just keep a little handy list available just to look at before you go into one of these meetings just to reaffirm that what you do really does make a difference and matter.

The other thing that you want to do is, when someone is working with you, there's three things that they consider in that decision, especially when we get to the value and the money part of it. They are looking at experience, service, and price. What that means is that they are considering what is the experience of working with you like? Are they able to reach out to you? Do you quickly respond to their questions? Can you be asked questions and they don't feel intimidated by asking them or that you're judging them because they don't have the insights that you do or understand the financials as well.

So they are considering what that client experience is like. The second thing that they're looking at is service delivery. Can they trust you to be able to follow through on the promises of what they're hiring you for? The third part is price.

They're looking at experience, service, and price, but recognize that with high-value clients, they actually consider experience and service before they consider price. The only clients that consider price first are ones that are price-sensitive and want a lot from you with being able to pay as little as possible.

How should a CPA conduct themselves if they run into a client who has a major objection about the idea of a raise in fees?

[Fogelman] First of all, realize that if your clients have been with you for a long time and they really appreciate the service that you do for them, most of them will be fine with you doing some type of fee increase. But recognize that, just in general, most people don't like change. We get used to a certain thing and when there's some type of change, we might have resistance or question it. That's the first thing: just be aware when you're moving in this direction and thinking about raising your rates.

The other thing you want to do is not be thrown off guard if some type of question comes up or maybe even objection. Therefore, what would be those top three, maybe even five, objections that your clients might have? Some of the ones that come to my mind is that, “Okay, you're asking me to pay more, but what am I going to get as a result of it?” That might be one, is just really the money part of it.

The other one could be “Why now? How come you're doing this now as opposed to any other time?” Another objection would be that “I don't have the budget for it.” So those might be three common objections that you might get from people that you've already been working with and they've been used to you charging them a certain amount and you haven't done a rate increase for a while. Maybe there's a couple others that you want to think about and add to that list as well.

Once you know your objections, then what you want to do is write a soundbite for each of those objections and this gets you more comfortable with, first of all, being aware of what that objection is and how you want to respond. I would even take it one step further. Practice that soundbite out loud. Whether in front of your mirror, as you're driving in the car going to a meeting, or possibly maybe sitting down with somebody else and doing some type of role play. That way, when it actually comes up, you're a little bit more comfortable responding to it. It comes a little bit easier to you.

The last thing is when somebody asks and does have some type of objection, don't be caught off guard. What you want to do when an objection comes up, is know the top three to five. Write a soundbite for each of them so you're prepared. Practice that soundbite out loud and then don't be caught off guard or close down the conversation or give a discount when it does come up.

You want to prepare yourself for sort of the negatives of this, but what does it mean to go into the discussion with positive expectations?

[Fogelman] Oh, absolutely. This is part of the mindset piece that we're talking about at this point, because how you perceive something actually affects your actions. If you are going into this with concerns, worry, discomfort, then you're more likely to actually cave into those objections and not follow through on what it is that you intended or people will pick up on it and they might even push back harder.

When you have a negative perception, it's something that other people will pick up on and then you might get more pushback whereas when you have a positive outlook, that this is going to be a win-win for me and my clients, and that this will be an easy conversation and I'm ready to be able to really dig in and show them why we're doing this and how to be able to move forward, when you have that positive expectation, then you're more likely to have a positive outcome and you're more willing to really sit through the entire conversation from beginning to end, being really present and focused and wanting to show your clients how this is in the best interest of those parties.

When you're finally ready to raise your rates, you've done the sort of preparation we've talked about here, what specific steps do you recommend?

[Fogelman] I actually have a list of steps. This is something I take my clients through as we're doing that, because all of them, for the most part, needs to raise the rates of their clients, and if you just follow this, it will absolutely get you better results than if you just wing it.

The very first thing you want to do is communicate to your clients in some way that you're making some changes in your practice or your firm. Basically, that would be a client-centered letter. It could be snail mail or it could be email, whichever way you typically communicate with your clients. When you're writing it, you want to make it about them and maybe include a couple benefits such as you're doing some things that will make it easier for them to budget. You are looking at including all of your services together in a package where you're bundling it together. You're focusing on outcomes and delivery instead of time.

Those are some of the things that you can put in that letter to just inform them that there's some changes happening.

Step number two is scheduling a conversation depending on how you meet with your clients typically. Whether it's in person, Zoom, or phone, go ahead and schedule a conversation with that client. Then what you want to do is have what I call a value conversation.

In step number three, you're having this value conversation where you're focusing on their needs. Some of the questions that you want to ask is finding out what it is that they want to achieve. Looking at the metrics. As I mentioned, the KPIs, the key performance indicators. So that they can tell if they've been able to successfully achieve those things or not. Find out what that is worth to them and why that matters. Also, you might realize that there's something that they're overlooking for your years of experience and your understanding of the financials and maybe give them some insights or ask them questions that they might have overlooked.

Then the third part, because I really am a firm believer of people appreciate choices, is offer them three options of how to be able to move forward with you. This would mean starting to maybe consider offering packages that would be options as opposed to just selling your time and charging for your time.

The other thing that I wanted to say is when you're going in to offering the packages, the next step would be looking at the different options. Those will be your packages. With my clients, I usually help them create what I call a Silver, Gold, and Diamond package. The Silver would be for the price-sensitive. The Gold would be for the majority of your clients and meeting their needs. Then the Diamond would be a premium package for people that want certain expectations or maybe more access to you.

The other part is, when you're having this conversation, come from a place of being a trusted advisor. This means you want to really focus on what's in their best interest instead of what's in your best interest. You want to realize when you're meeting with them there will be some objections, but because you've already prepared those soundbites, you're able to now be able to confidently answer those objections.