The topic of fee increases is one of the most contentious subjects to discuss with accountants.
For some bizarre reason, many of the people that are responsible for monitoring and reporting on the financial health of businesses and families are vehemently opposed to looking out for their own financial self-interests. I’ve never understood it, and I never will.
Bottom line: You either believe in getting paid what you’re worth, or you don’t. I have decided to stop trying to convince accountants that they should charge market rates, or even premium fees, for the services they provide.
If you already believe this, without me having to convince you, then I have a very simple exercise for you for you here as we start off the new year. Let’s begin:
1). Determine how many years it’s been since the last time you raised your fees.
2). Multiply that number of years by 0.03.
3). Add that number to 1.10.
For example, if it’s been 5 years since you’ve implemented any fee increases, that would be 5 x 0.03 = 0.15. Then, 0.15 + 1.10 = 1.25. This is your new fee multiple.
Now, go into your billing/invoicing software, and multiply your hourly rate times your fee multiple. For example, if you were previously doing hourly work at $175 per hour, and it’s been five years since your last fee increase, then $175 x 1.25 = $218.75. Meh, round it up and call it $225/hr.
Let’s see, where else can we do this?
Ooh, how about your tax prep software? If you bill by the form, go into your tax prep software and multiply all form fees by your fee multiple. Then, round it up to the nearest $5 or $10 or $25, as you’d like. That $65 Schedule D, in this example, gets multiplied by 1.25 to become $81.25. But if I want all my form fees to be even $10 increments, I’ll just round it up to $90. Woohoo!
Got some bookkeeping packages? Well, my $200/month bookkeeping package just became $250.
It should take you only a few minutes to do this exercise in your various invoicing, billing, and other software packages from which you generate charges for clients.
Now, before anybody jumps down my throat for some obvious oversights:
- Yes, I’m fully aware that inflation compounding is not straight multiplication. There’s like, exponents and stuff. Whatever. It’s close enough for this purpose.
- Not happy with my 3% assumption? OK, great. Choose whatever number you want. Actual inflation has been closer to 2% for many years, until the last two.
- If you have fees posted publicly somewhere, like on your website, for services governed by Circular 230, then you have to honor the old fees for at least 30 days. Some states have similar state level requirements (like Oregon, for example, even for tax prep).
- I’m not telling you what to charge. This is just an example, to illustrate a point. We ain’t colluding on fees.
- Yes, you really should send a communication to clients that are on recurring monthly fees, such as for bookkeeping or bundled service packages, at least a couple months before implementing the fee increase.
My point is that it’s incredibly simple for you to raise your fees. There is no need to overthink it, worry about it, or wrestle with the HOW. The method I’ve outlined above is a grossly simplified inflation adjustment formula, which puts you slightly ahead of actual inflation for recent years.
Use this simplified process to at least move your fees in the right direction for now, and if further adjustments are necessary, that’s fine — you can course correct later. But this gets you to start the process. The first time is always the hardest.