The Only Two Ways To Raise Revenue
By Cliff Ennico
www.creators.com
"I'm an accountant in a solo practice. For some time now, I've been thinking about raising my fees. Because I spend a lot of time in my car, the rising cost of gasoline is really biting into my income more than perhaps it does for other accountants. I need to cover these increases in my operating costs, but I'm afraid that if I raise my fees to cover these costs I may lose some key clients, which would be a disaster for my practice. Is there any practical solution to this dilemma?"
Whenever you run a service business, one of the hardest things you can do is raise your prices. Even though you can demonstrate that your clients are still getting a bargain - because by operating alone you can charge significantly less than established firms in your area - they will still grumble about the increase.
Inevitably, no matter what you do, you may lose one or two clients by raising your fees. But by not raising your fees, you may be doing worse long-term damage to your practice.
There are two ways - and only two - you can increase your business revenue (if any accountants are reading this, I am referring here to "gross revenue", "gross sales" or "gross income" - the top line of the profit and loss statement). Either:
you increase your prices; and/or
you increase your sales (by developing new services, by finding new uses for your existing products and services, by expanding into new geographic markets, or by selling more aggressively to your existing customers).
Before raising your prices, you should explore every possible way to increase your sales. But if that's not possible, then you have to bite the bullet and figure out a way to increase your prices and keep customer loss to an absolute minimum.
First, never, EVER increase your fees without telling customers in advance that you are doing so. Clients hate - I mean HATE - receiving surprises in their monthly invoices. Always be sure to give your clients plenty of advance notice that a fee increase is coming. If you publish your fee schedule on your Website (always a good idea), announce the change in boldface type at the top of the fee schedule, including the effective date (for example, "NOTICE TO CLIENTS: my hourly rate will be increasing to $XXX effective August 1, 2008"). If you don't publish your fee schedule, send a "blitz" e-mail message to your clients, or put up a blog posting announcing the price hike. Always make the effective date at least one to two months in the future so that the maximum possible number of clients will see your notice before you send out invoices at the higher price.
And always mention the price increase when clients call or e-mail to order new services from you.
As for justifying the price increase, the best way is to point out that increases in your cost of doing business - such as the recent and ongoing spike in gasoline prices - make the increase necessary. While your clients won't like it, they are more likely to swallow the increase, especially since in inflationary times they are experiencing cost increases themselves and are raising their prices accordingly.
If, however, you are raising your prices by an amount significantly higher than the current inflation rate, you will have to explain why your increases are greater than the norm - for example, by pointing out that you spend more time in your car than most accountants do and are therefore more vulnerable to gas price hikes than they are. Don't wait for your client to ask - volunteer this information up front so you can "spin" the information in a positive way.
Should you offer some extra service as an inducement for clients to accept your price increase? The short answer is "yes", especially if the increase will make you less competitive, but make sure the extra service will not require you to spend more time or money because if it does, you might find yourself back in the same place you started. For example, an accountant might offer clients an extra year of warranty protection against mistakes that the IRS might discover on audit - this doesn't cost anything, and is probably something you would do for your clients anyway to keep from being sued for malpractice.
Finally, always make sure that even after the price increase, you are charging slightly less than your competitors who are in comparable situations (in this case, solo accountants in your area). That way, even if your clients are disgruntled, they will stick with you if only because they can't get a better deal elsewhere.
Yes, it's painful, but you shouldn't hesitate to raise your prices if that's the only way to maintain your profit margins and pay your (increasing) bills on time. Your customers may complain, but the alternative is for you to reduce your income. Given the choice between explaining a price increase to my customers, and explaining a reduction in income to my spouse, it's a no brainer . . .
Cliff Ennico (
cennico@legalcareer.com
) is a syndicated columnist, author and former host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at
www.creators.com
. COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com.
