Wouldn’t it be nice if you only ever had good news for clients? Letting them know they’ve got a bigger tax return coming, like they’ve drawn a lucky Monopoly card: “Bank error in your favor, collect $200.”
Unfortunately, some accounting conversations are both as uncomfortable and inevitable as landing on Boardwalk or Mayfair during a winning streak. Telling clients that you’re raising prices is one of those conversations.
But these conversations are part of growing a firm, and if you want to avoid client churn, a clear and direct approach is best.
Here’s a Get Out of Jail Free card: a Rate Increase Letter template from the Karbon Template Library. You can customize it to suit your firm and each client.
👇 Download it for free
Why it’s important to increase your rates
Your rates aren’t a ‘set and forget’ situation. There are many dynamic factors that contribute to how you price your services, including:
You might have a large pool of clients if your prices are low. But at what cost? If you and your team are doing too much for too little, you’ll spread yourselves too thin.
But if you increase your rates for the work you’re already doing, you’ll need fewer clients for the same amount of money. Either that, or the additional revenue will help you increase headcount.
Karbon is our rocket booster that’s allowing us to grow at 40% to 50% year‑over‑year.
Subpar pricing leads to low margins
A great accounting or bookkeeping firm requires a great team. And sometimes a great team is not cheap. This means you need very healthy margins to support those people and remove you from being the bottleneck of everything.
By charging more, you’ll produce better margins and be able to hire better resources to support your growth and protect your time.
Accounting industry trends
Competitive pricing is conducive to success. If competitors are charging more for the same service, you're leaving money on the table.
Balancing the needs of your organization with the demands of your clients can be challenging, but when you're providing a premium service, you deserve to be paid accordingly. The clients that are key to your growth will understand that.
More and more accountants are swapping to a value-based pricing strategy. Firms can keep clients happy, while harnessing technology to improve their bottom line.
A value-based model allows you to price your accounting services to maximize profitability, eliminate scope creep (for the most part), and build strong business relationships.
Growing the firm
No matter what business growth means to your firm, it’s going to require resources. Higher prices will help fund your growth plans.
Part of growing pains is having difficult conversations with clients. Long-term clients get used to things being the way they are, but they’ll understand that after getting high-quality services for a long time, reasonable price changes are exactly that: reasonable.
Your business model needs to be flexible to react to and survive changes in the business environment. Here are 5 strategies to grow your firm sustainably and without sacrificing quality.
Inflation
Inflation affects all businesses, and accounting firms are no different. As overhead costs, operating costs, and material costs rise, so does the cost of doing business. Because of the universality of the inflation problem, it should be understood by most clients without too much explanation.
Consider the client
Client churn is an inherent risk when raising rates, but that doesn’t mean you should undercharge in perpetuity. If a price raise will definitely lose a client, you need to ask yourself:
Is this client costing me money?
Is it worth operating at the current rate to keep them on the books?
What’s the cost of customer loyalty and retention?
Here are some examples that show even with some clients churn, raising your rates is still very much worth it.
How to tell clients you’re increasing rates
Telling your clients about new pricing needs to be a clear conversation. Consider the ‘what,’ ‘when,’ ‘how,’ and ‘why’ of your price increase notice.
Be professional and direct (the what)
Avoid ambiguity. This type of information is best said directly. Clients will see through any attempt to sugarcoat what may be viewed as bad news for them.
If you try to dance around the subject of a price hike, you also risk them not fully understanding what you’re telling them, which may lead to confusion and the need to have the conversation again in a month.
Give plenty of warning (the when)
Allow enough time for clients to adjust their budgets to accommodate the increase. Announcing a fee increase at times when budgets are tight and already calculated won’t be received well.
Plenty of warning also allows time for a robust conversation about any issues your clients may have.
And before the price increase announcement, make sure that everyone on your team is on the same page. With such a delicate subject, conflicting messages from different staff can hurt client trust.
Book a meeting and provide a rate increase letter (the how)
A phone call or a meeting keeps things personal, and gives clients an opportunity to ask questions. After that meeting, send a price increase email to confirm the fee increases. This gives you both a document to refer back to for details, as well as formal correspondence that clearly states dates and increases, removing any chance of miscommunication.
Make sure the letter is personalized and relevant to each client. Working from a price increase letter template will ensure you’re covering what needs to be included, while also being customized to your specific situation.
Explain what they get (the why)
Higher costs for the client require justification, so show your client what they’ll get in return. If you’re hiring more staff, tell them about the response time improvement. If you’re adding new services, explain how their business will benefit.
Karbon's The Future of Client Trust in the Age of AI study asked 350 small business owners "If your accountant adopts AI and can now provide real-time financial dashboards and monthly cash flow forecasts, something it couldn't offer before, would that change what you are willing to pay?"
54% said they would pay more, while 31% expect it at the same price. So you need to be clear about how you frame your justification. At the same time, 81% of small business owners say their accountant is more valuable if they use AI to automate 90% of the routine work and then use the time savings to fund a monthly strategy call with them.
So it's not just dashboards and forecasts that they'll pay more for. It's you. Time with you, your advice, your judgment.
Example of rate increase letter to clients
Price increase letters have a very simple message. But it needs to be delivered professionally to minimize client churn.
Here are a few of the criteria that a rate increase letter should meet, followed by a customizable example letter:
Keep it short and simple
Your rate increase letter should be short, sweet, and with no jargon or complicated terms. Keep it to no more than a few paragraphs. This’ll help ensure your messaging is clear and that your clients understand exactly how their rates will change and when.
Show your appreciation
It’s good to open with your appreciation of your client. Without them, your firm wouldn’t exist. Acknowledging their support is a great way to begin your rate increase letter.
But this isn’t a time to be generic. Get specific about exactly what you’re appreciative of. Is it because you love working with the team? Because you were proud of how they handled a challenging situation last quarter? Whatever it is, call it out. It’ll help strengthen your relationship.
Break down the details
Set out the current price and the changes. This serves as a reference point for both you and them. If there is any miscommunication down the road, it’s a handy document to point to, so make sure it is clear and all-encompassing.
Explain the reasons for the change
This is arguably the section your client will be most interested in reading. As with the rest of the letter, a generic explanation won’t cut it. Put yourself in their shoes. What if your gym membership suddenly doubled? You’d want to know why and what you’ll get for your money. It’s the same for your clients.
Example rate increase letter
Here is a sample price increase letter using this free template for a firm raising their rates due to increased value of the services provided:
Sample price increase letter
Increasing your accounting firm’s revenue
A rate increase is just one way to improve your firm’s bottom line. Investing in the right tech stack, including a seamless billing and payments tool and process, will ensure you’re pricing correctly and collecting payments promptly.
Here are three steps to improving your firm’s revenue:
Understand where your firm stands today
Invest in the right practice management software
Automate payment collection
Understanding your firm’s performance
Do you have a clear view over your firm’s overall business proficiency? Do you know how efficient your processes are, or how effective your strategy is?
The biggest challenge accounting firm owners face isn’t how to be an accountant, but how to be an effective business owner and entrepreneur.
That’s where the Practice Excellence Framework can help. This free assessment will identify your accounting firm’s strengths, opportunities, and relative positions to your peers.
You’ll then have a clearer view of where you can invest resources to help improve your firm’s revenue.
The right practice management tool
Your tech stack is one of the most important pieces of a thriving firm. It acts as the central hub for your workflow, internal and external communication, automation, client management, reporting and analytics, document management and control, time tracking, billing, invoicing, and app integrations.
BNA, on average, are now able to complete tax returns in 3 days.
Tabworks reduced their client onboarding down to 5 days.
Black Sheep Services is not only saving more than 40 hours a week, but owner Marni Garcia could finally take a vacation with the confidence her staff could manage without her.
Automate payment collection
Like any business, cash flow is crucial for accounting firms. It’s how you confidently ensure financial stability and how you power the growth of your firm. That’s why an effective billing and payment collection process and tool is important for increasing revenue.
On average, invoices paid through Karbon Payments are paid nine days earlier than invoices paid manually, according to data from all payments processed in Karbon so far.
Karbon firms are automating payments, collecting payment information before starting work, automating invoice creation, and setting up recurring billing—all within the context of where the work is actually happening (which means they’re saving time by not exporting information into other tools).
Book a demo to transform your firm’s efficiency and profitability.
When clients are overwhelmed, it may mean missing their tax filing deadlines. Your firm can facilitate a reprieve with this first-time abatement sample letter.
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