This is a guest blog post by Jon Stow. I’ve copied it here with his permission as it is a real life example of an issue I have often addressed in my articles and talks. It contains lessons for many accountants in practice. I’ve added some comments of my own at the end.
When you start out in business for yourself and are providing a service, there is a temptation to take on any client thinking it is all grist to the mill. Each new client will bring in a bit more money. I have been there myself and made mistakes. Part of reason for this blog is to share my mistakes so that others don’t make them.
Of course, low value clients are not just those who don’t pay you much money. Their low value is also because they do not appreciate what your business and you do for them. They accept what you might be doing for you as a commodity, not as a personal service for them.
Still, we can have some lapses and forget our lessons. I saw someone last year, and as she had a new start-up business I thought I would give her a really good starter deal for the first year to help her along and because (I thought) she would appreciate the gesture and we would build on the relationship.
So as it was time to deal with annual matters, though not all that long since we last spoke having dealt with the previous year issues late, I dropped her a line. I had a reply “I won’t be needing your services as my father has managed to do it for me for free”.
So that is me told, in no uncertain terms. She does not need my help or my technical expertise. She would rather rely on an amateur. The sweetheart deal I had already given her was not considered of even such value that she had the courtesy to tell me she did not want me again. She might have paid a fairer price last time if asked, but it is too late now.
There are lessons here:
- Always bill what the job is worth.
- Accept that some customers cannot see value in what we do, ever!
- Some people are just discourteous and rude, but get over it.
- Of course another lesson here is that we never stop learning. Have you had a slap in the face recently?
Jon notes that he wouldn’t normally have taken the client on. I wonder though how many accountants set a minimum threshold for new clients in terms of the first year fees, likely future fees, range of services required and so on? I was talking with an accountant at a function last night. He is one of 4 partners in his firm and he told me that they are only really interested in new clients who are likely to pay at least £3,000 pa. The firm is encouraging smaller clients to move to another local firm. Why? Well the ‘low value clients’ as Jon calls them, are generally more trouble to deal with, more resistent to additional fees and services and distract the partners and staff from providing full service to the more mainstream clients.
Every firm is different and there are plenty of smaller practices that would be very happy with clients paying an average of £1,000 (compared with the £3,000 of my friend from last night).
What is your attitude to ‘low value clients’?
The definition I use for myself of low value clients is those where I have a low profit margin but enjoy working with and am learning from.
No value clients are those who don’t appreciate the value I provide. They may have a higher profit margin but the balance can easily tip to losing that in late payment chasing, no payment chasing, pestering for services for free beyond our original agreement – it all takes time.
Brilliant piece of advice from Jon. How familiar!
Of course one person’s low value client is another’s high value client. What matters is the right sort of client for your business.
I’d also add something Jon implied –
Don’t be afraid to say ‘no’
and
Do things to encourage the right clients to come to you.
Richard White taught me the latter. He says you have to get enough sausage meat into the top of the sausage machine, or you won’t get enough sausages out the other end…
One of the best arguments for marketing I can think of!
Thank you very much for the comments.
By “low value” I really mean the client viewing what we provide as merely a transaction rather than part of a relationship of mutual respect, which is what I hope for when seeing a new prospect. I have plenty of clients who actually pay me far, far less than £1,000 annually, though one-off consultancy issues I would often hope amount to more.
If I can provide a low-fee client with what she or he requires (and a bit more besides) quickly and efficiently then that client is of value to me, is profitable, and may refer me on to others including some whose requirements and fees will be a lot more. One of my clients who died recently and whose annual fees were modest was an excellent referrer. That was because we got on well and and he was a very nice man. He was worth a lot to me.
Yes, Su, if a prospect is unlikely to be profitable or if we simply don’t like the cut of their jib, we should walk away, and I do.
The low value clients for me are the ones who don’t appreciate the hard work we put in and try and justify that we are not worth what we charge. I now make a point of offloading these clients! I don’t mind the small clients (low fee income) but I don’t want big hassle clients no matter how much they are worth!
Good post, Jon.
My experience is that when you start up, quite often you do low ball for fees and charge a lot less than you should. The economics of desperation sees to that!
Unfortuntely as your business grows you find yourself left with a number of clients whose fees are increasinly uneconomical and would buck at the massive percentage increases needed to get their fees up to spec.
I’ve had similar experiences with start-ups too, where I’ve cut them a deal for their first year and done a lot of extra work only for them to expect all that to continue for free.
Still, I’m living and learning!
Oh yes, all familiar! What I’ve grown to understand however is that it’s low quality clients that are the issue, not low value in an annual fees sense. I’m more than happy to charge sub £500 fees for a small business that keeps excellent records, communicates well, and is basically honest!
The comment by Stephen Youngs really sums up the true value in accounting. Many large firms who are willing to pay large fees basically require their accountant to work from incomplete records, do not communicate well, and as for basic honesty!; they are, in their minds, paying an accountant over the odds to cover up for them.
As for low value clients being resistant to increases in fees, In my initial contract I set out my fees for an initial number of transactions, stating additional fees ( per 50) for transactions above this (commonly when a business grows in size), and annual increases arising from inflation (and do not forget that one of the largest costs to a firm is the basic wage which will increase this October by 11pence plus 14.8% plus employers NI)
James,
Do as I, and am sure many accountants, do; lay out your fee structure at the beginning. stating that you will charge additional fees as the workload and inflation rise
When I set up in practice 20 years ago I took the decision to charge for all time spent and not give a ‘free’ introductory meeting. I explained that I felt able to give proper advice from the outset if I was being remunerated for my time. I also explain to clients that fees in the first year that I act are generally higher than subsequently because I have to set things up, learn about their income and their circumstances and they will take time to learn what is needed each year so we can work in an efficient adviser-client partnership. I have found clients understand and appreciate this approach. Only very rarely have clients moved to other accountants. Clients who now bring in low annual fees tend to be a pleasure to work with because they ‘know the ropes’. These same clients previously brought in higher fees and now refer friends and family to me. On the other hand I have asked some clients who were paying large fees to move elsewhere ‘because they were getting too big for me’ or ‘I was changing the focus of my practice’. The reality was that they were too demanding, unreasonable and unappreciative.
Hugh
I do that.
The issue tends to be with new start-ups though, where often I find I’ll give them extra help to make sure their business makes it and I have an ongoing client. Sometimes they don’t appreciate the extra things you’re doing for them and think it’s part of the fee.
Perhaps them I should list it on the invoice but as “foc” as part of a start-up package?