At some point in the evolution of your business, you’ll come to the realisation that you need to increase your fees. It’s not a comfortable place to find yourself as a business owner, as often the realisation has come about because things are financially tight in some way.
It could be as simple as a lack of capital for further investment in new technology or better quality staff. It could be that you’re earning too little in terms of your take-home pay. It could be poor profit levels when compared to your peers or it could be the looming pressure of increased capital adequacy requirements.
There can also be some professional envy when you see other firms charging higher fees, yet supplying much the same (or in some cases a lesser) service.
Whatever the reason, if you’re not yet charging a premium price for your service, increasing your prices is something you need to consider.
It’s scary!
Let’s be honest, increasing your fees is pretty scary. Advisers worry about how they can have this discussion with their existing clients; how do they position the increase in a positive way which won’t lose them business?
The biggest challenge is in understanding your true value from the client’s point of view. For good advisers, so much of what you do you perceive to be straightforward.
For example:
- saving clients IHT and capital gains tax through smart structuring of client assets
- using pensions to create significant tax free or tax advantaged income streams and lump sums
- keeping clients’ investment strategy on track through all market conditions
However, for most clients, these things are not straightforward at all and getting them wrong can (and often will) lead to significant value destruction.
How do you do it?
The easiest place to tell clients you are raising their fees is at the annual review meeting. Prepare for this meeting by reviewing the value-added you believe you’ve generated for the client over the lifetime of your relationship. Toward the end of the review meeting, assuming it’s gone well and you’ve been able to politely position your value-added, you can simply say “our fees are going up.”
Every adviser I know who has approached the fee-raising discussion this way has had minimal push back and lost very few (if any) clients. The clients they have lost are clients they wanted to lose anyway, and because of the fee increase from the remaining clients that revenue isn’t missed.
Not Just for Newbies
Many advisers start charging their increased prices to new clients, and not existing ones. This is an easy way to build some confidence, however it’s vital to eventually apply the increase to your existing client base as well.
Why?
Let’s say you’ve got 100 clients at 0.5% per annum, generating £100,000 of annual recurring revenue. If you now bring in one new client and charge them 1% per annum on the new assets under management (AUM), how much difference does that make to your total recurring income? Not much.
However, if over the next 12 months, you convert each of your 100 clients to a 1% per annum fee, that’s now £200,000 of annual revenue. Increasing your prices with existing clients provides huge leverage to your top line revenue.
James Harvey made the decision to raise his prices several years ago after doing some work on his proposition. James says, “The first change I made was to 1% pa for ongoing service and I was apprehensive. With a few clients I moved to 0.75% because I didn’t have the guts to say 1%, but I soon realised that it was not an issue and quite quickly got everyone moved to 1% pa.”The Results
In the first two years after increasing his prices, net profit margins more than doubled to 24% of turnover and James’ personal income rose 44%. Recurring revenue is up by more than 70% since he implemented these changes.
The bottom line
Increase your prices and watch your business profitability and sense of satisfaction soar.
We all know there are no free lunches and clients know it too.
Our Selling Skills Workshop Is Back!
Due to popular demand, we are running our sell-out Selling Skills workshop again on 17th December 2014 in London, with a few changes. Read all about it here.
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