How to Write a Fee Increase Letter for Your Accounting Firm (+ Free Template)

Raising your prices is one of the most difficult decisions you’ll make at your firm. Humans, in general, are sensitive to change and this applies when it comes to changes in pricing.

It’s normal to be hesitant and fear that you’ll lose clients over a fee increase — especially those legacy clients who are used to paying a lower rate. As tough as it may be to do, increasing your fees is necessary to keep your business moving forward as you grow.

When putting together a fee increase letter, you have to be able to communicate properly and emphasize your value to justify why you’re raising your prices, which we’ll be sharing in this blog.

To get more insights into how to raise your prices, we tapped the expertise of business coach Loren Fogelman. Here are some of her tips for increasing your pricing without losing clients.

Why You Need to Increase Your Fees

Think back to when you first started your accounting firm. Perhaps you were a solo firm owner seeking the freedom of running your own business and were excited to offer your accounting services to your dream clients. To get your firm off the ground, you may have initially offered a low fee to attract customers and build a steady workload. But years later, you’re still working with these clients at the same rate and it’s no longer viable as you scale your business.

It’s not uncommon for firm owners to stick with the same pricing for current clients while increasing rates with new clients.

Offering different rates like this, however, effectively means that your firm is operating with two business models: one where new clients pay your current rate and another where current clients pay a much lower rate. In order to be efficient and profitable, you must stick with only one business model.

There are a few ways to increase your revenue and profits, suggests Fogelman. One is to take on more clients. However, taking on more clients means more work. And if you don’t realistically have the resources or capacity to handle additional work, then you risk overworking which can bleed into your personal life outside of work. Another way is to make your firm leaner by cutting costs and getting better at budgeting. This way may improve your profit margin, but it doesn’t necessarily increase your revenue.

The third way is to raise your rates. While taking on more clients or getting leaner may help your profit margin, they come at a cost. Raising your rates, on the other hand, results in almost pure profit. There are a few steps to follow if you’re ready to increase your fees. Let’s dive into them below.

How to Justify a Fee Increase to Clients

Before you send your fee increase letter, it’s important to get clear on why you’re raising your prices in the first place. You can mention these reasons to your client when explaining your fee increase, or just use them to internally justify your pricing.

Improving the quality of service

The quality of your services is why clients choose to work with you in the first place, so it’s important to improve this if you want to justify a fee increase to your current clients. Being able to communicate your value is key to getting clients on board with new pricing.

To increase your value, you first have to understand what’s most important to your clients, suggests Fogelman. “Step into their shoes to better understand their challenges,” she says.

Consider what’s most important to your clients — whether that’s close communication or personalized tax solutions — and focus on improving that aspect as part of your fee increase.

Business growth

The more clients you take on and the more you grow, the higher the costs will be to run your firm. Business growth is a perfectly acceptable reason to increase your fees. Whether you’re bringing on more team members to handle the additional workload or adding more tools to your tech stack, you’ll need to increase your fees to remain profitable.

To determine how much to increase your pricing, calculate how much more your new costs will be. Let’s say you have a few tools in mind that could help you manage your business better. Research the pricing to see how much each of them will cost. From there, you can work backward to see how much more revenue you’ll need to make up for the costs.

Rising overhead cost

In addition to the costs associated with business growth, your firm may also need to increase your fees to keep up with overhead costs. If your firm works out of an office or co-working space, it’s not uncommon for rent to increase every year or for your utilities to get more expensive. Or perhaps your business insurance rates have gone up. Take a look at any changes to your overhead cost if you want to justify your fee increase.

However, Fogelman recommends against using this as an explanation when you have the fee increase conversation with your clients. “You don’t want to go on and on about how you’ve had increased costs and you’re passing it on to them because they’ve likely [experienced] that too,” she says. Instead, use any rising overhead costs to internally determine an appropriate fee increase.

Market alignment

When you first started your accounting firm, you probably came up with a price based on your hourly rate from your previous job. Now, after running your firm for a few years, you’ve learned how much your competitors charge and may have realized that you’re undercharging. It’s perfectly reasonable to adjust your rates to stay competitive with other accounting firms.

Pricing adjustment

Fogelman also suggests taking a closer look at the numbers behind your practice to better understand the value you’re providing. “If you look at your clients and how much they pay you over 12 months, look at what the average revenue is per client,” says Fogelman. “Are you satisfied with the average value of a client over 12 months? If you are, great. If you’re not, there are things you can do to increase their lifetime value.”

If you use an accounting practice management software, dive into your data to see if what you’re doing is profitable. For example, in Financial Cents, we have an effective hourly rate report that helps you identify which fixed-fee clients are over budget and out of scope. Use this data to better allocate time and resources, and increase firm profitability.

How to Write a Fee Increase Letter (Template Included)

If you’re ready to finally raise your pricing, follow these steps that Fogelman recommends her clients use when writing a fee increase letter.

Step 1. Schedule the conversation

If you typically communicate over email, you can send your fee increase letter this way. But if you prefer to have this conversation in person, then the first step is to schedule a call to go over everything.

You can also start with an email and make yourself available for a follow-up conversation if your client prefers to hear more details from you. The key is to use the communication method your client prefers to make them more comfortable.

Step 2. Make it client-centered

The most important part of your fee increase letter is to make it client-centered. No one likes to hear about a pricing change, but it helps if you emphasize the value that they’ll receive as a result of the fee increase.

As we mentioned above, avoid focusing on your operating costs. While this is a valid reason to increase your fees, it doesn’t communicate value to your clients.

Step 3. Emphasize your value

Speaking of value, the next step in writing your fee increase letter is emphasizing your value.

“You can’t sell them on paying you higher prices without showing them the value of working with you,” says Fogelman. “This is where you want to ask questions about what matters to them.”

You should have a sense of what matters most to your clients and what their business goals are. Now is the time to communicate how your fee increase will help you provide quality services that will support their goals. Write concisely, without making anything wordy. Summarize your key points for the clients so that your content is easily indexable.

After you figure out what matters most to them, you can offer different options on how to work with you. Fogelman also adds that your trusted expertise is welcomed here. “Come from a place of being an advisor,” she says.

Step 4. Prepare for objections

One of the biggest reasons you’ve hesitated about raising rates with your clients is likely because of the potential objections — or worse, that they’ll end the relationship altogether.

Instead of avoiding writing a fee increase letter because of this, prepare how you will handle pushback.

Think about the potential objections your legacy clients may have about moving forward with your new pricing. List the top three to five reasons you think will come up and write down how you’d like to respond to them. Then, Fogelman suggests role-playing the conversation. “You can do this either in the mirror or with a friend or associate,” she says. Fogelman recommends this step because “what you write down and how it actually plays out are two different things.”

Step 5. Communicate the investment

Finally, wrap up your fee increase letter by reiterating the investment. Again, emphasize the additional value that comes with the increased pricing and how this adjustment will allow you to provide higher-quality services.

Close out the message with a note on how you’ve enjoyed working together, you appreciate their commitment, and how you hope to continue supporting their business.

Step 6. Bonus step: Adjust your invoicing process

If you currently invoice at the end of the month or after services have been rendered, this bonus step is for you.

Fogelman recommends using your fee increase letter as an opportunity to switch from invoicing upon completion to securing an upfront deposit. Getting prepaid for your services helps improve your cash flow and lets clients know that their investment is a commitment that you take seriously.

Increasing your prices is a necessary step in growing your accounting firm. While it may feel difficult to send a fee increase letter to your current clients, by following these steps, you can retain quality client relationships while increasing your firm’s profitability.

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