How to Have Tough Conversations with Clients About the Switch from Hourly Billing to Fixed Fees

May 17, 2017 Jillean Kearney

How to Have Tough Conversations with Clients About the Switch from Hourly Billing to Fixed Fees

We previously outlined the three essential steps that will make your firm's transition from hourly billing to fixed fees a success. This includes tweaks to your client relationship management process, marketing, and workflow/tech stack. Now, we're walking you through how to have the (potentially) tough conversations that will need to be had with clients to let them now why and how their pricing is changing.

You can take a lot of the sting out of these discussions by following the tips that we have outlined below.

 

P.S. We teamed up with Practice Ignition and QuickBooks for an on-demand webinar. Check out: "The Secret to Scaling: How to Build & Implement a Fixed Fee Pricing Plan"

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The Fine Art of Defusing a Tough Conversation

Pricing change conversations will go much smoother when you start with the right mindset. This conversation is not a sales negotiation. Rather, it helps to think of this conversation as one part of a process in which each side learns how to best work together going forward. 

It's important to communicate how both you and your client can benefit from your new pricing solution and the increased value that you will be able to provide. Give your client as much information as you can. Be transparent with how you built your new model, what's included in each fee and why you're making the switch. Focus on the value you deliver within each of your fixed fee plans. Help them understand how your proposal is good for their business.

And whenever your client raises a question or concern, follow these steps:

  • Pause – make sure the client has completed their thought and don’t be in such a hurry that you talk over them

  • Ask questions to clarify your understanding of the issue

  • Listen and repeat what you understand for confirmation

  • In the specific case of the fixed fee pricing discussion, always circle back to value in your questions and responses (Remember: This conversation is value-based, not price-based)
     

How to Deal with Common Questions and Objections

People are sensitive about pricing increases or changes, especially when hourly billing has been the status quo for so long. There are common questions and comments that arise during these conversations – check out how to field them below.

Objection #1: This solution is more expensive

More often than not, this objection is a result of your client not believing that you deliver more value than what they are being charged. It’s a value thing, not a price thing. Fixed fee pricing works on the simplest of equations: time + cost + value = price. So, the first thing to ask yourself if you hear this objection is: Have I delivered enough value? And then, have I communicated my value proposition convincingly?

It's often possible to avoid this objection altogether by beginning the conversation by first talking about what you can do for the client, instead of diving into pricing right away. Cushion the conversation by focusing on the value you provide. Probe to see whether they agree with your assessment of the value you have provided. Ask them to provide their own examples.

Move on to pricing when you believe that your client understands the value you have provided (and will continue to provide). 

If you do encounter the “too expensive” concern, then clearly communicate:

  • The pricing is fixed and predictable. No surprise bills ever.

  • Variable pricing encourages the advisor to bill more hours. It’s less efficient and could lead to higher costs as their business grows.

  • Your new pricing reflects the real value delivered to their business.

For instance:

Client: “This solution is more expensive.”

Advisor: pause.

Client: “This will cost me $100 more per month.”

Advisor: “In some months, yes. But the hourly billing plan was variable. Your costs were unpredictable and depended on how much time spent on your statements each month. Frankly, the old way was better for us the longer we took to complete the work. Hourly billing could lead to higher costs for you as your business grows. The new model is fixed and predictable. It reflects the actual value we deliver to your business.”

Objection #2: The current hourly plan is working for me. Why should I change?

Change is generally scary, but people are remarkably good at acclimatizing to any situation. For example: if – for years – your client has been happy paying an hourly rate, they may be unwilling to make the move just because fixed fees are new to them. Change = the unknown.

Under your old hourly billing model, they could see exactly what they were paying for, and how much time it was taking for your firm to complete the work. It provides a way to judge (rightly or wrongly) the worth of that time. And they were used to carving out a budget for the work. Their business was working. The relationship was good. Why rock the boat?

If you hear this concern, you really have a change management issue on your hands now, rather than a pricing objection. This will require you to re-structure the conversation to help them transition from an old familiar world to a new one in which you can both benefit.

To do that:

  • Lay out the business case; compare today’s value to cost ratio with the greater value to cost ratio of the future

  • Use a story to paint a picture of the new business world for them

  • Describe the problems they face today and the solutions that can be put in place

  • Demonstrate how work will look and feel after the transition from hourly to fixed fees has happened

  • Don’t just talk about the numbers – it’s not all about profit – and make sure to detail how you can reduce stress and free up time

For instance:

Client: “The current plan is working for me. Why should I change?”

Advisor: pause.

Client: “I get my statements. I’m happy.”

Advisor: “You have been happy to date, and if your company stayed at its current size that might be fine. But that’s not what you want for your business is it?”

Client: “We’ve forecasted 5% growth for the next three years. I think we can beat that.”

Advisor: “And we can certainly help with that, but what happens as you continue to grow? Your statements and the other work we do for you become more complicated. They take longer and that costs more. At some point, you’re going to encounter budget restraints.

“Instead, under a fixed fee model, the onus is on us to become more efficient. We seek to free up time to act as business partners in your growth. Imagine a year or two from now – under this new model, your staff will spend less time providing us with the documents we need. And what’s coming back your way is not just great statements, but also real strategic advice. We’re instrumental in helping you build business cases and make decisions on growth, investments, and hiring. You’ll be working with a predictable monthly cost, and you’re getting the benefit of a true management partner.”

 

Wrap up

Focus on collaboration versus compromise when it comes to these conversations. Act as your client’s business partner — just like you do in every other interaction you have with them. Circle back to the value you deliver as often as you can. Following these principles will help you answer questions and concerns about price increases, billing changes, and the services you will offer. This will make the "value" discussion less stressful and more likely to end on a positive note.

 

Don't miss our on-demand webinar with Practice Ignition and QuickBooks – we outline how to build your own fixed fee pricing model.

Save your seat!

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