Contrary to popular belief, it is reasonably easy to grow a CPA firm. Imagine this scenario (in fact, you may have lived through it, or be going through it right now). You wake up one morning and decide you have had enough of working for the large firm in the city.
You certainly don’t aspire to work the hours the partners appear to be putting in. You convince yourself that you could do a better job yourself. And so, you decide to start your own firm.
You are struck by what Michael Gerber refers to as an entrepreneurial seizure and you hang your shingle. A few clients come along with you on the strength of the relationships you have formed over the years of working with them, but it is not enough to sustain your standard of living.
And so, you start marketing. This is a strange concept for many accountants, who claim to have no marketing skills, but it goes something like this:
- When the phone rings, you grab it and answer—it might be a new client.
- You get out and about and join a couple of networking associations and ask for referrals
- At your neighbor’s barbecue, you become unusually loquacious and start conversations with people you don’t know, letting them know you’ve started your own CPA firm and you are looking for new clients
And new clients start to flow. Problem is, they often are the "wrong sort" of client.
Most firms starting off in this profession quickly become all things to all people. They are overloaded with low-value standalone 1040s. Perhaps they are reliant on one or a few large clients, who place undue demands on their time and are unlikely to be as profitable as you might think. Essentially, they are trading time for money.
Many such firms continue to grow. They get busy doing more of the same. As they reflect on what has happened, they observe that they have become a service provider, rather than a trusted advisor. They are playing whack-a-mole and are simply too busy to find opportunities to provide more value to their clients.
In that scenario, commanding premium pricing is pretty much impossible. As a result, many CPAs resort to time-based billing, or last year plus a little bit. Profitability margins erode as costs increase; because you are getting busy, you need more people and more overhead—to serve the wrong client.
So, how do you fix this?
In a previous article, we discussed the power of our Pareto for Profit™ methodology. This will show you your firm’s break-even price and highlight client ranges that are likely unprofitable for your firm. But armed with that information, you need to act.
And the most important step to positioning your firm to command premium prices is a mindset shift—making your firm the No. 1 client. There is a reason the airlines tell you to put your own oxygen mask on first before you help others.
Making the firm the No. 1 client is a shift that many CPAs have not embraced. When they commit to it, it can be transformational. It means saying NO to clients just for the revenue. It means designing your firm so that you are protecting your most important assets—you and your key stakeholders.
When you say no, you are only saying no to one option; when you say yes, you are saying no to every other option.
Just step back for a moment and consider this: Outside of just being too busy to think about it, there are two underlying reasons why you are not commanding higher prices. Either you believe the outcomes you create for your clients are not worth it, or you believe that if your prices were higher, your clients wouldn’t pay.
Let’s dig into the first of those reasons.
Here’s a critically important point that you must acknowledge before you can get to a situation where you are commanding premium pricing: you are not selling your time! Why?
Well, time simply can’t capture the years of experience, risk, and commitment you have to your clients. Interestingly, we don’t believe you are selling your knowledge, either. So, what are you selling?
Join us Aug. 10 , 2 p.m. (EST) for the webinar, “How to Command Premium Pricing By Leading With Advisory.” SIGN UP HERE today.
Our belief is what CPAs really sell is the "value" and the "outcomes" of the result that you deliver. We strongly believe that is what the right clients want from their CPA. After all, no-one wants the cheapest brain surgeon, so why on Earth would successful clients want the cheapest accountant?
Because most firms in the accounting profession do not get this, they work for peanuts and have way too many clients. We encourage you to stop thinking that if it only takes you a few hours and you charge $500, you are making good money.
The likelihood is that you are not making as much as you think, and perhaps a bigger issue is the opportunity cost of spending time doing the wrong sort of work for the wrong client. You can never correctly price the wrong client, which is why premium pricing is nigh on impossible unless you are working with target clients that make sense for your business model.
Charging premium prices is a major key to stopping the madness of tax season. Let us illustrate that with a case study of a small firm that, when we met them, looked very similar to so many we see in the profession. Here’s the scenario. The firm was run by a sole practitioner with a small team. And during tax season, the owner of the firm:
- Didn’t see his family
- Constantly broke promises
- Could take up to two weeks to return client calls and emails
- Could not estimate when work would be completed
- Went from tax appointment to tax appointment
- Could not get anything done during business hours
He knew that something had to change. But knowing something is wrong and doing something about it are very different things. There are many, many firms out there right now saying to themselves that things are going to change before next tax season, but only a few will ever do anything about it. (Incidentally, this is a serious problem that we believe is fundamental to the survival of this profession. If it is hard finding good, young people now, how much harder will it become if we don’t change our ways?)
Back to our case study firm. There were several "good" qualities that he had developed in running the firm:
- He was a nice guy with a good team
- He was very trustworthy
- He loved people
- He was a bit of a people pleaser
- He did a ton of free work to help people out
- He took care of aunts, friends of his parents etc.
But unfortunately, some of those good qualities were not particularly good business practices, and they started to have a negative impact on the firm.
We call these the Bad and the Ugly:
- Client service became more and more inconsistent
- He missed deadlines (both internally and externally)
- His team were gradually becoming more and more unhappy
- The firm was barely profitable
- He was becoming unhealthy personally.
Ultimately, it was a combination of these Bad and Ugly traits that caused him to change the way the firm operated. Emotion = Action! The pain got to a point where it was too much. So, working with us, he designed a simple email to go to his clients to start the process of moving the needle.
Here are some highlights from the email:
Our objective is to be your trusted advisor, not just your tax preparer.
- To accomplish this, we analyzed and critiqued our business and service model. To achieve the stated objective and provide you with the most value, we are changing a few of the ways we serve and create value for you.
Here are the changes we are making:
- We will up-front price for our services, so you always will know the investment before you begin. No financial surprises.
- We’re offering our services in convenient packages so you can choose the option that best suits your needs and objectives.
- We have set minimum prices for our tax services. We believe this is the first step toward helping us meet our commitment to care for you and provide you the highest level of service possible. Your specific price will depend on your specific objectives and tax situation.
That last bullet point is critically important. Minimum prices. For many of his small clients, the minimum price was a significant increase on what they had previously paid.
Some of them accepted the new price and reengaged on the new terms. Others decided to go elsewhere because they didn’t need the more holistic service, which was a good outcome for both parties.
As a result of this simple email, six key outcomes arose:
- For the first time, this CPA started to make his firm the No. 1 client
- Client numbers "dropped" by 40%, with revenue remaining virtually the same
- The price of an average tax return more than doubled
- Hours worked reduced dramatically
- Stress levels reduced dramatically
- Tax appointments were down 60%
And a key point here is that tax appointments were down 60%. For many small firms, the real unseen cost is the opportunity cost. What would you do if you could reduce your tax appointments by 60%? Perhaps that idea alone could make the difference for you. If you truly want to embrace premium prices in your firm, you most likely need fewer clients, more time, and a process for upgrading your clients so that they perceive (and you deliver) more value.
We call this leading with advisory and consultation. Here’s an example of how it works:
Services 1st Quarter: January-March
Advisory & Consultation
- Year-Round: Access to general tax, accounting and business advice
Tax Strategy: Quarterly check-in and strategy discussion
- Focus on prior year tax return review
- Review missed opportunities
Tax Planning: Estimated quarterly tax payment planning
- Tax planning check-in
- Estimated tax payment schedule
Tax Accounting and Write-Up Services: Quarterly review and recommendations
- Focus on prior year financials
Representation and Resolution: Tax Information Authorization
- Renew TIA with IRS and FTB
Tax Compliance
- Proactive documentation checklist
- Communicate missing / required info
- Open communication throughout process
You will notice down the left-hand side there are six core services that are delivered. Across the page we map out the activities that take place during each quarter (we have part-populated Quarter 1 to give you the idea; of course, you would have a schedule for each quarter).
So, this is clearly a year-round relationship with the client. And the fact that you’re leading with advisory and consultation means you engineer check-ins and catch-ups with the client at different times during the year so that you can design the most appropriate tax strategy for them, do tax planning throughout the year rather than at the last minute, and then make sure they are getting accurate information out of their accounting system so they can make informed management decisions.
Then, tax compliance becomes a simple matter of wrapping things up rather than being the starting and ending point of the relationship.
Once you get to this sort of scenario with a manageable number of clients, premium pricing simply becomes the way you do business. You are engaged in a peer-to-peer relationship where you are truly the trusted advisor and no longer a service provider trading your time for money. There’s no silver bullet, but it’s all very achievable if you commit to change and do the things you know you need to do.
If this resonates with you, let’s talk. You can book a time for an introductory, no-obligations CHAT HERE:
And if you’d like to hear from our clients so you can better understand some of the results they achieve, check out some short video testimonials HERE:
Colin Dunn, co-founder of ReNew Group, is a Chartered Accountant with extensive experience in coaching accountants to develop and implement strategies to build better businesses and help their clients achieve their business and personal goals.
Shannon Vincent, co-founder of ReNew Group, has dedicated his entire career to working with accountants in various capacities. His career began at KPMG in San Francisco. Shannon moved on to specialize in high net worth individuals and emerging growth business for two well-known San Francisco-based regional accounting firms. Shannon then spent six years at RANONE, an international consulting company, with two years as the Chief Operating Officer of a $10MM business unit.
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