This post is the fifth in our series on how accountants and CPAs can capitalize on the client contact of tax season to build a business model that relies less on compliance work. By focusing your practice on monthly recurring revenue, you can partner with your clients to help them refocus their energy on the growth of their business, while you take care of the financial management. This post looks at how to price accounting services for maximum profit.
If you missed the previous steps, you can catch up here:
- Part 1 - Setting Targets
- Part 2 - Planning Month Revenue
- Part 3 - Value Added Services
- Part 4 - The Right Tech For The Job
One of the quickest ways to reach your additional target is to raise your fees. Your hairstylist or barber raises their fees; your personal trainer increases her fees. When was the last time you raised your firm's fees? With your help, your clients' businesses have grown. Why haven't their fees? We've found that firms tend to undervalue their fees, charging less for services than they should.
At the very least, it's probably time you've audited your fees. We recommend going through your client list and analyzing the amount of time you spend on a client versus the actual fees for the service you're providing. If you find some fees are out of line, fix them.
How to Price Accounting Services with Fixed Fees
When you harness the power of your tech stack, the amount of data entry decreases. Because technology is doing most of the heavy lifting, the hours spent on each client will naturally decrease as well. If you keep billing hourly, you're only hurting yourself.
If you're already doing monthly recurring work for a client, but on an hourly basis, we recommend averaging out their annual bill over the course of the year and then lowering it. The client will appreciate a discount, but because you're using technology to do the bulk of the work, the firm is still coming out ahead. Even when we build in the cost of the applications, you are still making more of a profit on that work.
One of the biggest concerns your clients have is the inability to know what their accounting services will cost from month to month. By moving from hourly billing to a fixed monthly fee, your clients will be able to plan their cash flow. (Another benefit to you: you get to plan your cash flow as well.)
Many firms find managing the scope of the monthly service a challenge. Having a clear service level agreement will establish what services the monthly fee will cover. If your client adds another bank account or credit line, for instance, you can adjust the scope of the SLA at that point.
The Benefits of Fixed Fees
What's keeping your clients up at night?
Is your client an entrepreneur who's spending a lot of time traveling and they need a system that allows them to run their business from anywhere in the world?
Is your client a brick-and-mortar who's kept up at night knowing that a natural disaster or accident would destroy not only their inventory but all of their records kept in the store room?
Is your client one who needs to pivot at a moment's notice, always needing to know exactly where their business stands when they need to make a decision?
Most of your clients, if not all, want to know what's happening in their business in real time. They can't afford to wait until you've finished the month's books before they can make a decision for their business. And they certainly don't want to look backward to see what could have been.
For accurate pricing, keep these items in mind:
- The number of transactions you'll be covering
- The number of bills you'll be paying each month
- The number of checks the client writes on a monthly basis
- The number of employees on the payroll (and how many states are covered)
- The cost of the technology stack
- Include training time, especially with your DIY clients.
- Meeting time, preparation for meeting time, administrative time
- KPI reporting/monitoring
If you're not sure exactly what work a client will entail, take a cue from firms who have already made the transition. For the first three months of service, bill hourly so you get a clear picture of what it will take to perform the work. After that, you can move to a fixed fee.
Accurately setting your pricing structure will take time, but the benefits to your clients - clear cash flow, the ability to sleep at night, and forward-looking decision-making -- will strengthen your relationship with them for the life of their business and beyond.