Tax season is coming soon, so it’s time to print out your client list check to see who’s been naughty or nice. Seriously, naughty or nice means you should review your clients annually to evaluate your relationship with them, and determine their service needs and tolerance for a price increase.
The process to figure this out isn’t very complicated. I know a lot of firms that use a simple rating system with “A” “B” or “C” clients, but you can use any rating system you want.
“A” clients are your best clients – the ones you like working with and who deliver the information needed to prepare the tax return to you in one batch. They might also be the ones with simple tax returns, because they are faster to do. They should also be the clients that generate the most realization – the difference between what you record as time and what percentage of that time is paid by the client – and/or profit, based on previous years.
“B” clients might be the ones whose information changes year to year, but also generate a high return based on the time it takes to prepare their returns. They work well with you and are also responsive. “C” clients are the problem … they don’t give you documents in a timely manner and complain about your pricing. You might consider firing some of these if they are constantly giving you their documents haphazardly. One of the ways to fire them is to raise their price for the return, but if you really want to let them go, you will have to tell them directly that you can no longer do their returns because you are focusing on other areas.
You may also be undercharging for services. A way to check your pricing is to look at the various trade publications that show how others price. A great article I recommend is several years old, but still apropos, by Ed Mendlowitz, CPA/ABV/PFS/CFF, in the Journal of Accountancy. It describes the various ways to price, as well as how to bill. Another article by the National Society of Accountants shows the results from its members for doing 2016 returns where the average for a 1040 with a state return and no itemizations was $176.
There are many ways to bill: by the hour, flat fee or by the form. The method I like the best is called value pricing, where you offer the client a minimum of three levels of service. The reason I prefer this method is that it makes way for a year-round client instead of just a tax return client, because one of the levels of service offers monthly/quarterly meetings to do tax planning, financial planning and other services.
Here is a sample of value pricing that Peter Cullen, CPA, of Core Performance, presented at QuickBooks Connect 2017:
Also, make sure that you look at the Intuit® ProConnect™ tax fee wizard to see what others are charging and help inform your decision. The bottom line is that you can choose the method you want to bill at a price that helps you win clients and make a profit.