What is the best way for accounting firms to price their services? How do you know if you’re overcharging or undercharging?
Knowing how to price services is crucial for the well-being of your accounting firm. You have to know your customers, your offering, and how much revenue you want to bring into your business.
Gusto, along with our partners at CPA Academy, hosted a recent webinar on how accounting firms can price their services and conduct a competitor analysis.
Our webinar “Are You Charging Your Clients Enough?: Mystery Shopping Accounting Services” provided critical information on competitor analysis. You can watch the full webinar here.
In addition to this article, Part Two, make sure to check out Part One of this webinar series, which covers useful information on mystery shopping and competition analysis.
In this part, you’re going to learn from Greg Kyte and Caleb Newquist. Greg Kyte is a licensed CPA, comptroller, and founder of Comedy CPA. Caleb Newquist is the Editor-at-Large at Gusto. He is also the founding editor at Going Concern, a website dedicated to accounting news, trends, and resources.
Greg and Caleb did shared a ton of helpful information on pricing accounting services. Let’s get into it!
Understanding accounting pricing services through context
Accounting firms need to be explicit and clear when charging for their accounting services, and that requires context. . Greg discussed how an accounting firm charged his business for preparing its tax return, and how that price charged required context:
“The prices don’t make sense outside of any kind of context. […] Our tax return is [a] 1065. We’re an LLC. We file as a partnership. But obviously, there are [similar] ones that take less than an hour for you to bang out [a] 1065. We’re a more complicated one, and you need to understand some of the things that we do.”– Greg Kyte
Accounting firms need to know specific details about small businesses they’re serving in order to charge them accurately.
For Greg’s company, there were 15 members, revenue allocation, interest income, and a specific allocation of interest income. This provided the context the accounting firm needed to price their service. The unique circumstances required a specialized tax service. Greg noted that it was difficult for the firm to go through the process of preparing their tax return:
“I like to think that I’m personally responsible for half a dozen people quitting from the firm that does our tax return.”– Greg Kyte
Pricing varies across different companies. As Greg pointed out, his company was a lot more complicated. He had to develop a trial balance for every member, which entailed income, interest income, interest expense, and spreadsheet material. Overall, it was messy and complicated for their accounting firm.
How much does a top 100 firm charge for all of this work?
For two of these tax return services, the cost was around $30,000. Greg carefully broke down this price into transactional support and return preparation:
“So if you look at 2018, about $17,000 of the cost of the return was just for return preparation. And then the $3,600 for transactional support. What that means is we have people buying in and buying out of these LLCs. Most years, we have at least one buy-in [or] buyout. And every time there’s a buy-in or buyout, it’s a very complicated thing.”– Greg Kyte
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Additionally, they were charged $6,000 for the Section 199A Qualified Business Income Deduction. Although this is a high price for a tax return, it saved Greg’s business a great deal of money in the long run:
“Since the ultimate conclusion was everything we do is qualified business income, they saved us a butt-ton of money. So we saved a lot more than $6,000 by them being convinced that everything qualified under Section 199A. But I also kind of … [thought that] I can’t imagine that the time you spent figuring me out wasn’t also figuring out a whole bunch of other clients.”– Greg Kyte
Although the accounting firm saved them money in the long run, Greg’s business still mystery shopped and evaluated his alternative options. He evaluated other accounting services to see if he could help his company save more money on their next tax return.
Evaluating alternatives through competitor analysis
Greg became a mystery shopper for his company and conducted a competitive analysis. He wanted to find out if there was more value at another tax firm:
“I feel like they’re delivering $28,000 worth of value every year. And here’s the deal … the first thing that I value is compliance. I can’t file a tax return; I’ve got to get this stuff done. I can’t do it myself. So I’ve got to go to somebody to help me just be in compliance with the IRS.”– Greg Kyte
Greg explained the real value in an accounting firm is meeting IRS compliance and handling tax challenges. Even though the tax service is expensive, it’s worth it to Greg because tax experts can find abnormalities on his taxes and save him money.
Greg’s alternative to paying thousands would be trying to do it himself, but it would take hours to learn 757 adjustments. He would also have to learn tax software and how to do individual P&Ls.
Another option is to shop around and evaluate mid-size to small tax firms and see if they offer equivalent value at a lower price. But there are potential issues if you go to smaller firms. For example, they may not offer assurance work or peer review.
Greg noted that he would switch over to another tax firm if they offered the exact service at a much lower price. However, this is challenging to find.
What are you saving by having an accounting service do the work for you?
Competitive analysis can help accounting firm figure out how to price their services. Greg’s example of his taxes shows how much a tax service can charge depending on the services they offer.
As firms figure out how much to charge, they need to create a narrative:
“You have to clearly craft the narrative of your pricing. … Because your price isn’t just, ‘Here’s my price.’ Your price is also, ‘Here’s how I do things differently than other firms. I’m less expensive, but I’m the same quality.’ That’s a great narrative.”– Greg Kyte
A narrative is about telling potential customers why your service is different. You’re showing why your pricing is more expensive but of greater quality than your competitors. Your price reflects your firm’s value based on the services you offer and your client service. The goal is to convey trust because you’re offering value that’s reflected in your price.
Competitive analysis will give you market prices, but you also have to find your narrative. You have to tell a story about your service and why you decided to provide greater value for a higher price.
Want to learn more about pricing your accounting services?
Check out the full webinar here. Make sure to also check out Part One of this webinar series, about how mystery shopping can help develop a competitive analysis. It’s an insightful webinar article that will teach you even more about pricing your firm’s services.
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