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CPA Firms Become Savvier About Raising Billing Rates


Hourly billing rates continue to climb for CPA firms of all sizes. This is good news, as most firms still bill primarily on an hourly basis.

AOMAR maintains—as we always have—that CPA firms should feel freer to raise rates, though some firms are still reluctant to do so from a fear of losing clients who might object to higher rates. But more firms are getting braver and savvier about increases, adopting the very wise view that satisfied clients will pay for value received, especially clients who have a long and strong relationship with their CPA firm.

The accompanying tables set forth our findings regarding billing rates from the annual CPA Firm Practice Management Survey. As always, these findings indicate trends—not absolutes—and we encourage our readers to consider as many sources of information as possible.

Owners’ billing rates. T
he average per hour billing rate for CPA firm owners among survey respondents is $229; for non-CPA owners it is $207, and for nonequity owners it is $235.

As expected, rates charged by owners tend to rise with the size of the CPA firm, both in terms of the responding firms’ average gross fees billed (see Table 1) and the total number of personnel at the firms (see Table 2).

For general comparison—although different firms participate in each year’s survey—owners’ per-hour rate last year averaged $214; non-CPA owners, $215; and nonequity owners, $210.

Staff billing rates. 
Supervisor and manager rates now average $167, while seniors are at an average $121 per hour, juniors at $102, and juniors who have not passed the CPA exam at $91. Other staff data appear in Tables 1 and 2.

Though it would seem that staff rates would rise with firm size as seen in the owner rates, this is not so in all cases. The reasons may be because of the differences in staffing make-up at CPA firms, which is becoming more marked as firms continue to struggle to find staff in the middle years of practice.

There are also discrepancies in billing practices depending on the type of practice. For instance, a firm that has large specialty practices with high revenues is likely to have a different billing structure than a generalist firm focusing on traditional audit and accounting services. These factors may explain why, for example, the average rate billed by supervisors and managers is $130 in firms with one to five people, but is slightly lower, an average $126 an hour, at firms with six to 10 people.

For comparison, last year’s research found the overall average rate billed for supervisors and managers was $152; for seniors, $114; for juniors, $94; and for non-CPA juniors, $86.

Table 1. Billing Rates, Overall and by Gross Fees

 

 

 

 

 

 

 

 

 $1M to

 $2M to

 $3M to

 $4M to

 $10M to

 

 

Overall

< $1M

$1.99M

$2.99M

$3.99M

$9.99M

$19.99M

$20M +

 CPA owners

$229

$172

$200

$222

$211

$241

$293

$300

 Non-CPA owners

207

109

NR

150

NR

168

NR

298

 Nonequity owners

235

120

148

205

NR

218

274

287

 Supervisors/managers

167

151

129

146

136

165

205

204

 Seniors

121

107

104

105

106

124

141

140

 Juniors

102

99

94

92

88

95

113

117

 Non-CPA juniors

91

77

88

80

78

90

106

104

 Consulting staff

176

141

NR

95

140

180

192

206

 Firm administrator

99

70

81

72

63

101

147

154

 Marketing director

115

NR

NR

NR

NR

80

132

129

 Paraprofessionals

81

67

66

73

66

87

104

91

(Source: AOMAR’s 2008 CPA Firm Practice Management Survey)

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 2. Billing Rates, by Number of Personnel

 

 

 

 

 

 

 1 to 5

6 to10

11 to 15

16 to 20

 21 to 35

 36 to 50

 51 to 100

 > 100

 CPA owners

$164

$197

$203

$211

$238

$243

$279

$290

 Non-CPA owners

87

95

128

NR

125

210

297

247

 Nonequity owners

NR

145

135

NR

192

224

279

279

 Supervisors/managers

130

126

132

145

153

190

193

196

 Seniors

97

107

105

108

113

136

131

137

 Juniors

65

92

85

95

93

93

115

116

 Non-CPA juniors

65

77

84

75

85

72

104

102

 Consulting staff

100

NR

NR

90

146

205

189

194

 Firm administrator

70

72

88

63

90

128

135

107

 Marketing director

NR

NR

NR

NR

145

90

118

109

 Paraprofessionals

49

75

82

68

76

97

95

86

(Source: AOMAR’s 2008 CPA Firm Practice Management Survey)

 

 

 

 

Five Tips to Help Raise Your Billing Rates
Thanks to the main story, you have the latest data on billing-rate trends. But now you’d like to boost your firm’s hourly rates—and right before the start of busy season is a good time to make changes.

Here are five pointers we have picked up in discussions with CPA firm leaders and advisers about the always-sensitive "dance" of how and how much to raise rates:

1. Do the math. Your costs have risen this year, as the costs of a business always do: salaries, facilities, travel, equipment, software upgrades—all of those expenses involved in running a business have probably gone up. An overall assessment of higher costs can help your firm get a sense of how much firm revenue needs to increase to cover these costs.

2. Consider an across-the-board hike—or not. There’s no law that says all hourly billing rates must go up—or that the rates must increase the same amount for every biller or in every billing category. For example, a fast-growing niche that produces tremendous demand for your firm’s services is practically asking for higher rates, since you are delivering exceptional and desirable value. You may want to raise those rates but make the increase a modest one. Or, you may raise the niche rates while staying flat with audits where you have strong competition from other local firms. Your strategic plan will help you consider these issues.

You can also assess whether this is a good time to add more set fees or value-based billing to your mix—which also will affect your billing-rate mix.

3. To surcharge or not to surcharge. That’s a question that many firms continue to bat around, and it is a good one. There is no right answer to whether or not you should list a separate charge for technology, mailings, or other activities. Local custom may help guide you—if you are the only one to try it, it may be well received. Try an experiment with one client group this year and see how it goes before converting the whole firm to a surcharge scenario.

4. Don’t apologize. CPA firms should take a tip from their lawyer friends and colleagues—law firms tend to be a lot firmer about price increases, and they don’t hang their heads. Yours is a professional and expert firm, and its owners and staff deserve to be compensated for your expertise, your knowledge, and your trusted adviser contributions to your clients’ success.

5. Communicate, communicate, communicate. Depending on the client, the market, and the increase, you may want to let clients know the price is going up this busy season. You have the client relationship, so you know best who may want more details about the increase, which clients may benefit from a more detailed bill, or who will simply accept that the best costs more. Always make sure to put increases in writing.


From the December 2007 issue of Accounting Office Management & Administration Report. 
 Copyright © 2007 IOMA, Inc. The Institute of Management and Administration.

For more information
To place your order now for early December delivery of CPA Firm Statistical Analysis Reference Handbook 2008, contact IOMA Subscriber Services at 800-401-5937, ext. 2 and ask for product #2639M. Price: $449.

 

 

 

 


         
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