Charging Your Worth: Why It Might Be Time to Update Your Firm’s Pricing Structure

The accounting profession has long been built on the stability of hourly billing rates for tax filings, audits, and financial reporting services. But for some firms, that tried-and-true pricing structure is starting to look stagnant, hindering their ability to increase revenue and meet evolving client expectations.

As more firms move beyond traditional compliance services and add client advisory services to their offerings, some are looking for innovative pricing models that better capture the true value of all the services they provide.

Here, four experts share strategies for ensuring accounting firms’ fee structures are adequate, demonstrate client value, and position them for success.

MOVING BEYOND HOURLY BILLING

Despite the evolving pricing landscape, many firms are still content with charging hourly rates, says Kristen Rampe, CPA, managing partner at Rosenberg Associates, a firm in Grand Rapids, Mich. that provides management consulting services for accounting and financial services firms. However, she notes that some of her client firms are starting to convert to flat fees.

To convert to a flat fee, Rampe recommends “firms scope an engagement, calculate what they believe a fair price should be for the engagement, and quote that to their client.”

Some firms are also employing a value-pricing model, which considers the value their services bring and the client’s return on investment. In this case, the value fee is determined by the positive impact the accountant’s expertise will have on the client’s business, rather than basing it merely on the time spent on tasks. This allows for more customized pricing packages based on individual clients’ needs and goals. For example, some clients place a high value on monthly brainstorming sessions with their certified public accountants (CPAs) and are willing to pay a higher premium for the consultative services versus the typical bookkeeping, tax, and audit services.

Susan M. Tillery, CPA/PFS, president and CEO of Paraklete Financial Inc. in Kennesaw, Ga., exclusively employs a value billing model. She starts by estimating how much time and effort the engagement will take, including all the intangibles that go into servicing a client, like phone calls, emails, meetings, etc. She also factors in the expertise of the accounting professional assigned to service the client.

“We don’t track our hours because we’ve already built in a higher fee than what our hourly rate would be,” Tillery says. “We never change that fee during the course of the engagement, and if it falls short, we take that into account and make adjustments when we quote future engagements.”

Chris Benson, CPA/PFS, principal at L.K. Benson & Company, a small wealth management firm in Laurens, S.C., bills his clients based on a quarterly fixed fee that accounts for the complexity of their financial situation. Additionally, the firm applies an hourly rate for project-based services.

“Our approach to pricing is to walk through a full financial planning engagement with every client, tracking the hours, and then estimating the total cost of the engagement based on those discussions,” he says. “The engagement meeting includes a full review of the prospective client’s investment portfolio, including their tax returns, business model, and financial management and auditing needs.”

THE PERILS OF NOT CHARGING ENOUGH (AND WHAT TO DO ABOUT IT)

Amanda Aguillard, CPA, CISD, chief operating officer at Padgett Advisors, says that firms must upgrade their pricing models to thrive in today’s market.

This is especially true for smaller firms that tend to underprice their services based on their size. However, Aguillard suggests smaller firms would be wise to implement market rate pricing—aligning their prices with the prevailing market rate to remain competitive.

“All firms should consider their local market when establishing prices no matter what size their firm is,” she says. “For instance, the market for financial and accounting services in Gainesville, Ga. isn’t going to be the same as for Palm Beach, Fla. Unfortunately, firm owners don’t always have the confidence to raise their rates to market level because they feel they owe their clients.”

In her view, firms that don’t price correctly do a disservice to themselves, their staff, and their clients: “When services are underpriced, staff often feel overwhelmed because they have to take on more work to cover the overhead—and when firms underprice their services, they’re not building value for their future.”

When accounting teams are overworked, clients often get the short end of their service agreements. Instead of taking time to think about their clients’ bigger pictures, overwhelmed accountants tend to become task-oriented and move through their engagements by simply checking the boxes and moving down the to-do lists.

“When you’re operating with under-profit-margin pressure because you don’t charge enough or the right way, you’re not giving your best selves to your clients,” Aguillard stresses. “Charging hourly is self-limiting because you only have a certain amount of capacity. Instead of getting paid for what you do, you should get paid for what you know.”

Charging too little has also been part of Benson’s own experience. When he joined his father in business, he noticed the firm was long overdue for a pricing overhaul.

“We still had clients who had been on the same fee schedule for 15-20 years,” he explains. “That shouldn’t happen.”

Now, Benson’s firm implements a 3% baseline fee increase annually and reviews their client roster every couple of years to gauge whether they need to raise rates further.

In addition to implementing regular price increases, Tillery says firms should practice regular strategic planning to stay ahead of the curve and increase profitability.

One signal that it’s time to make a change is when the volume of the lowest paying clients reaches 30% of the total client base, Rampe suggests. That’s when most profit-oriented firms fall back on their strategic plans and examine their profit goals for guidance on rate increases.

FINDING YOUR COMFORT ZONE

When it comes time to adjust prices, firm leaders often become paralyzed with indecision and worry about the impact it’ll have on their client base and bottom line.

“They don’t know where to start, how to approach their clients, or how to implement a new pricing structure,” Aguillard says.

For firm owners who are apprehensive about making changes, Aguillard recommends targeting clients with the lowest profit margins first, as this will help build confidence and make the process of raising prices easier: “First, choose the clients you may be losing money on or those who are the most demanding—start by raising their fees and see what happens.”

Benson’s team found success with another approach: culling legacy clients who pay lower rates for limited services to make room for those seeking the higher value financial services the firm offers.

“The hardest part for us has been offloading the limited-service clients we’ve had for 20 years or more,” he admits. “Even after we’ve raised their fees and told them we’re no longer a good fit for them, they continue to ask us to make exceptions, and sometimes we do.”

One of those exceptions was for an 85-year-old woman who’s been a longtime, simple tax return client. In a gesture of goodwill, the firm continues to file her tax returns. “We will for as long as she needs us,” Benson says.

Importantly, Rampe says keeping it professional and giving clients choices about their future with the firm will help lead to a win-win for both the firm and its clients.

“Often firms allow their clients to self-select whether to pay higher fees or look for a new accounting firm,” Rampe says. “Some of them stay while others leave, and either choice can result in a net positive for both parties.”

Overall, Rampe has never met a firm leader who’s regretted raising fees or converting clients to more profitable pricing structures, even if that means losing some business to start.

“The ones that stay lead to higher profitability, and that can feel really rewarding,” she says. “And what’s life changing about all of this is the mental affirmation that you’re charging what you and your people are worth.”

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