As CPAs, we should be charging a lot for the work we do. We go to school to become CPAs, pass the CPA exam, get the necessary time working under a CPA. The CPA designation carries a lot of weight. The CPA means something to clients, and they should be willing to pay for what they value. CPAs have the expertise and know how that others in our space don’t—bookkeepers, tax preparers, H&R Block, TurboTax. When clients go to those places, they are not getting the level of service they get with a CPA. Our prices need to reflect that level of service.
I think most practitioners would agree with the above assessment—that we need to charge more and we are worth it. But how do we go about doing it? This is especially difficult for a legacy CPA firm that has clients accustomed to paying a low price for a high level of service.
In order to raise prices, we need to face our biggest fear—the fear that if we raise prices, we will alienate and lose of our clients, creating negative energy in the community. This fear is rooted in self-doubt—and it is not borne out in practice. Your clients need you and value your services. In fact, they probably know that you are undercharging them; when you raise their fee, they will probably say that you should have it a long time ago. You will lose some clients who are price sensitive: that’s okay. Those are the clients a successful firm wants to lose, the clients who require the most attention, create the most problems, and don’t understand the value you are providing.
Consider the following thought experiment: Let’s say a firm doubles its prices on every client. The break-even point therefore is 50% retention; if you keep 50% of the clients, then you are making the same amount of money with half of the work. In my experience of raising prices at my own firm, as well as talking to other firms that have charged dramatic increases like this, client retention is normally much higher, at least 66%, but probably closer to 80% or 90%. So raising fees, even dramatically, would seem like a no brainer, right?
How to Follow Through
How does one do it? First, you need to determine what your ideal client looks like and what price you would charge for their work. This price point needs to be high, and it should reflect your dream client scenario: a client that can be charged a high price but also understands all of the value you are creating for them. Then go through your client list and figure out how many of your clients are at this price point now. There should be maybe 5–10% of your clients that are there now. For the other 90%, figure out how far away you are from this price. If you’re within 20–25% of where you want to be, just raise your prices now. It is likely to be an easy sale.
If you’re not even close to your price point, say 50% or lower of where you want to be, come up with a plan of how to handle the fee increases. You can either bite the bullet and do it all at once, or you can craft a two- to three-year plan for raising prices. I don’t advise a plan that takes longer than three years, because if takes longer than that, it will just be time to raise prices again, and you’ll never reach your desired destination.
One can raise prices a multitude of ways, but the way we did it at our firm is by sending the client a letter telling them the truth—that we have been underpricing them based on the level of services we have been providing and we need to get their fee to an appropriate level in order to continue providing the excellent service they have come to expect. If you can call clients on the phone to tell them this, it’s ideal, but most firms don’t have enough time to do that for all of their clients. Make sure that you call the few clients that you absolutely want to retain to explain the change to them.
Once you raise prices, it is critical to continue to raise prices every year. Inflation is real, firm staff need raises, software costs go up. Keeping fees stagnant isn’t realistic. We put in all of our engagement letters that prices will be going up a minimum of 6% each year. For 2023, we will go up closer to 10–15% on most clients because of inflation.
2023 is the year for you to raise prices and get your firm where it needs to be. As prices go up, you will see that staff are happier, you will be happier, and your firm’s bottom line will be happier.