3 Pricing Mistakes CPA Firms Make

I just finished off a full day of coaching calls with my CPA firm clients from around North America. I was thinking about a topic for this week’s blog post and realized that I have been chatting a lot about the 3 pricing mistakes CPA firms make.  

Today I want to talk directly to those CPA firms who are already practicing the value pricing model. While I’m so happy to see firms using this great pricing model instead of the archaic billable hour model, I’m still seeing them make three big mistakes. 

Pricing Mistake #1 – Not Setting a Minimum Fee

The first problem I see is that firms are not setting a minimum number with their clients. For example, client #1 is being charged $500/month which works out to $6000/year. That’s great. Now, client #2 is value priced at $325/month which is a fee of $3900/year. What about the next client? Are you going to charge $250 or $175/month? If you’re not careful, before you know it, you will end up destroying the true beauty and strategy of value-pricing. Too many CPA firms are not setting a minimum client fee and end up not having a profitable enough model.

Pricing Mistake #2 – Not Creating a Model of Your Future CPA Firm

Mistake number two feeds into mistake number one. The reason most firms don’t have a minimum client fee is that they’ve never modeled out their pricing in their accounting practice. Before you start thinking about your minimum every CPA firm needs to model out what their future firm looks like. You want to paint an incredible picture so that you see where you are now and then know where you want your firm to go. You should always start by reviewing the three freedoms: money, clients, and time. 

Start with how much money you want your firm to make. Then you reverse engineer it. To make X amount of net income, I need to have X amount of clients at a certain price point and X amount of free time. 

Once you go through this exercise, you’ll start seeing how small drops in minimum pricing will destroy your business model. For example, on one of my coaching calls where we track the minimum fees, one of my clients, had an average price drop of $4 per client. We worked it out that something as small as $4 has an $8500 yearly loss. It’s obviously a larger amount when there’s a price drop of $25 per average client – this can knock as much as $100,000 off the model. This is why it’s so important to model it out and set a firm client minimum fee. 

Pricing Mistake #3 – Not Running Pricing by Your CVO 

The third pricing mistake is when firms don’t run their pricing by their CVO (Chief Valuation Officer, also known as Chief Value Officer more formally). In the case of my coaching clients, they run their pricing by me.

If you haven’t already heard of them, the world’s greatest value pricers out there are Ron Baker and Paul Dunn. These are the fathers of value-pricing. Both these men have told me separately that each of them would value price for the other person higher than they would for themselves. Ron would pick a price, for example, $50,000 for a job and Paul would say, no no Ron, it should be $75,000. Then the opposite thing would happen when Ron would price something and Paul would say it’s not enough. These world leaders on value pricing would still undervalue themselves without the aid of a CVO. 

This is why it’s imperative to run your value pricing through a CVO. You need a third party that can review your pricing and makes sure you aren’t undervaluing yourself.

Pricing Model and Strategy

To review, the 3 pricing mistakes that CPA firms make are:

1. not setting a minimum client fee
2. not modeling out what you want your firm to look like in terms of money, clients, and time
3. not running your pricing past your CVO 

If you think I could help you work through your pricing strategy and modeling, I’d love to have a conversation with you. The Accountant Success Formula will help you develop an accounting firm that has what I call the three freedoms – more money, better clients, and free time away from your accounting practice. 

I’m Erik Solbakken, reminding you that when you take back control of your business model, you can take back control of your life. Stay tuned for more success tips.