Chaos in Pricing Policies in Tax & Accounting

CPA Trendlines survey shows consistently inconsistent strategies in the profession.

But is it really a pricing problem -- or a value problem?

By Rick Telberg
CPA Trendlines

If there’s one especially surprising result from the new CPA Trendlines Price Strategies and Trends Survey, it’s that over a third of responding accountants say they lack a consistent strategy for setting rates.

But to put it another way, they have a consistent strategy of adjusting rates as necessary to accommodate the needs of both the CPA firm and any given individual client.

The survey remains open as we continue to gather more in-depth data.
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Certain words came up a lot in the respondents’ anecdotal explanations. Adjust, blend, hybrid, combination, adopting, moving, shifting… What these CPAs had in common was a tendency to set rates according to, well, whatever works.

As Macushla Wiedorn put it, “I start with form prices, and adjust according to difficulty and ability to pay.”

That, of course, can be considered a strategy, one by no means inconsistent or uncommon.

It was also surprising to find little movement toward value pricing, which was once touted as the pricing strategy of the future. But apparently the future isn’t here yet. In 2008, the same survey found 27 percent of respondents using value pricing. Now, seven years later, the percentage has shot up to 28. Which isn’t much of a shoot.

Shifts in "Value Pricing"

Why the stasis? Two reasons: One is just plain reality. When the rubber hits the road, it’s the client who decides what’s fair and what’s the last straw.

Paula Allgood said it well: “Our philosophy is value-based pricing, but we have an increasing tie-in to the costs incurred in real life.”

The other reason is that the use of value pricing isn’t as static as it looks. It’s just that some CPAs are moving toward value pricing while others are moving away from it.

From Annie Driver we heard, “We are in transition from value-based to cost-based under new ownership.”

But from Ray Wasser we heard, “We are in process of adopting a value-based pricing model.”

And then from Dean Holland we heard, “I blend cost-base pricing with value pricing. I use cost-basis as a base and adjust, based on the value of the project.”

The transition in either direction isn’t an overnight switch. It’s a process that balances the costs of doing business for the CPA and for the client. The process of transition—or really, in many cases, the switch to what works—accounts for a lot of the blending, combining and adjustment.

Value vs. Price

Perceived value is a crucial consideration, but by the very nature of perception, value is in the eye of the beholder. The theory of value pricing depends on the value the client perceives, but it isn’t always that simple.

“The value is not so much perceived by the client as it is by us,” says Clayton Tuggle.

And if there’s a fatal flaw in value pricing, that’s it: the client just doesn’t understand the work of the CPA and the educational preparation behind the practice of accountancy.

“I really have no idea what value a client would perceive,” says a CPA named Pamela, who is hoping to increase her fees slightly this year. “They typically have no idea how we do what we do. So I keep my prices on the upper end of middle with my competition.”

Bottom line, it’s a matter of fudging up the price that works. One respondent said it’s “an inexact science,” and another went even farther, saying “Pricing is an art, not a science.”

Who’d ever think that it’s in accountancy that art meets science? But there we are.

Rule 1: Client Retention

Raising rates is risky. But so is not raising rates. You have to raise them right and at the right time. And not on a willy-nilly whim. You need to think about it. You need a rationale.

In search of reasonable rationales—rationales that work—CPA Trendlines is asking practitioners for the rationale behind their pricing strategy. And they are being generous in their response. Most say that strategies were lacking or could be improved.

Generally speaking, the primary consideration—primary by far—is to retain the client. Over 72 percent of more than 500 respondents list that as one of their considerations. Because what good’s a lofty rate if the client leaves for someone cheaper? A nice high price hurts all the more when you see how much money you’re not making. Ouch and ouch again.

Make that three ouches, if you think about losing not just a client but a loyal client. Rita Kettl, a small firm CEO who hopes to raise rates moderately this year, expressed that sentiment: “Would like to increase pricing,” she wrote. “However, client base is very loyal and raising pricing would drive many clients away.”

Loyalty is a two-way street, so it’s not to be abused. On the other hand, there’s little satisfaction in making less than you might. And that brings up the second most common concern—maximizing revenue, a rationale for 39 percent. And almost as many—31 percent—set rates to maximize total profits. And next-most common was the desire to maximize profit margins.

Patrick Howard, whose firm figures on significant increases this year, revealed the balance they seek: “We try to keep our realization rate at 80%,” he wrote, “without excess client losses.”

At first blush, one would wonder why anyone would not want to maximize revenue, profit, and margins. But there’s a lot to consider. Yes, retaining clients and maximizing moolah were the top rationales, but 16 percent figure in the advantages of using rates to gain market share. An honest 13.5 percent admitted that they determined rates with the objective of  “maintaining or enhancing the personal lifestyle of owner(s).”

Low-balling

And 2.4 percent—desperate, aggressive, and savvy—occasionally low-ball a rate as a loss leader for selling other services.

“BE FAIR TO CLIENTS,” shouted John L. Hess, who heads up a small practice of under ten people.

And he isn't alone.

Ken Escobar states his principle rather clearly: “Fair value to my clients.”

Georgeann Guagliardo says about the same: “Fair to both parties.”

But fairness depends on a few intersecting factors, and, as with loyalty, what goes around comes around. Value is one of those factors. One respondent says, “Get clients to realize value.” Another says, “Provide maximum value to clients.”

“We value price before the engagement begins,” says Dan Allen, whose firm uses a value pricing base almost exclusively. “No disputes/collections issue, especially with use of the engagement letter.”

“We approach pricing with the customer lifetime value in mind,” says Daniel Morris. Morris. His firm is “all value based, but we do use contingent and phasing of projects.” He says, “We don’t have billing rates. We price for purpose.”

Which sounds fair. And likely to retain clients. And profitable. And, apparently, a minority view. 

Rick Telberg is founder and CEO of CPA Trendlines, at

cpatrendlines.com , a business intelligence service for tax, accounting and finance professionals.