If you’re starting your own tax and account business, one of the most important decisions you’ll have to make is how to price your services. Determining your prices can be tricky and frustrating as prices vary widely from region to region and firm to firm. Pricing models (by the hour, by form, etc.) can also vary.
There are several factors that go into determining what you should charge for your accounting services. Here are some factors you should consider when pricing tax preparation services and any other offerings your firm may have.
Your pricing model
Before you determine how to price tax preparation services for your firm, you’ll need to choose your pricing model. There are two main ways to charge as a tax preparer — by the form or by the hour. For example, national tax firms charge based on the tax schedules and statements required to complete their clients’ returns, aka by the form.
Why not by the hour? Because they employ many tax preparers with varying degrees of expertise, work experience and speed. Some will be slower and less knowledgeable than others, meaning a basic return would cost more for their clients. Large firms charge by the form instead to be fair to their clientele.
If your tax business employs multiple preparers, you should also charge by the form. However, if you’re a sole proprietor charging by the hour might make sense. This is especially true if your clients have complicated returns that take up a lot of time. Another option is to have a minimum fee per return that you can then add to if the return becomes more complicated than expected or the client is taking too long to provide the required documentation.
Your knowledge and expertise
Accountants with advanced degrees or certifications, such as Certified Public Accountants (CPAs), Certified Management Accountants (CMAs), Enrolled Agents (EAs) and Certified Fraud Examiners (CFAs), can charge a premium for their services. For example, CPAs tend to make 10%-15% more than non-certified accountants.
If you work in a specific or highly sought-after niche, you may also be able to charge more for your services due to a lack of competition and greater levels of client demand.
Your overhead
For your tax business to make a profit, you must charge enough to cover more than just your expenses. So, create a list of your overhead costs. Do you rent office space? Do you have employees, and if so, what are their salaries? What subscriptions for software or technological services do you have? Are there areas where you can cut costs?
Once you’ve determined your overhead, consider the average amount of business you get each year and use that to decide on a price that will cover all recurring costs. Also, remember that if your overhead costs change, your pricing should also change. For example, if you’re planning to move from a home office to a storefront in the next year or two, that increased expense should be factored into your pricing.
Price elasticity
Just about everyone needs tax preparation services, but the market is quite crowded. Taxpayers have a number of options when it comes to filing their tax return, including national firms, tax software or local tax businesses. If you significantly increase your pricing, then you’ll likely see many clients move to cheaper options.
However, if your tax business offers something no tax preparers in the area have — such as knowledge and expertise in a particular niche or industry — you might be able to increase prices without damaging demand.
Your competition
Even if your tax practice has substantial competitive advantages, you want to charge within the norm from your fellow accounting firms. Request quotes or have your friends and family members reach out about their services to find out what the competition is charging.
National and regional averages
Similarly, your tax business shouldn’t undercut itself by charging far more or less than other accounting pros in your area. If you live in a city with a high cost of living, such as New York or San Francisco, you can charge more for your services. However, if you live in a more rural area, you can’t charge much more than the regional average.
Establish pricing practices that work
While getting your pricing right is a delicate balance, taking the time to consider your options and expenses will help you make a smart and responsible pricing decision for your tax business.
For an in-depth look at getting started as a tax preparer, establishing your tax business, and how to price tax preparation services, download our Guide to Start and Grow Your Successful Tax Business. In it, you’ll find sample pricing charts, tax office operating systems information, strategies and best practices for building and expanding your tax business.
If you want the income boost that comes with an additional certification or professional designation, check out our Continuing Professional Education courses and our exam review materials.