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Setting Prices as a Risk Management Strategy

Setting Prices as a Risk Management Strategy

Tuesday, August 25, 2015/Categories: Practice Development

There are endless events that can drive a business to shut its doors for good, but one thing every situation has in common? A lack of money.

Maybe people just didn't respond to the business and would rather shop elsewhere. Maybe a tornado ripped through it and repairs were too much. The outcome is the same: money could have kept the business afloat.

Of course, you don't need us to remind you that money makes the world turn. As a CPA, you handle other people's money so that they can manage their expenses, pay their taxes, and save for retirement. Your services and advice may mean their survival.

What about your own business?

Learning to set your prices well is one of the best forms of risk management. Breathing room means you have funds to handle a crisis or weather a dry spell. Let's take a look at some other perks of good price setting and see the going rate for CPAs around the country.

Perks When the Price Is Right

Pricing your services well can...

  • Establish your credibility in a competitive industry. Setting your prices too low may inadvertently communicate that you are a novice or a hobbyist. Set your prices too high and you may price yourself out of the running. Finding a middle ground shows that you have experience worth paying for and that you understand the value of your services.
  • Prevent client dissatisfaction. Keeping your prices reasonable helps prevent clients from feeling like they didn't get their money's worth. It can also help keep accountant professional liability lawsuits at bay. To learn more about your professional liability exposures, read "4 Reasons Clients Sue Accountants (and What to Do if You're Sued)."
  • Ensure steady cash flow. If you always offer discounted or cutthroat rates, you're going to have a harder time accounting for your own expenses, such as taxes, small business insurance, bills, rent or mortgage, etc. Remember that charging what you made as an employee won't cut it when you're in business for yourself. Right out the gate, you take on an increased tax and insurance burden when you're the boss.
  • Make it easier to get referrals. When clients feel their money is well spent, they are more likely to tell their friends or colleagues about your services. For more ideas on drumming up new business, read "5 Ways to Attract Small Business Clients."

Feeling inspired? Let's take a look at what other people are charging for accounting services.

Results from the 2013 Intuit Rate Survey

According to the 2013 Intuit Rate Survey, here are the average hourly rates for the following services:

  • $110 for tax preparation services.
  • $64 for bookkeeping / accounting services.
  • $62 for payroll services.
  • $108 for auditing services.
  • $116 for personal financial planning.
  • $80 for QuickBooks consulting.
  • $98 for business consulting.

The survey notes that certifications and designations fetch a higher rate. For example, a CPA's average billing rate for accounting is $89 per hour, whereas an accountant's is $65. For tax services, a CPA on average bills $126 an hour. You can see a full rundown of these results in Intuit's deep dive of the survey.

Another thing to consider when setting your prices is your location. The survey states average rates in urban areas tend to be higher than rural areas, even though the difference isn't that significant when you take the cost of living into account. Here are a few of the average hourly billing rates for accounting services by state:

  • California: $68.
  • Florida: $64.
  • Illinois: $68.
  • Maine: $39.
  • New York: $66.
  • Ohio: $56.
  • West Virginia: $40.

Again, you can see a complete list of the states and their assorted average rates on the deep dive report.

Though these numbers can help you establish a general baseline for your services, don't undervalue what makes your firm unique. For example, if you offer tailored services in an area where that specialization is hard to find, take the demand into consideration when setting your prices.

Working with clients in multiple states? Check out "Serve Clients in Multiple States? Consider This Contract Language."

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