How to Price Your Tax Practice’s Services to Drive Revenue Growth

Table of Contents:

1. 3 Main Pricing Strategies for Tax Practices
2. Pros and Cons of Tax Firm Pricing Strategies
3. Factors to Consider When Setting Tax Practice Fees
4. 5 Ways to Increase Your Tax Practice’s Revenue
5. Driving Firm Revenue: Tips from Your Tax Peers

3 Main Pricing Strategies for Tax Practices

There are different ways to price your tax advisory services, but three common strategies are hourly rates, fixed fees per service, and retainers or subscriptions. Each has its own benefits and drawbacks as you manage your tax practice.

1. Hourly Fees 

Charging by the hour is a common approach for many tax advisors. This strategy allows for flexibility as clients pay for the actual time spent on their tax issues. It’s also easy to implement for tax preparation services and comprehensive tax planning. It’s important to set different hourly rates based on the complexity of the work and the level of firm staff assigned to the work. For example:

• Standard tax return preparation for individuals prepared by an associate may have a lower hourly rate.
• Corporate tax advisory services, due to their complexity, provided by a manager or partner, could command a higher rate.

2. Fixed Per-Service and Retainer Fees 

Fixed fees for individual services or retainers for monthly or annual service packages can make billing predictable and straightforward for tax professionals. This model works well when services can be clearly defined and scoped. You need to be careful of scope creep when charging fixed fees. This method allows for:

• Setting minimum fees for basic services like individual or business tax returns.
• Additional revenue from service add-ons including multiple state returns, quarterly estimates, gift and trust compliance, crypto reconciliation, and more.

3. Monthly Subscription Fees 

This strategy involves charging a recurring monthly fee. It’s ideal for clients who need ongoing comprehensive advisory services. This model provides a steady revenue stream, billed upfront, and can include:

• Packages that include a range of services provided over the course of a year which can be tiered to address different client needs.

Pros and Cons of Tax Firm Pricing Strategies

Below is a summary of the pros and cons of hourly rates, fixed fees per service, and retainers or subscriptions.

Example fees sourced from Average Fees for Tax Advisors in 2024.

Factors to Consider When Setting Tax Practice Fees

Tax advisory price setting is an art as much as a science. You can run numbers and create models to try to forecast profit margins, but you’ll likely also need some trial and error to get your pricing dialed in. Below are five key factors to consider when pricing your tax firm’s services.

Overhead Costs 

Understanding your overhead costs is crucial.

• Examples of fixed costs are rent, utilities, insurance, and salaries.
• Examples of variable costs such as marketing, commissions, and certain technology.

Overhead can increase as your firm grows. The more staff you have at your tax practice, the more revenue you’ll need to cover salaries and benefits. As your tax practice grows, be sure to evolve your pricing strategy to cover growing overhead expenses. At the end of the day, knowing your overhead allows you to calculate your profit margin and set profit margin targets. As your firm grows, forecasting future overhead helps in setting prices that maintain profitability.

Firm Location 

Geographical location impacts pricing. For example, tax preparation fees in Wisconsin are generally lower than in California. When thinking about your location, consider:

• Operating remotely can offer pricing flexibility, allowing you to live and work in a low-cost area of the country while accessing high-value clients across different regions such as New York or California. 
• If you do work with local clients and are in a geographic market with lower average tax advisory fees, consider setting higher prices that attract fewer high-value clients rather than many low-value, one-time tax filers.

Cash Flow Needs 

How and when you bill clients affects your cash flow. For instance:

• Hourly fees billed net 30 can delay cash inflows.
• Fixed-fee, Retainer or subscription models that bill upfront ensure steady cash flow.

Cash is what allows you to pay your bills and employees. As your firm grows and you need to make new technology investments or hire employees, your cash flow needs to scale.

Your Tax Practice’s Niche 

Your target client type should influence your pricing. For example:

• If you work with clients that need regular, long-term planning, such as an investor or business owner, an annual retainer may work well. 
• If you work primarily on estate planning, setting fixed fees for services may work well for you and your clients.

And remember, keeping an eye on industry pricing helps you stay competitive regardless of your client type.

Your Experience and Certifications

Finally, your credentials and expertise should always influence your pricing. If you’re a highly credentialed professional like a CPA or tax attorney with decades of experience, you’ll likely be able to charge more than when you were earlier in your career.

5 Ways to Increase Your Tax Practice’s Revenue

By thoughtfully setting and adjusting your pricing strategies, targeting the right clients, and implementing revenue-boosting tactics, your tax advisory firm can aim to drive consistent revenue growth.

1. Increase Your Hourly Rate 

It’s wise to evaluate and adjust your hourly rates on at least an annual basis to ensure they cover overhead and generate profit. Along with your hourly rate, review your billing process to manage cash flow effectively, as hourly billing can delay cash inflows.

2. Leverage Strategic Fixed Flat Fees, Retainers, or Subscriptions

If you are only using hourly billing or rely heavily on it, consider moving to flat fees, retainers, or subscriptions. Keep the following in mind as you evolve your pricing strategy:

• Fixed Flat Fees and Retainers: These can boost revenue potential but watch for scope creep. For instance, a disorganized business might require more work than anticipated.
• Subscriptions: These models allow for higher revenue based on client size and complexity, reducing the limitations of hourly billing.

3. Target Clients With Comprehensive Tax Advisory Needs 

By focusing on clients with complex needs, for example, such as businesses with $2M-plus revenue, you can design pricing subscriptions or retainers that you know will deliver more value per client. When you position your firm to attract clients requiring comprehensive tax services, you’ll also be able to create operational efficiencies around serving these high-value clients. Although you may be able to grow your business initially by doing single tax returns for clients, consider avoiding saying yes to too many one-off tax return clients and instead focus on deeper relationships.

4. Use Price Anchoring in Your Pricing Packages 

Price anchoring uses various levels of pricing, usually three, to guide people to the appropriate pricing level while making middle and lower-level pricing appear more attractive than the highest price offered. When displayed to a client, you’ll see a higher-priced service alongside a lower-cost option to make the lower-priced option seem more attractive.

Implementing pricing tiers can help guide clients towards mid-tier packages, which offer comprehensive services and drive higher revenue. If you are attracting the right clients, the mid-tier is likely an appropriate choice for their needs as well. In practice, this could look like the following example tiers for business tax advisory services:

• Basic planning plus tax return: $1,000/mo
• Standard planning plus tax return: $2,500/mo
• Premium planning plus tax return: $4,900/mo

In addition to the tiers above, a tax practice can also offer add-ons to drive revenue from tax services that may be one-off client needs.

5. Have a Defined Sales, Onboarding, and Renewal Process 

Your sales, onboarding, and renewal process isn’t exactly pricing, but having a defined sales process that supports closing client deals at an adequate rate is crucial to making your pricing strategy work. Additionally, being able to quickly and accurately onboard clients can help increase client retention and create operational efficiency. Consider mapping out your in-person and virtual sales and onboarding processes as there will be different steps and forms of communication to close deals and engage with clients. (Bonus: See our Tax Client Onboarding Checklist.) And when it’s time to renew clients each year, use a consistent communications approach and consider raising fees annually to maintain profitability.

Remember: you are in control and have the power to only say yes to sales that are profitable for your tax firm. Avoid getting caught in the trap of discounting services to close more deals.

Driving Firm Revenue: Tips from Your Tax Peers

Some of the best pricing and revenue-generating strategies come from exploring what other experienced tax advisors are doing. From speeding up the sales process to leveraging tax practice management software, below are three tips we’ve gathered from tax advisors.

Use tax practice management software to create efficiencies

“I don’t have to chase clients for information anymore. The Concierge and the tech tools take the administrative work off my plate, empowering me to operate more efficiently.”  That’s what Sam Boehr, JD, LLM, said about Harness’s tax practice management software and Concierge team.

Mr. Boehr is a member of Harness and is not being directly compensated for sharing his opinion and experience with our firm. Due to Mr. Boehr’s relationship with Harness as a tax adviser on the platform, material conflicts of interest may arise. There is an indirect financial incentive for Mr. Boehr to promote Harness as he is a tax adviser available through the Harness platform. Mr. Boehr’s comments may not be representative of any other person’s experience with the firm. While Harness provides valuable tools and support, individual results can vary, and success requires effort and leveraging the platform’s resources effectively.

The combination of tech tools like a streamlined client portal paired with our in-house support team can enable you and your clients to get more done faster. As you strive to optimize your pricing, it’s just as important to optimize your operations to improve profit margins. The Harness Concierge team can support you with curated client leads and client renewals.

Bonus: See our guide How to Choose the Best Tax Practice Management Software for Your Firm

Create a tax firm service pricing calculator

In an AICPA webinar, Jody Grunden, a partner at Summit Virtual CFOs, discussed the value of using a pricing calculator on calls with prospective clients to speed up the sales process.

Jody said to create “something that you can easily show a client … then you can come up with the price right there on the call versus doing it after the fact. It’s so much more powerful if you can do it right there than doing it afterward with a follow-up email.”

Deepen your current client relationships

Kelley Maddox, CPA, CFP®, is an advisor on the Harness platform. In a year, he grew his solo practice from 0 to 140, primarily working with clients in the tech industry with equity compensation.

Kelley’s goal is to increase revenue by 30 percent while maintaining a 140-client book of business. His goal is to move beyond his average annual fees of $1,800 per client to the range of $2,000 to $2,800. To do this, he plans to identify current clients who need more comprehensive, high-dollar services such as estate planning. Second, he plans to leverage the Harness Concierge team to help find the right high-value tax client introductions. (See Kelley’s full story.)

Ready to Grow Your Tax Firm?

There’s no one way to price your tax services. But pricing is a reflection of your tax practice’s business model, and you may need to transform your business to transform your pricing and attract higher-value clients who need comprehensive tax services. Schedule an intro with Harness today to see how our modern tax practice management software, in-house concierge team, curated client introductions, and professional community can support your tax practice.

Tax related services provided through Harness Tax LLC. Harness Tax LLC is affiliated with Harness Wealth Advisers LLC, collectively referred to as “Harness”. Harness Wealth Advisers LLC is a paid promoter, internet registered investment adviser. This blog should not be considered tax or legal advice and is provided for informational purposes only.

Harness cannot guarantee future results. An advisor’s past performance may not be indicative of future results. Not all advisors have the same skills, knowledge or expertise, including those that have certain credentials. Content should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of Mr. Boehr as of the date of publication and are subject to change.

As noted above, this blog contains an endorsement from a tax advisor who provides services through the Harness platform. This presents a conflict of interest as there is an indirect financial incentive for a tax advisor to promote Harness’s platform. The tax advisor’s comments may not be representative of any other tax advisor’s experience with the firm.

Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual results may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance, or representation as to the future.